Beach Petroleum NL v Kennedy
[1999] NSWCA 408
•5 November 1999
Reported Decision: 48 NSWLR 1
33 ACSR 1
New South Wales
Court of Appeal
CITATION: BEACH PETROLEUM NL v ABBOTT TOUT RUSSELL KENNEDY & ORS [1999] NSWCA 408 FILE NUMBER(S): CA 40029/98 HEARING DATE(S): 8 February 1999-12 February 1999 JUDGMENT DATE:
5 November 1999PARTIES :
Beach Petroleum NL - Appellant
Abbott Tout Russell Kennedy - RespondentsJUDGMENT OF: Spigelman CJ; Sheller JA; Stein JA
LOWER COURT JURISDICTION: Supreme Court - Commercial Division LOWER COURT FILE NUMBER(S) : 50030/96 LOWER COURT JUDICIAL OFFICER: Rolfe J
COUNSEL: D F Jackson QC/JC Kelly SC - Appellant
T E F Hughes QC/MA Pembroke SC/JWJ Stevenson - RespondentsSOLICITORS: Piper Alderman - Appellant
Minter Ellison - RespondentsCATCHWORDS: SOLICITOR & CLIENT - retainers - scope of retainer - existence of fiduciary duties where no retainer; SOLICITOR & CLIENT - fiduciary duties - alleged breach of duty - where former directors defrauded the company - solicitors alleged to have been knowingly involved - objective dishonesty - causation of loss ACTS CITED: Companies and Securities (Interpretation and Miscellaneous Provisions) Act 1980 (Cth)
Law Reform (Miscellaneous Provisions) Act 1965 (NSW)
Wrongs Act 1936 (SA)
Companies (South Australia) Code
Companies (Acquisition of Shares) CodeCASES CITED: Abalos v Australian Postal Commission (1990) 171 CLR 167
Abcos v Jones (1997) 150 ALR 488
Agbaba v Witter (1977) 51 ALJR 503
Australian Breeders Cooperative Society Ltd v Jones (1997) 150 ALR 488
Australian Capital Television Pty Limited v Minister for Transport and Communications (1989) 86 ALR 119
Barnes v Addy (1874) LR 9 ChApp 244
Beach Petroleum NL v Abbott Tout Russell Kennedy 26 ACSR 114
Beach Petroleum NL v Johnson (1993) 43 FCR 1
Belmont Finance Corporation Limited v Williams Furniture Limited [1979] 1 Ch 250
Biggs v London Loan & Savings Co (1933) 3 DLR 161
Birtchnell v The Equity Trustees, Executors and Agency Co Limited (1929) 42 CLR 384
Boardman v Phipps [1967] 2 AC 46
Bray v Ford [1896] AC 44
Breen v Williams (1996) 186 CLR 71
Brickenden v London Loan and Savings Co (1934) 3 DLR 465
Bristol and West Building Society v Mothew [1998] Ch 1
Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129
Clark Boyce v Mouat [1994] 1 AC 428
Commonwealth Bank v Smith (1991) 42 FCR 390
Devries v Australian National Railways Commission (1993) 177 CLR 472
Dresser v Norwood [1864] 17 CBNS 466
Duke Group Limited (In Liquidation) v Pilmer (1999) 31 ACSR 213
El Ajou v Dollar Land Holdings Plc [1994] 2 All ER 685
Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241
Farrington v Rowe McBride & Partners [1985] 1 NZLR 83
Gilbert v Shanahan (1998) 3 NZLR 529
Gray v New Augarita Porcupine Mines Limited (1952) 3 DLR 1
Haira v Burbery Mortgage Finance and Savings Ltd [1995] 3 NZLR 396
Hawkins v Clayton (1988) 164 CLR 539
Haywood v Roadknight (1927) VLR 512
Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41
J C Houghton & Co v Nothard, Lowe & Wills Limited [1928] AC 1
Jones v Dunkel (1959) 101 CLR 298
Jones v Hyde (1989) 63 ALJR 349
Lyell v Kennedy [1889] 14 AppCas 437
Maguire v Makaronis (1997) 188 CLR 449
Moody v Cox and Hatt [1917] 2 Ch 71
Mutual Life & Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556
National Mutual Holdings v Sentry Corporation (1989) 22 FCR 209
O’Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262
Perre v Apand Pty Limited (1999) 73 ALJR 1190
Prince Jefri Bolkiah v KPMG (A Firm) [1999] 2 WLR 215
Queensland Mines Ltd v Hudson (1978) 52 ALJR 399
Re Coomber: Coomber v Coomber [1911] 1 Ch 723
Re Dawson (deceased): Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211
Re Hampshire Land Co [1896] 2 Ch 743
Royal Brunei Airlines v Tan [1995] 2 AC 378
SFC v Cheney Corp (1942) 318 US 80
Spector v Ageda [1973] Ch 30
State Rail Authority of New South Wales v Earthline Constructions Pty Limited (In Liquidation) (1999) 73 ALJR 306
Story v Advance Bank Australia Limited (1993) 31 NSWLR 722
Target Holdings v Redferns [1996] 1 AC 421
Turton v London & North Western Railway Co (1850) 15 LT (OS) 92
Walden Properties v Beaver Properties Ltd [1973] 2 NSWLR 815
Warman International Ltd v Dwyer (1995) 182 CLR 544DECISION: 1. Leave to the respondents to amend the notice of cross-appeal to add the following grounds; 11. His Honour erred in holding that the respondents had not raised, as a defence, the existence of the fully informed consent of the appellant; 12. His Honour should have held that the respondents acted with the informed consent of the appellant in each of the matters or transactions in respect of which the appellant alleged a conflict of duty by the respondents; 2. Leave to the appellant to amend paras 10, 13 and 63 of its grounds of appeal in accordance with the amendments proposed in the letter from its solicitor to the Court dated 19 February 1999; 3. Appeal dismissed; 4. Cross-appeal allowed in part; 5. Appellant to pay the respondents’ costs of the appeal and cross-appeal.
- 237 -THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL
CA 40029/98
CommD 50030/96
SPIGELMAN CJ
SHELLER JA
STEIN JABEACH PETROLEUM NL v ABBOTT TOUT RUSSELL KENNEDY & ORS
Background
The appellant was part of a group of companies related to each other through interlocking shareholdings and common directors. The group was controlled by a Mr Johnson, who was not a director. In 1988 financial pressure on the group made it imperative to release liquid assets from some companies in the group to enable other companies in the group to meet their financial obligations. The appellant was one of the companies in the group which had liquid assets. Mr Johnson and several directors of the group devised a fraudulent scheme to withdraw assets from the appellant in a manner which was expected to benefit other companies in the group but which was to the positive detriment of the appellant.The appellant was dispossessed of its funds primarily through the acquisition, at a gross overvalue, of oil exploration interests. This acquisition was effected through a charge and option agreement and a syndicated cash advance facility. A currency swap was also entered into.
The Case for the Appellant
The appellant submitted that the respondent solicitors were retained by the directors of the group to advise on the restructuring and refinancing of the group and to act for several of the companies within the group on specific transactions.The appellant sought to recover from the respondents the amounts of which it had been defrauded on the basis that the respondents had breached their fiduciary duty or duty of care to the appellant. The appellant argued that a conflict of interest and or duty had arisen because the respondents had acted for the group and for individual companies within the group. The appellant further argued that the respondents had knowingly assisted in the breach of fiduciary duties by the directors of Beach. It was submitted that, while not having any actual knowledge of the fraud, the respondents were guilty of objective dishonesty on the basis that on the knowledge the respondents did have, a reasonable person would have concluded that there was no benefit to the appellant in the various transactions and would have made further inquiries.
The trial Judge dismissed the proceedings, holding that the respondents, when advising on the group restructuring, were merely setting out various proposals for consideration, and that the evidence showed that once the restructuring commenced, each company would be separately represented. Further, in all but two transactions, the respondents were not acting for the appellant but for other companies in the group. Consequently, the trial Judge held that the appellant had failed to establish that the respondents breached a fiduciary duty to the appellant or that the respondents were guilty of objective dishonesty.
The Cross Appeal
The respondents cross-appealed from the trial Judge’s decision on the grounds that the trial Judge dismissed its defence under s68A of the Companies Code (South Australia) and that he failed to find that the appellant gave its fully informed consent to the respondents’ potentially conflicting engagements.Held by the Court:
Fiduciary Duty
(1) In a solicitor client relationship, which was a status based fiduciary relationship, the fiduciary duty was not derived from the status. The duty was derived from what the solicitor undertook, or was deemed to have undertaken, in the particular circumstances. Not every aspect of the relationship of solicitor and client was fiduciary. Maguire v Makaronis (1997) 188 CLR 449 applied. Clark Boyce v Mouat [1994] 1 AC 428; SFC v Cheney Corp (1942) 318 US 80 referred to.(2) Whether or not there was a duty to advise on the wisdom of a particular transaction depends on circumstances of the case. Haira v Burbery Mortgage Finance and Savings Ltd [1995] 3 NZLR 396 referred to.
(3) A person may have taken upon herself or himself the role of a fiduciary by a less formal arrangement than a contract or by self appointment. A fiduciary responsibility was an imposed not an accepted responsibility, one concerned with an imposed standard of behaviour. Lyell v Kennedy [1889] 14 App Cas 437, Boardman v Phipps [1967] 2 AC 46; Walden Properties v Beaver Properties Ltd [1973] 2 NSWLR 815 referred to.
(4) The existence and scope of a duty may be derived from a course of dealing. A role which was limited when originally assumed may, by reason of conduct in the performance of the role, be expanded so as to extend the duty. Birtchnell v The Equity Trustees, Executors and Agency Co Limited (1929) 42 CLR 384 applied. Australian Breeders Cooperative Society Ltd v Jones (1997) 150 ALR 488 referred to.
(5) Conflict may arise between a fiduciary duty and a duty owed to another and it may also arise between a fiduciary duty and self interest. Both involve a breach of the same overriding duty of a fiduciary of undivided loyalty. There is no relevant difference between a duty and interest conflict and a duty and duty conflict. Maguire v Makaronis; Breen v Williams (1996) 186 CLR 71; Haywood v Roadnight [1927] VLR 512; Moody v Cox & Hatt [1917] 2 Ch 71 referred to.
(6) There was a distinction between a case in which a fiduciary acts for more than one client in one matter (same matter conflicts) and a case where a fiduciary has previously acquired information which is relevant to another matter when he or she acts for a different client (separate matter conflicts). The former involved questions of fiduciary duty while the latter may be best considered under the law of negligence, breach of contract and confidentiality of information. A number of the matters which the appellant urged on the Court as involving a conflict of duty and duty were separate matter conflicts. In these respects the appellant had available to it the pleading of an alternative case in negligence. Prince Jefri Bolkiah v KPMG (A Firm) [1999] 2 WLR 215 considered.
ATRK’s retainer
(7) A retainer between solicitor and client may be implied from conduct.
(8) A holding company may retain a solicitor to advise it about its corporate structure and the relationship of its subsidiaries to each other and to the holding company. A solicitor so retained would not be retained by the subsidiaries even though the advice or its acceptance might affect those subsidiaries.
(9) The evidence did not suggest that the respondents were advising on the structure and financing of the acquisition of the oil exploration interests. Rather, it suggested that the respondents were required to assume the acquisition as a matter of fact and to accept it as a datum for purposes of the work they were asked to undertake.
(10) The respondents were acting for the appellant in relation to aspects of the currency swap. However, the scope of the retainer was limited to various clerical acts involved in effecting the currency swap, and had no implications with respect to the quality of the asset the appellant was receiving. The respondents were also acting for Spargos. However, the limited scope of the retainer meant that no fiduciary duty was breached. No estoppel arose out of a letter prepared by the respondents stating that the respondents acted as the solicitors for the appellant in relation to the currency swap.
(11) The respondent acted for the lenders on the syndicated cash advance facility. A lender is concerned with matters pertaining to a borrower, particularly with respect to matters that impinge on the security of a loan. It was not a proper basis for an inference that the circumstances were such as to create such a conflict. The respondents were not retained, in addition to the solicitor expressly so retained, by the appellant to act for it in respect of the syndicated cash advance facility or the various amendments to the charge and option agreement.
Revisiting Credit
(12) To outflank the proposition that a trial Judge’s finding must stand if his or her findings depended to any substantial degree on the credibility of a witness, it must have been shown that the trial Judge had failed to use or had palpably misused his or her advantage or had acted on evidence which was inconsistent with facts incontrovertibly established by the evidence or which was glaringly improbable. Devries v Australian National Railways Commission (1993) 177 CLR 472 applied.(13) Intermediate appellate courts must carefully scrutinise credit findings, particularly where documentary evidence may have supported oral testimony and where significant evidence was unchallenged. There must be a consideration of the real strength of the body of evidence presented. State Rail Authority of New South Wales v Earthline Constructions Pty Limited (In Liquidation) (1999) 73 ALJR 306 did not suggest any new principles to guide appellate courts, rather it pointed to the danger of attaching too much significance to the restraints expressed in Abalos v Australian Postal Commission (1990) 171 CLR 167 and reaffirmed the true principles governing appellate courts.
(14) The trial Judge’s credibility findings were open to his Honour and were not demonstrated to be wrong.
Solicitor’s Duties in the Absence of a Retainer
(15) In order to show that advice or the failure to give advice or warn amounted to a breach of a duty of care owed by the respondents to it, the appellant had to identify a factor or factors of special significance in addition to the foreseeability of harm in order to give rise to the necessary assumption of responsibility by the respondents. Perre v Apand Pty Limited (1999) 73 ALJR 1190. In the instant case this required the appellant to show that the respondents had given advice or had failed to give advice or warn in circumstances where the respondents realised or ought to have realised that they were being trusted to give their advice as a basis for action on the part of the appellant. Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241; Mutual Life & Citizens’ Assurance Co Limited v Evatt (1968) 122 CLR 556 referred to.(16) There was no assumption of responsibility by the respondents with respect to the structure and financing of the acquisition of the oil exploration interests. With respect to the currency swap, where there was a retainer limited to certain clerical acts, there was no assumption of responsibility and no obligation to exercise care beyond the scope of the clerical acts.
Section 12 Notice Retainer
(17) In relation to the s12 notices from the National Companies and Securities Commission, where there was no dispute that the respondents were retained to act for the appellant and for another company in the group, the trial Judge was correct in finding that there was no evidence to suggest that the respondents attempted to conceal any uncompleted transaction from the NCSC. The respondents were asked to advise on the validity of the notices but once the attack on their validity failed the respondents’ instructions merely extended to informing the NCSC that the documents required to be produced under the notices would be produced.(18) Given the terms of these instructions and the fact that the respondents had no knowledge of the fraud, it could not be said that the respondents were in a position where a conflict of duty arose in accepting instructions for both the appellant and the other company in the group.
Knowing Assistance of Breach of Fiduciary Duty
(19) In the context of accessorial liability for a breach of a fiduciary duty, there was a distinction between the conduct of a prudent person and that of an honest person. Consideration of how to prove objective dishonesty.(20) There was no basis on which to conclude that the respondents were objectively dishonest.
Breach and Causation
(21) In a situation of alleged conflict of duty and duty, to prove breach there must be a real sensible possibility of conflict. It is not enough to identify some conceivable possibility which may result in a conflict. Boardman v Phipps, Queensland Mines Ltd v Hudson (1978) 52 ALJR 399; Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 referred to.(22) There was no real sensible possibility of conflict in the case of the currency swap. With respect to the restructuring, in particular the bid for Claremont shares, there was a real sensible possibility of conflict between the appellant and the other parties for which the respondents were acting. The issue which arose in this situation was one of accountability for breach of fiduciary duty and an adequate or sufficient connection between the equitable compensation claimed and the breach of fiduciary duty. In a case such as the instant case there is a normative aspect to the determination of issues of causation. Maguire v Makaronis referred to.
(23) If the appellant’s claim for equitable compensation was that it suffered loss then it had to show that the respondents’ divided loyalty or performance of duty to others led to that loss. Equitable compensation for breach of trust was designed to make good a loss in fact suffered by the beneficiaries which, using hindsight and common sense, can be seen to have been caused by the breach. Applying this test to the facts no relevant loss had occurred. O’Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262 applied. Target Holdings v Redferns [1996] 1 AC 421; Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129 referred to.
Causation and Fraud by Directors
(24) Brickenden v London Loan and Savings Co (1934) 3 DLR 465 is not authority for the general proposition that, in a case involving breach of fiduciary duty, the Court may not consider what would have happened if the duty had been performed. Target Holdings v Redferns and Warman International v Dwyer (1995) 182 CLR 544 referred to.(25) A fiduciary, including a solicitor, was not an insurer. Even on a stringent test of causation it was open to Rolfe J to find that the loss would have occurred whether or not any duty as alleged had been performed.
Section 68A of the Companies Code
(26) The trial Judge was correct in finding that the respondents were “having dealings with” the appellant for the purposes of s68A of the Companies Code, and were prima facie entitled to the benefit of the assumptions in subs 3.(27) The trial Judge did not find that a solicitor acting for a company was excluded from ever relying on the assumptions in s68A. Rather, he said that assuming a fiduciary relationship, and its breach, then the section cannot be relied on. To do so would override the fiduciary duty. This defence must assume a duty to enquire of the R&B deposits and a failure to do so. As neither assumption was made out. Rolfe J was correct to reject the defence.
Informed Consent to Breach of Fiduciary Duty
(28) What constitutes a fully informed consent to double employment resulting in potentially conflicting engagements was a question of fact to be determined in all the circumstances of each case. Maguire v Makaronis applied.(29) In the present case, while there was no express informed consent, such informed consent could be inferred from the undisputed facts. Bristol and West Building Society v Mothew [1998] Ch 1 applied.
(30) In a claim by a company against its directors who have conspired to defraud it, the knowledge of the conspiring directors was not imputed to the company because it would be irrational to do so. Where a third party claims a company was estopped by conduct amounting to acquiescence, the knowledge of directors acting in fraud of the company and outside their authority would not be treated as knowledge of the company, for reasons of justice or common sense. Such considerations did not apply to prevent the imputation to the appellant of its directors’ knowledge about the respondents’ retainer by other companies in the group. There was no reason of commonsense or justice to say that the directors’ knowledge about this was not the knowledge of the appellant because the directors were actively defrauding the appellant. Duke Group Limited (In Liquidation) v Pilmer (1999) 31 ACSR 213; Belmont Finance Corporation Limited v Williams Furniture Limited [1979] 1 Ch 250 referred to.
Statutes:
Companies and Securities (Interpretation and Miscellaneous Provisions) Act 1980 (Cth)
Law Reform (Miscellaneous Provisions) Act 1965 (NSW)
Wrongs Act 1936 (SA)
Companies (South Australia) Code
Companies (Acquisition of Shares) CodeCases:
Abalos v Australian Postal Commission (1990) 171 CLR 167
Abcos v Jones (1997) 150 ALR 488
Agbaba v Witter (1977) 51 ALJR 503
Australian Breeders Cooperative Society Ltd v Jones (1997) 150 ALR 488
Australian Capital Television Pty Limited v Minister for Transport and Communications (1989) 86 ALR 119
Barnes v Addy (1874) LR 9 ChApp 244
Beach Petroleum NL v Abbott Tout Russell Kennedy 26 ACSR 114
Beach Petroleum NL v Johnson (1993) 43 FCR 1
Belmont Finance Corporation Limited v Williams Furniture Limited [1979] 1 Ch 250
Biggs v London Loan & Savings Co (1933) 3 DLR 161
Birtchnell v The Equity Trustees, Executors and Agency Co Limited (1929) 42 CLR 384
Boardman v Phipps [1967] 2 AC 46
Bray v Ford [1896] AC 44
Breen v Williams (1996) 186 CLR 71
Brickenden v London Loan and Savings Co (1934) 3 DLR 465
Bristol and West Building Society v Mothew [1998] Ch 1
Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129
Clark Boyce v Mouat [1994] 1 AC 428
Commonwealth Bank v Smith (1991) 42 FCR 390
Devries v Australian National Railways Commission (1993) 177 CLR 472
Dresser v Norwood [1864] 17 CBNS 466
Duke Group Limited (In Liquidation) v Pilmer (1999) 31 ACSR 213
El Ajou v Dollar Land Holdings Plc [1994] 2 All ER 685
Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241
Farrington v Rowe McBride & Partners [1985] 1 NZLR 83
Gilbert v Shanahan (1998) 3 NZLR 529
Gray v New Augarita Porcupine Mines Limited (1952) 3 DLR 1
Haira v Burbery Mortgage Finance and Savings Ltd [1995] 3 NZLR 396
Hawkins v Clayton (1988) 164 CLR 539
Haywood v Roadknight (1927) VLR 512
Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41
J C Houghton & Co v Nothard, Lowe & Wills Limited [1928] AC 1
Jones v Dunkel (1959) 101 CLR 298
Jones v Hyde (1989) 63 ALJR 349
Lyell v Kennedy [1889] 14 AppCas 437
Maguire v Makaronis (1997) 188 CLR 449
Moody v Cox and Hatt [1917] 2 Ch 71
Mutual Life & Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556
National Mutual Holdings v Sentry Corporation (1989) 22 FCR 209
O’Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262
Perre v Apand Pty Limited (1999) 73 ALJR 1190
Prince Jefri Bolkiah v KPMG (A Firm) [1999] 2 WLR 215
Queensland Mines Ltd v Hudson (1978) 52 ALJR 399
Re Coomber:Coomber v Coomber [1911] 1 Ch 723
Re Dawson (deceased): Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211
Re Hampshire Land Co [1896] 2 Ch 743
Royal Brunei Airlines v Tan [1995] 2 AC 378
SFC v Cheney Corp (1942) 318 US 80
Spector v Ageda [1973] Ch 30
State Rail Authority of New South Wales v Earthline Constructions Pty Limited (In Liquidation) (1999) 73 ALJR 306
Story v Advance Bank Australia Limited (1993) 31 NSWLR 722
Target Holdings v Redferns [1996] 1 AC 421
Turton v London & North Western Railway Co (1850) 15 LT (OS) 92
Walden Properties v Beaver Properties Ltd [1973] 2 NSWLR 815
Warman International Ltd v Dwyer (1995) 182 CLR 544Text Books:
Bowstead & Reynolds on Agency, 16th ed, Article 76
Carter & Harland, Contract Law in Australia, 2nd ed
Finn “Fiduciary Law and the Modern Commercial World” in McKendrick (ed) Commercial Aspects of Trust and Fiduciary Obligations 1992
Finn, The Fiduciary Principle, Youdan (ed) Equity Fiduciaries and Trusts, (1989)
Greig & Davis, The Law of Contract
Meagher, Gummow and Lehane Equity: Doctrines and Remedies, 3rd ed Parkinson (ed) The Principles of EquityORDERS
1. Leave to the respondents to amend the notice of cross-appeal to add the following grounds:
11. His Honour erred in holding that the respondents had not raised, as a defence, the existence of the fully informed consent of the appellant.
12. His Honour should have held that the respondents acted with the informed consent of the appellant in each of the matters or transactions in respect of which the appellant alleged a conflict of duty by the respondents.
2. Leave to the appellant to amend paras 10, 13 and 63 of its grounds of appeal in accordance with the amendments proposed in the letter from its solicitor to the Court dated 19 February 1999;
3. Appeal dismissed;
4. Cross-appeal allowed in part;
5. Appellant to pay the respondents’ costs of the appeal and cross-appeal.
*******THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL
CA 40029/98
CommD 50030/96
SPIGELMAN CJ
SHELLER JA
STEIN JA
Friday, 5 November 1999
BEACH PETROLEUM NL v ABBOTT TOUT RUSSELL KENNEDY & ORSJUDGMENT
THE COURT:
INTRODUCTION1 Beach Petroleum NL (Beach), was one of several companies, related to each other by common or interlocking shareholdings, common directors and common outside control, and for this reason described as the “IRL group” of companies. These proceedings concern the duty owed to Beach by the solicitors, Abbott Tout Russell Kennedy (ATRK), who were retained from time to time to give advice to the group or to one or some of the companies within the group on various matters including the restructuring and refinancing of the group. Fifteen of the companies in the group, including Beach, had shareholders outside the group and were listed on the Australian Stock Exchange (ASX).
2 The group was at all relevant times controlled by Malcolm Keith Johnson, who was not a director of any of the companies within it. Beach was one company in the group which had liquid assets. In 1988 financial pressure on the group made it imperative to release those assets to enable other companies in the group to meet their considerable financial obligations. Mr Johnson devised a thoroughly dishonest scheme to reduce the assets of and withdraw cash from Beach in a way expected to benefit other companies in the group but to the positive detriment of Beach. The scheme involved the acquisition of an interest in oil fields in Oklahoma and then its sale to Beach at a grossly inflated price. Three directors of Beach, Michael John Fuller, Joseph Patrick Cummings and Paul Christopher Macdonald Main, assisted in the implementation of this dishonest scheme. In consequence Beach suffered loss. Mr Fuller was a solicitor, who practised in Adelaide until he became engaged full time in the affairs of the group. Mr Cummings was also a solicitor who, until he commenced to assist Mr Fuller on a full time basis in the affairs of the group, practised in Adelaide. Mr Main, who lived in England, worked closely with, but in a subservient position to, Mr Johnson and was referred to as Mr Johnson’s “right hand man”.
3 The directors of Beach, Claremont Petroleum NL (Claremont), Jingellic Minerals NL (Jingellic), Enterprise Gold Mines NL (Enterprise), Spargos Mining NL (Spargos), Independent Resources Limited (IRL) and Independent Resources (Asia) Group Pty Limited (IRAG), all companies within the IRL group were, during the relevant period, accustomed to act in accordance with Mr Johnson’s directions and instructions. In the early 1980s Mr Johnson had left Australia after being made bankrupt and convicted on a corporate fraud charge in South Australia. Thereafter he had pursued his business interests from London.
4 The partners of ATRK directly involved were Gregory Anthony Thomas Bateman and David James Ferguson. Also involved were senior associate solicitors Richard Willcock and Brian James Thomas, who became a partner of ATRK on 1 July 1991 and was responsible to Mr Bateman. The nature and extent of ATRK’s retainer and the duty, particularly the fiduciary duty, to Beach arising therefrom, the pecuniary liability of ATRK for any breach of duty and the quantum of damages in equity or law Beach was entitled to recover, were issues in the proceedings.
5 In its further amended statement of claim Beach claimed, inter alia, that ATRK had acted as its solicitors between mid-1988 and early 1990 and in the course of so acting, in breach of its fiduciary duty, knowingly assisted in various breaches of fiduciary duty by Beach’s directors, breached its retainer and its duties thereunder, was knowingly concerned in breaches of s229 (2) and (4) of the Companies (South Australia) Code and was negligent. In this judgment it is unnecessary to distinguish between the Companies Code of the various States. They will be referred to simply as “the Companies Code”. Beach claimed damages, including moneys it had been unable to recover pursuant to judgment it obtained in proceedings in the Federal Court of Australia, which it, together with Claremont, brought for conspiracy to defraud it. The respondents in the Federal Court proceedings were Mr Johnson, Mr Fuller, Mr Cummings and Mr Main, and Firstway Inc (Firstway), Spargos, Enterprise, Jingellic, IRL and IRAG. On 10 June 1993 Von Doussa J gave judgment for Beach in the amount of $44,455,000 against each of the respondents ((1993) 43 FCR 1).
6 On 17 December 1997 Rolfe J dismissed the proceedings; (1997) 26 ACSR 114. Beach appealed from that decision. In his reasons for judgment Rolfe J comprehensively stated the facts which were either admitted on the pleadings or were found by him. The restatement of the facts which follows is based upon his Honour’s reasons for judgment. For the most part his Honour’s findings are not challenged. To the extent to which they are we refer to the challenge and deal with it.
BACKGROUND - RESTATEMENT OF FACTS
Legal Work Done by ATRK
7 On various occasions from 1985 Mr Bateman undertook legal work for companies within the IRL group, namely Enterprise, Consolidated Gold Mining Areas NL (CGMA), IRL and Jingellic; from late 1987 for other companies within the IRL Group including Cortaus Limited (Cortaus) formerly named Coronet Resources NL (Coronet Resources); from 1988 for Spargos and from June 1988 for Petrogulf Resources Limited (Petrogulf). He undertook limited legal work for Claremont from May 1988 but, he claimed, no legal work for Beach before May 1989 “save for some meeting advice on 22 November 1988”. He said that ATRK had such little contact with Beach that he believed the first letter the firm ever received from Beach was on 6 June 1989.
8 Some of the companies in the IRL group, including Enterprise, IRL, Jingellic, Petrogulf and Spargos, but between 1 January 1988 and 31 December 1990 neither Beach nor Claremont, named ATRK as their solicitors in their annual reports. Mr Bateman did not recall ATRK ever acting for any of the companies on the purchase or sale of oil, gas or gold tenements or licences. Neither he nor anyone else at ATRK had expertise in such matters.
Frauds on Beach
9 The frauds committed against Beach were connected to Beach’s acquisition, effected by a Charge and Option Agreement, of what were known as the Burbank oil field interests in Oklahoma. In 1988 Mr Johnson had, for just over US$3.5million, acquired interests in that oil field using Firstway, a Liberian shelf company, owned by Hong Kong Fidei Commissaire as trustee of Ska Trust, an off-shore faceless discretionary trust set up by Mr Johnson for the benefit of his family. The interests were purchased in the name of Burbank Petroleum Corporation (Colorado) (BPC) and Burbank Oil and Gas Limited (Bahamas) (BOG), companies owned by Mazeley Limited (Mazeley), whose share capital was wholly owned by Firstway. The acquisition was financed in part by Claremont. Beach then acquired these interests for US$28million.
10 That transaction, found to have been in fraud of Beach, was, at least arguably, assisted by two others, known as “the currency swap” and the Syndicated Cash Advance Facility Agreement (SCAFA). Moreover, while the second Burbank acquisition was being arranged the National Companies and Securities Commission (NCSC) served on Beach and Claremont notices under s12 of the Companies Code for the production of documents. Beach argued that on the advice or with the participation of ATRK compliance with these notices was avoided.
11 It will be necessary to examine Beach’s allegations about ATRK’s part in advising or failing to advise Beach in respect of the Burbank acquisition and, particularly, the Charge and Option Agreement, the currency swap, the s12 notices and the SCAFA. A thread which ran through these transactions was the existence of “fiduciary” accounts which were supposedly to the credit of Spargos, Enterprise and Jingellic with a Swiss bank Rahn & Bodmer (R & B) but which were not available to be drawn on or used by those companies.
Petrogulf’s Purchase of Claremont Shares
12 On 15 January 1988 Petrogulf had, according to Mr Bateman’s evidence, purchased a 16.2 per cent shareholding in Claremont from FAI Insurance Limited (FAI) at twice the shares’ then market value. This represented a commitment by Petrogulf, with a working capital of about $6.3million, to spend $14million. The NCSC conducted an investigation into this acquisition. Minority shareholders of Enterprise complained about guarantees Enterprise gave to support the facility which funded the acquisition. At the same time a substantial shareholder of Claremont, the Australian Gas Light Company (AGL), was raising questions about Claremont’s management and the future direction of Claremont’s oil and gas investments.
13 On 16 November 1988 the NCSC advised that it believed Petrogulf’s purchase of shares in Claremont from FAI had involved contraventions of s11 of the Companies (Acquisition of Shares) Code (the Takeovers Code) and of the substantial shareholding provisions and ss129 and 229 of the Companies Code. According to Rolfe J, on 25 November 1988 Mr Bateman wrote on behalf of Petrogulf explaining that there had been no breach of s11 of the Takeovers Code, or of the substantial shareholding provisions of the Companies Code. This letter is not included in the appeal papers. On 5 December 1988 and 6 January 1989 Mr Bateman had direct negotiations with the office of the NCSC, which resulted in an agreement to settle on terms. No settlement was concluded and no proceedings were ever begun by the NCSC.
IRL Group
14 IRL effectively controlled the IRL group. Claremont, through a wholly owned subsidiary, owned over 65 per cent of the shares in Beach. In broad terms the companies in the group could be divided between those in the business of exploiting oil and gas resources which included Beach, Claremont and Spargos and those exploiting gold reserves which included Jingellic and Enterprise. IRL acquired its control of the group by substantial borrowings from Atlantic Capital Corporation (ACC), a Delaware corporation, on the security of “the group’s papers”. Cash flow within IRL was not sufficient to meet interest or capital repayments. The events, the subject of these proceedings, stemmed from attempts to repay the debt of IRL to ACC and restructure the IRL group so it could meet its ongoing debts.
15 By October 1988 IRL was indebted in an amount exceeding $21million to ACC. Repayment was overdue. The indebtedness consisted of the balance of money IRL had borrowed in 1987 to purchase shares and options in Coronet Resources. The loan was secured by an equitable mortgage over the Coronet Resources shares and options acquired by IRL and other shares held by IRL and CGMA and by a put option dated 24 April 1987 which provided that in the event of IRL’s default, ACC could require Jingellic and Enterprise jointly and severally to purchase the securities the subject of the equitable mortgage for a price being the amount then due to ACC. Further security was provided by deposits of $17million by Enterprise, of $4million by Jingellic and of $6million by Spargos, effectively to ACC’s account (the SEJ deposits).
“Fiduciary Accounts” at R & B
16 In about October 1988 IRL’s debt to ACC was refinanced. ACC was repaid by a transaction as a part of which the SEJ deposits were paid to ACC and then treated as “escrow” or “fiduciary” accounts with R & B, the new lender to IRL and IRAG. These were referred to as “the back to back arrangements”. On their face the fiduciary accounts showed that Spargos, Enterprise and Jingellic were entitled to the amounts of the deposits. But under Swiss law fiduciary loan accounts do not create a relationship of debtor and creditor between banker and customer. The banker acts as agent for the customer in a loan transaction to a third party which the banker administers in return for a commission. Repayment of the loan is the obligation of the third party not the bank. The SEJ deposits were lent to IRL by means of fiduciary loan accounts established at R & B for that purpose. Accordingly, until the amounts were repaid by IRL they were not available to Enterprise, Jingellic or Spargos and were described as “blocked”.
17 Central to Beach’s case against ATRK was the allegation that by February 1989 it had been explained to Mr Bateman that it was not possible to release the SEJ deposits at R & B without repayment of the IRL loans. At trial there was a significant conflict between the evidence of Beach’s principal witness, its former director, Mr Main, and the evidence of Mr Bateman, Mr Ferguson and Mr Thomas who were called for ATRK. In his judgment, Rolfe J dealt with the evidence of these witnesses in chief and then upon cross examination seriatim and in detail.
18 Mr Main’s evidence was that Mr Bateman knew that Spargos, Enterprise and Jingellic had no money at R & B so that transactions implemented on the basis that those companies were able to use those funds were fraudulent. A substantial point of difference was Mr Main’s account of a meeting held on 22 February 1989 where he said that it was revealed in the presence of Mr Bateman that the deposits were blocked and not available to be used by Spargos, Enterprise and Jingellic. At a later meeting the problem was brought up as one which was required to be resolved. Mr Bateman and Mr Ferguson, who were present on these occasions, denied any knowledge that the deposits were blocked.
19 Mr Main was cross examined about his part in a variety of commercial activities which he acknowledged to be improper and dishonest, including the theft of Claremont shareholder funds and hiding the truth about the blocked deposits.
20 Rolfe J concluded that the evidence of Mr Bateman, Mr Ferguson and Mr Thomas generally speaking should be accepted. On the other hand, Mr Main’s evidence should be rejected in so far as it was not corroborated by acceptable evidence or contrary to his interest. Thus the main plank of Beach’s case was severely damaged if not destroyed. During the trial counsel for Beach said that if Rolfe J found that Mr Bateman was unaware that the moneys were “blocked” that would “take away chunks of my accessory liability case, but it will not provide a complete answer to it.” From that point it became more difficult to discern what case remained. The rejection of Mr Main’s evidence and the acceptance of the evidence of Mr Bateman, Mr Ferguson and Mr Thomas was pivotal.
Growing Financial Difficulty
21 In late 1988 and early 1989 not only IRL, but also Spargos and other companies in the IRL group, other than Beach and Claremont, were in severe financial difficulty. For the year ended 30 June 1988 IRL had assets of $67million, represented by shares in its subsidiary and associated companies shown in the financial statements as having a market value of $56million, although their actual market value was only $15million. IRL was also shown as having net equity of $32million. Substituting the market value of IRL’s assets in the financial statements extinguished its stated net equity as at 30 June 1988. Creditors and borrowings of $36million were shown in the financial statements. On the basis of market value at 30 June 1988 its liabilities exceeded its assets.
22 By October 1988 the market value of IRL’s shareholdings in its subsidiary and associated companies had deteriorated to the extent that it was unlikely to be able to dispose of them. Its assets were mainly of a non-current nature, while its liabilities were current. In these circumstances the character of its assets, in particular the significant shareholdings in subsidiary and associated companies, meant that it was unlikely to be able to convert sufficient assets to cash to meet any demand which might be made by financiers and, in particular, by ACC. IRL’s auditors would not certify that IRL was “a going concern” unless they could be satisfied that it could repay or refinance the ACC loan.
Restructuring and Refinancing
23 During 1988 and 1989 discussions took place between Mr Bateman and Mr Fuller and other directors, in relation to restructuring the companies, the relevant ones then being, according to Mr Bateman, CGMA, Enterprise, IRL, Jingellic and Southern Goldfields Limited (Southern Goldfields). At the end of 1988 there were fifteen companies listed on the ASX which were potentially and logically subject to restructuring namely, those abovementioned and Asia Oil and Minerals (AOM), Beach, Claremont, Cortaus, Cortaus Investments Limited, Indo Pacific Resources Limited, Meridian Oil NL (Meridian), Moage Limited (Moage), Petrogulf and Spargos.
24 By “restructuring” Mr Bateman meant “changing the relationship of those companies with a view to having nearly all of them become wholly owned subsidiaries of just a few of them which would remain listed on the Stock Exchange”. From October 1988 to May 1989 Mr Bateman received instructions on this topic from Mr Fuller and Mr Cummings. Although there were many variations over this period, Mr Bateman considered two broad proposals:
“(a) The first proposal involved restructuring the companies so as to have two listed companies, one of which would hold the shares in each of the companies whose main undertaking was gold mining and the other of which would hold the shares in each of companies whose main undertaking was oil and gas exploration;
(b) The second proposal involved having one listed company which would have, as wholly owned subsidiaries, not only the gold mining companies but also the companies whose main activity was oil and gas exploration and production.”
25 Mr Bateman said that between November 1988 and May 1989 he considered various modes of restructuring involving a first “wave” of bids, which included the key elements of a proposed settlement of NCSC’s complaint about Petrogulf’s acquisition of Claremont shares, followed by second and subsequent “waves” of bids for one or more of the other companies. The objective was to achieve a restructuring which, as well as satisfying the requirements of the proposed NCSC settlement, would result in one entity controlling all of the companies, or many of them.
26 By December 1988 the key elements of the proposed settlement were that a consortium consisting of IRAG, Inspar Pty Limited (Inspar), a proprietary company originally controlled by IRL and then by Spargos, and Moage should make a takeover offer for all the shares of Claremont subject only to a 51 per cent minimum acceptance condition; that IRL would make or cause to be made a takeover offer for all the shares in Moage; the extension of the current bid for Petrogulf made in 1988 by Inspar for a further month; and NCSC variations of the Companies Code to facilitate these arrangements and in particular to allow Elders Finance & Investment Co Limited (ELFIC) (the financier of the Claremont bid) to enter into a placement agreement and a put option. Mr Bateman said that each of those elements was consistent with the restructuring he had been considering, because if Inspar acquired 100 per cent of Petrogulf, and the bidders for each of Claremont and Moage acquired 100 per cent of each of those companies, a significant amount of the restructuring would have been effected.
27 On 2 February 1989 Ms Sonia Ritchie of ELFIC sent Mr Fuller and Mr Ferguson copies of revised summaries of four facilities which had been discussed that morning including a facility of $5.63million for a company to be formed (Newco) to fund a takeover of Moage; $9.8million for Newco to fund a takeover of IRL; $76.5million for the consortium of Inspar, IRAG and Moage to fund the takeover of Claremont and $8.5million for Moage to refinance an existing debt with Westpac and remove the charge currently existing over its Claremont shares. One of the securities for the $76.5million facility for the consortium was a put option to Elders Resources in favour of ELFIC over 128.5million shares in Claremont. The payment provisions for this facility were:28 On 2 February 1989 Mr Ferguson made a handwritten note which included the following:
“1. Payment of proceeds of Gold Loan (receipt of which is a precondition to funding) minimum $10million.
Part of the “asset sales to external parties” referred to were the sale by Beach of its Victorian gas field interests.
2. Remaining $66.5million will be paid for from asset sales to external parties. It is invisaged that a further $10million of this amount will be repaid within a relatively short ie 3 - 4 months time frame, from an intra group asset sale into Beach. These asset sales are supported by an underwriting agreement with Roach Tilley Grice, in turn, to be supported by a put option to the value of $45million to Elders Resources.”
“(1) Obtain ACT shelf company and rename Cambridge Resources P/L
……
(11) Intentions re bid.
• review of assets
• have identified Vict gas assets of Beach for sale - coys investments in Victorian gas fields - intend to seek disposal by Beach.”
29 Mr Bateman said that on 2 February 1989 Mr Fuller and Mr Cummings instructed him that Cambridge Resources was to be a bidder for each of IRL and Moage. On those instructions he drafted the bid documents and arranged for them to be lodged with the Victorian Commissioner of Corporate Affairs. According to the memorandum of fees that he rendered on 5 April 1989 to Cambridge Mining Services Pty Limited (CMS), which carried out secretarial and accounting services in Perth for companies in the group, Mr Bateman spent six and a half hours on 13 February 1989 reviewing material which included the Part A statement by Cambridge Resources.
30 On 10 February 1989 ATRK wrote to the Victorian Commissioner of Corporate Affairs. The letter, which bore the initials RBW, apparently a reference to Mr Willcock, began:31 Enclosed by way of lodgment for registration were drafts of a Part A statement and offer “in contemplation of a takeover scheme and pursuant to s18 of the Companies (Acquisition of Shares) (South Australia) Code”.
“We act for Cambridge Resources Pty Limited”.
32 By 10 February 1989 the financial and legal difficulties of the IRL group brought Mr Johnson and his right-hand man, Mr Main, to Australia to discuss with others the restructuring and refinancing of the group. For the purpose of discussion, Richard Winby, a Perth based director of the IRL group gold companies, prepared a memorandum addressed to Mr Fuller, Mr Cummings and Mr Bateman, with copies to Mr Main and Mr Johnson. In the memorandum were noted what were said to be the more important points which emerged from the data namely, external loans of nearly $70million, the main debtors being IRL (with IRAG), Spargos and Petrogulf, a manifestly insufficient global cash flow to sustain present debt, and overall cash deficit of $20.2million for the next six months from January to June 1989. The writer noted: “In addition the companies which have deposits with R & B are earning taxable income whilst having no access to the use of those funds”. Mr Bateman said that he received this memorandum on 14 February 1989, and scanned it. After that date he said he did not have the memorandum. He did not regard it as relating to his role as a solicitor. Rolfe J preferred the evidence of Mr Glossop, an accountant with CMS, who said that Mr Bateman had the memorandum with him at the meetings of 21 and 22 February 1989.
Mr Johnson Visits Australia
February and March 1989 Meetings
33 During further meetings in February and March 1989 between Mr Bateman, Mr Johnson, Mr Fuller, Mr Cummings, Mr Main and others, various problems in the IRL group and proposals for their solution were discussed including the proposed restructure and refinancing of the group and the acquisition of the Burbank oil field in the United States. In October 1988 London solicitors, Joelson & Wilson, of which firm Sheldon Cordell was a partner, had started to prepare draft agreements which seem to have been related to the Burbank acquisition. Up to and including 6 March 1989 Claremont was the only group company named as a party in the drafts, the first of which provided for BPC to borrow from Claremont on the security of certain shares and granted to Claremont an option to purchase assets less the amount of the loan for US$19.5million. The assets were the Burbank oil interests.
34 On 15 February 1989 Mr Bateman attended a presentation in the board room at Claremont about the Burbank oil fields. He recalled the presenter, Dene Rogers, a senior petroleum engineer employed by Claremont or Beach, giving his estimate of the value of the interest as between $22million and $30million. Although Mr Bateman found the presentation interesting he considered it to be a waste of his time and did not charge for his attendance.
35 Mr Ferguson said that he did work in relation to negotiating the structure of a takeover offer for Claremont and the financing of that takeover on behalf of the offerors. During the course of that work he had dealings with a proposed financier ELFIC. On 17 February 1989 Mr Ferguson sent a facsimile to Ms Ritchie saying:
“I understand that you have now received a level of confirmation as to the takeover facility.
I am being pushed by both the NCSC and AGL and anticipate that we will have to be ready to conclude the NCSC settlement by next Tuesday or Wednesday.
As this timetable is very tight I request that you commence preparation of a formal facility offer document immediately. If ELFIC’s solicitors need to be involved our clients will happily pay their costs whether or not the facility is ultimately confirmed. I am available at any time to assist and suggest that if a first draft can be made available by Monday morning that I come to Melbourne with a view to settling the document in the shortest possible time (hopefully that day).”
36 On 21 February 1989 letters of offer to the members of the consortium, to Moage itself and to Newco were available and some at least, according to Mr Bateman, circulated in draft form at the meeting of 21 February.
37 Mr Bateman met with Mr Winby and Mr Glossop for five hours on 21 February 1989 and discussed estimates of the value of Beach’s assets. In Mr Bateman’s note of the meeting reference is made to the opinion of Norman Anthony Hilton, who had been managing director of Beach and Claremont until 23 December 1988 and a consultant to those companies thereafter, that Beach sell its oil and gas assets for $20million and use this to pay interest (not principal) and wait for oil prices to rise thereby keeping Claremont intact. Mr Winby said there were four options in relation to restructuring; the injection of equity of $30million, the selling off of the oil and gas arm, the selling off of the Bellevue gold mine and the borrowing of $130million, with $25million being required to service the borrowing and Beach being sold and the principal kept rolling over.
38 On 22 February 1989 Mr Bateman attended a meeting with Mr. Fuller, Mr Cordell, Mr Main, Mr Johnson, Mr Winby, Mr Glossop and Mr Ferguson. The events that took place at the meeting are critical to the contest between Beach and ATRK. Mr Main said that more than once Mr Bateman indicated he knew the R & B deposits were blocked and was present when Mr Cordell said that the deposits could not be released without repayment of the IRL and IRAG loans.
39 Mr Bateman said he did not understand some of the matters referred to and did not consider it necessary for him to do so. At one stage he wrote various requirements on the whiteboard as Mr Winby dictated them. At no time during the meeting “or at any other time” did he hear any other person say that any deposits with R & B were “blocked”, mortgaged in favour of some other entity, or not beneficially owned by the relevant depositor company. Nor did he read any document which told him such a thing, nor write on the whiteboard the word “blocked” nor see any other person write such a word. He was not present during the meeting “all the time” and nothing was required of him at its conclusion.
40 On 28 February 1989 Mr Bateman had a telephone conversation with Mr Cummings who told him about other possible methods of restructuring. Handwritten file and whiteboard notes made on 13 and 14 March 1989 by Mr Bateman show that on those dates he was recording various movements of money and work undertaken in connection with consideration of the takeover bids. In particular Mr Bateman had before him documents showing that IRL and IRAG owed R & B $24million and that Spargos, Enterprise and Jingellic had a total of $18million on deposit.
41 By March 1989 in a document called “Draft 7 of the Charge and Option Agreement”, as amended by hand, Beach was shown as a party and Firstway had replaced BPC. Firstway was stated to be the beneficial owner of the entire issued share capital of Mazeley and of the entire issued share capital of BPC which remained the borrower. The document recited that a loan of US$3,680,000 had been made, apparently by Claremont, in October and December 1988. According to the handwritten amendment Firstway granted Beach and Claremont the option over its shares, presumably in Mazeley and BPC.
Discussion of Burbank Acquisition
42 Before 21 April 1989 Mr Bateman said he had heard of Burbank on three occasions, 15 February 1989 when Mr Rogers made his presentation, 22 February 1989 during the meeting when Burbank was described as an asset worth $50million and as contributing $12million per annum to the oil and gas cash flow and 2 March 1989 when he was instructed by Mr David Fleming, the managing director of Meridian, Mr Main, a director of Meridian, and Mr Cordell, the solicitor for Meridian, to advise on a number of matters in relation to it including aspects of a transaction recorded in an unexecuted document between Meridian Resources Inc and Firstway. The document suggested that Meridian had paid $4.5million to acquire a 19.6 per cent interest in the capital of Mazeley. The draft agreement recited that Burbank was the beneficial owner of the relevant Burbank oil interests.
43 In April and May 1989 there was on foot a proposal that FAI would provide a put option in respect of all the fully paid ordinary shares in Claremont which ELFIC would hold as security under a finance facility to be made available by it to Moage, IRAG and Inspar (the consortium). At a meeting on 21 April 1989 Mr Bateman was told of the proposed sale of the assets of Claremont and Beach as an element in the arrangement proposed between ELFIC, FAI and the consortium. During that period, Mr Fuller, on behalf of Beach, offered to sell its Victorian gas field interests to the Victorian Gas and Fuel Corporation.
44 Mr Bateman said that the possible acquisition of Burbank was mentioned to him on 21 April 1989 when he was given instructions by Mr Cummings, in the presence of Mr Main and Mr Johnson, to include Burbank as an asset and source of income available for security to FAI when providing the proposed put option in respect of all the fully paid ordinary shares in Claremont which ELFIC would hold as security under a finance facility to be made available by it to the consortium. At that meeting he was told of the proposed sale of the assets of Claremont and Beach as an element in the arrangement proposed between ELFIC, FAI and the consortium.
45 After that meeting Mr Bateman prepared a letter to ELFIC confirming that FAI was prepared to enter into a put option agreement with ELFIC in respect of all the fully paid ordinary shares in Claremont. ELFIC would hold these shares as security under the finance facility to be made available by ELFIC to the consortium. Enclosed was a copy of a draft facility offer letter. The principal terms of the put option agreement were to include:
“(g) Upon exercise of the put, FAI shall have the right to nominate and/or fill positions on the board of Claremont (and its subsidiaries) so as to constitute FAI nominees as a majority of each such boards.
(h) FAI to have direct access to the assets and income of the Burbank interest (being a 47% interest in the Burbank field held by corporate entities) it being acknowledged that such access can be done through a number of routes. Such routes will be defined and agreed prior to the date of substantial drawdown under the ELFIC facility.”
April 1989 Meetings
As already noted Beach was a subsidiary of Claremont.
46 During April 1989 Mr Bateman was taking part in negotiations with FAI and Pembroke Securities, the broking arm of ELFIC, for finance and on 21 April sent to Malcolm Mayger of Pembroke Securities a draft put option “Claremont re ELFIC”. This confirmed that FAI was prepared to enter into the put option agreement with ELFIC. The offer period for the takeover by Inspar of Petrogulf was extended until 24 April 1989. On that date Inspar notified ASX that it had received acceptances of 17,412,629 shares, being 63.47 per cent of Petrogulf’s issued capital. The notice also stated that Inspar was also entitled to 73.43 per cent of Petrogulf’s issued capital. Inspar was obliged under the terms of its offer, to pay accepting shareholders by 15 May 1989.
47 On 26 April 1989 Mr Main instructed Mr Bateman to prepare a confidentiality agreement between the Claremont group and FAI. On the same date Mr Fuller, on behalf of Beach, made a counter offer to sell its Victorian gas field interests to the Victorian Gas and Fuel Corporation. On 27 April 1989 Mr Ferguson spoke with ELFIC’s solicitor, Christopher Furnell of Clayton Utz, who raised the question of s129 problems “re Beach …… and money from Claremont/Beach asset sales” and the method by which Claremont money would go back to ELFIC. After that conversation Mr Ferguson received instructions by telephone from Mr Fuller that Beach and Claremont were to purchase 47 per cent of Burbank (Mazeley) and was told that $11million had been paid and $16.1million remained outstanding “covered by Beach note” and that R & B would be instructed to settle on behalf of Beach and pay vendors.
48 Referring to a handwritten note he had made on 27 April 1989 Mr Ferguson said that in the statement “129 problems re Beach money” he understood “Beach money” to be a deposit that Beach had with ELFIC. Section 129 of the Companies Code prohibited a company, directly or indirectly giving financial assistance for the acquisition by any person of shares in the company or in a holding company of the company. Mr Ferguson said he was not asked to give any advice to Beach or to anyone else about the deposit. He wrote the words “Beach money & money from Claremont/Beach asset sales” for the purposes of identifying the question of whether assets of Claremont and Beach (including “the Beach money”) might be available after a successful takeover of Claremont to repay any financing facility made available by ELFIC having regard, amongst other matters, to the provisions of s129 of the Companies Code. He understood that Beach was a subsidiary of Claremont. Under the heading “Burbank” Mr Ferguson wrote: “6. ELFIC is only aware of $20million asset sales - most are Beach’s assets.”
49 Mr Ferguson said that Mr Fuller did not ask him to give any advice (to him or to Beach or to anybody else) about the acquisition of Burbank. He understood from what he was told that the Burbank transaction was a “done deal”. It was important to him to be aware of the financial position of both Beach and Claremont (including the assets held by those companies) so that he could ensure that all information relevant to those matters was included in the draft takeover document, presumably for Claremont, that he was in the course of preparing. He said he had no recollection of the circumstances in which an undated note relating to the means by which Beach would buy Burbank and in particular, apparently, the means by which that purchase would be financed, was produced. One entry was “who has R & B deposits”.
50 Mr Bateman said that on 28 April 1989 he met Mr Ferguson who said he would like to review the instructions he received “yesterday”. By that date Mr Bateman, as a result of the meeting he had had with Mr Ferguson, and Mr Ferguson knew that Beach and Claremont would buy Mazeley, as to 90 per cent Beach and 10 per cent Claremont for $30.3million. They knew that Beach would borrow $18.7million from Spargos, Enterprise and Jingellic through a loan to Claremont and then from Claremont to Beach. Security would be taken over Burbank, Enterprise and Jingellic which would increase their shareholdings in IRAG “to provide commercial justification”.
51 Mr Ferguson said that Spargos, Enterprise and Jingellic had funds held by R & B. R & B would be instructed to settle on behalf of Beach to the vendor of Mazeley. Beach would sell assets and would repay $18.7million to Spargos, Enterprise and Jingellic. This was at a time that according to the memorandum of professional fees there was a “review of alternative structuring involving US acquisition and detailed analysis of this question”. Mr Ferguson also said that Enterprise and Jingellic were borrowing from ELFIC, as bridging finance, a sum equivalent to the moneys held on deposit by each of them at R & B “because these deposits cannot be called for 45 days”.52 On 2 May 1989 Mr Bateman had a further meeting with Mr Ferguson and created a record of his discussions on the whiteboard. Mr Bateman discussed with Mr Ferguson whether it would be appropriate for Spargos, Enterprise and Jingellic to lend to Beach in relation to the acquisition of Burbank, and Mr Ferguson told him that ATRK’s instructions were that the acquisition of Burbank would improve Beach’s assets. Later they were joined by Mr Fuller or Mr Cummings who said that Spargos would enter into an agreement to lend $16million to Claremont “to put itself in a good position in relation to Claremont for the future” and that Claremont would on-lend to Beach to fund its purchase in Burbank. Mr Bateman said:
May 1989 Meetings
53 The whiteboard note, which was printed out, contained the statement in Mr Bateman’s handwriting:
“Enterprise, Spargos, Claremont, Beach and the vendor will need to have a bank account in Switzerland, whether at Rahn & Bodmer or another bank, so that the flow of the funds from one bank account into another can be clearly recorded. This is in contrast to the notion of book entries arising from an assignment of a debt or a chose in action such as can occur under s11 of the Conveyancing Act.”
“1. SPARGOS will enter into agt to lend $16m to Claremont (to put itself in good position re Claremont for future) to enable it to onlend to Beach to fund pur. of Burbank.
($18.7)
R & B plus?
2. Real Swiss accs for Ent, Spargos, Claremont, Beach & Vendor.”
Beach submitted that the expression “real Swiss accounts” could only be intended to distinguish between such accounts and the existing artificial fiduciary accounts. Mr Bateman said the reference on the notes to “real Swiss accs” was not “a reference to real Swiss bank accounts as distinct from blocked accounts”. He denied there was any discussion about “blocked accounts” or that he had any knowledge of any. According to Mr Bateman’s statement of 9 September 1997 the matters on the whiteboard quoted were recorded by him. At the bottom was an entry “5 mil on deposit by Beach with ELFIC” which was apparently recorded by Mr Ferguson not on the whiteboard, but on the copy, Mr Bateman knew not in what circumstances. In the paragraph numbered 7 at the end of this entry on the whiteboard appeared: “Loans, sale of assets by Beach and pur. of B.bank are to occur irrespective of whether there is to be a T/O or when it is to occur.” In a separate note of the same day appeared “4. Ent has cash (R & B)”.
54 Mr Bateman said that on the afternoon of 2 May 1989 at a meeting attended by Mr Johnson and Mr Main, advice was given about whether s129 of the Companies Code presented any problems in the funding of Burbank. What was being discussed was an agreement to acquire the issued share capital in Mazeley. Mr Bateman advised about ways in which the s129 problems might be overcome. He did not think that there was discussion about the purchase agreement beyond that about the helpfulness of actually doing an acquisition by Beach, not directly through Beach itself, but through perhaps a wholly owned subsidiary located off-shore. He said that ATRK had already been instructed that the funding was intended to be by means of assignments of the R & B deposits so that it was necessary to obtain bridging finance from ELFIC. In his view what was being discussed was the lending side of the transaction. Referred to the part of the note concerning the transactions occurring irrespective of whether there was a takeover, he said that was the intention but it was not clear whether it could be achieved.
55 The note also referred to Beach’s proposal to find a buyer for its Victorian gas interests. Mr Ferguson discussed the use of the Beach deposit in the acquisition.
56 Before releasing his files to Mr Fuller’s brother in 1991, Mr Bateman prepared notes in relation to those files of which there were 74. These notes became exhibit AG. Number 43 was headed “IRL Group re Restructuring”.
57 Part of this file is described as “2 May 1989 notes of proposal”:58 There followed “Further notes of 2 May 1989” as follows:
“(i) Spargos to enter into an agreement to lend $16m to Claremont to enable it to on-lend to Beach to fund the purchase of Burbank.
(ii) Swiss accounts for Enterprise/Spargos/Claremont/Beach and vendor.
(iii) Consultancy agreement.
(iv) Purchase agreement.
(v) Beach announcement.”
59 There followed a note:
“(i) Enterprise cannot be involved in a bid for Claremont because of the reaction of the NCSC and Enterprise shareholders.
(ii) As Spargos is a bidder it has commercial reasons for lending to Beach to improve Beach’s assets. Spargos does not have all the dollars required to finance Beach so Spargos borrows additional dollars elsewhere.
(iii) Enterprise has cash at R & B and has its eye on a merger with Spargos and will either lend to Spargos or buy 25% of Bellevue.
(iv) Jingellic has a smaller vision and wants to get together with Enterprise. It could lend down to Enterprise or creep 3% and lend. Enterprise then on-lends to Spargos.
(v) Enterprise paper bid for CGMA at the rate of 1 for 10.
(vi) Consortium of Inspar/IRAG and Newco bid 30c for Claremont.”
60 Part of the file Mr Bateman described as:
“8 May 1989 buy out proposal involving:
(i) Newco buys from Enterprise IRL preference shares at $3.75.
(ii) Newco buys from Jingellic IRL preference shares at $3.75.
(iii) Newco buys from IRL Spargos fully paid shares at 12c each.
(iv) Newco buys from Cortaus its Spargos fully paid shares.
(v) Newco buys from Indo its Spargos fully paid shares.
(vi) Newco sells 2.55 million IRL preference shares to Spargos in return for 79 million Spargos shares.
(vii) Newco now holds 54% of Spargos.
(viii) Spargos converts 3.15 million IRL preference shares into 78 million IRL shares giving it 68 % of IRL.
(ix) Spargos obtains $80million facility to be used as to $13.5million being the net cost of a bid for 100% of Enterprise (25% cash or 30% note) and as to $66.5million for 100% Claremont bid (20c plus 1 Spargos share or 2 Spargos shares for every Claremont share).”
“22 May 1989 notes of restructuring involving:
(i) Newco buys 13% of Spargos at 12c from IRL, Indo and Beach.
(ii) Newco bids for Cortaus at 2c a share.
(iii) Newco borrows $30million.
(iv) Newco bids for Petrogulf at 16c a share.
(v) Newco lends Petrogulf $12million to discharge ELFIC.
(vi) Newco bids for Moage at 22c a share.
(vii) Newco lends Moage $9million to discharge Westpac.
(viii) Spargos allots 20 million shares to Horizon Pacific to acquire assets.
(ix) Spargos allots 80 million shares to Horizon Resources and Afro West to acquire assets.
(x) Spargos bids 2 for 1 for Claremont.
(xi) Spargos bids 1 for 1 for Enterprise.”
61 On 4 May 1989 ATRK prepared deeds of confidentiality for companies within the group, including Beach, with FAI, Partnership Pacific Limited, Standard Chartered Australia Limited and Prudential-Bache Securities (Australia) Limited.
62 On 5 May 1989 AGL wrote to Claremont expressing concern about the apparent change in direction of Claremont and its declining profitability. To that letter Mr Bateman replied on 10 May 1989, at the request of “our clients”, Claremont claiming that the directors were prevented by ss37 and 38 of the Companies Code from responding.
May 1989 Cash Crisis; The Currency Swap
63 By May 1989 Inspar’s takeover of Petrogulf, which IRL and Spargos had initiated in 1988, had brought on a cash crisis. The last day had arrived for payment by Inspar. Spargos no longer had $6million on deposit at ACC. This had been taken up in the refinance of IRL debt in 1988.
64 On 8 May 1989 Mr Fuller was negotiating with ELFIC for a loan of $3.8million. On 10 May Mr Thomas was asked by Mr Ferguson to do some work for Spargos. He met with Mr Ferguson for one hour and forty minutes and recalled receiving instructions to act concerning a proposed loan by ELFIC of $3.8million to a subsidiary of Spargos, Inspar, to enable Inspar to pay money due to acceptors of a successful takeover bid Inspar had made for the issued share capital of Petrogulf. At about that time, Mr Thomas became aware that ELFIC required Petrogulf to reduce an existing facility of $5million and that Spargos proposed to make a loan to Petrogulf to enable this to be done. Mr Thomas spoke by telephone to the solicitor for ELFIC and Mr Fuller, whom he understood to be a director of Spargos and one of the people from whom he would receive instructions.
65 On 10 May 1989 the currency swap was conceived. On that day the directors of Beach resolved to assign Spargos the sum of $5million standing to the credit of the company with ELFIC in consideration of a contemporaneous assignment to the company by Spargos of the equivalent sum in US dollars at that day’s rate at the bankers of Spargos in Zurich. Also on that day, the directors of Spargos resolved to assign to Beach the US dollar equivalent of $5million at that day’s rate standing to the credit of the company at R & B in consideration of the contemporaneous assignment by Beach of the sum of $5million standing to the credit of Beach with ELFIC, to give written notice to ELFIC accordingly and to authorise and instruct ELFIC to apply such moneys in reduction of outstanding facilities granted to Petrogulf.
66 On 11 May 1989 Mr Thomas spent considerable time perusing documents, which included a draft facility and security documents concerning the loan. He became aware that part of the security being offered to ELFIC was a second mortgage over the Bellevue mine tenement which, he was instructed, was owned in a joint venture by Spargos and its subsidiary, Queen Margaret Gold Mines NL, and over which Rothschilds held a first mortgage. That made it necessary to obtain Rothschilds’ consent to the proposed second mortgage. Mr Thomas also became aware that Inspar was due to pay the acceptors by 12 May 1989.
67 On 11 May 1989 Mr Fuller came to Mr Thomas’s office and gave him a letter addressed to ELFIC which was on a typed, not printed, Spargos letterhead and a letter on a printed Beach letterhead also addressed to ELFIC. The letter from Spargos was as follows:68 In giving Mr Thomas the letters Mr Fuller said:
“Please be advised that of the moneys standing to the credit of Beach Petroleum NL in your books the sum of A$5M has been assigned to this Company effective as of 10th day of May, 1989.
We would appreciate your altering your records accordingly subject to receiving confirmation from Beach Petroleum NL. Subject to our reaching agreement with you and Petrogulf Resources Limited on the extension of its existing facilities, we authorise and direct you to apply the sum of A$5M abovementioned in reduction of such facilities.”
The letter from Beach was as follows:
“Pleased be advised that of the monies standing to the credit of this Company the sum of A$5M has been assigned to Spargos Mining NL as at 10 May 1989.
We should appreciate you altering your records accordingly to reflect such assignment and hereafter accepting instructions in relation to such amount as Spargos Mining NL shall advise.”
“Spargos has taken an assignment of a deposit held by Beach with ELFIC. Both boards have approved it. If the loan facility goes ahead, Spargos will give the deposit back to ELFIC in reduction of the Petrogulf facility. Here are the letters to enable ELFIC to take the deposit but you mustn’t hand them over until the deal is settled. I don’t want ELFIC taking the deposit and not lending the money to Inspar.”
69 Mr Thomas said that it did not seem appropriate to send a letter from Spargos unless on proper letterhead. Mr Fuller said he would organise some letterhead and in some way he furnished it to Mr Thomas who asked his secretary to type the letter. Mr Fuller said he could not wait while this was being done as he had to catch a plane to Adelaide. Mr Thomas asked him to wait but Mr Fuller said he would sign blank letterhead, which he did, some being on Spargos’s, some on Beach’s and some on Claremont’s letterhead. The letter sent by Spargos to ELFIC was so signed and typed.
70 Mr Thomas said that at some time before 12 May 1989 he was told that Beach had assigned its deposit with ELFIC to Spargos in exchange for an assignment by Spargos to Beach of the US dollar equivalent of that sum from a deposit Spargos had with a bank in Switzerland and, at about the same time, someone, who he thought was Mr Fuller, said that it was convenient to do a transfer of the deposits, and that Spargos could use the money in Australia and Beach might need to use funds overseas.
71 Mr Thomas said he did not consider it was necessary for him to obtain any more information about the assignment of the deposit with ELFIC or the swap of deposits, and he was not asked by Mr Fuller or anyone else from Spargos or Beach to give any advice about such assignment. He said:
“At no time was I asked to, did I agree to or did I intend to advise or act as a solicitor or do anything else for Beach in respect of the assignment of the deposit with ELFIC or to give advice or act as a solicitor or do anything for Beach or Spargos in respect of the assignment of the deposit at Rahn & Bodmer.”
72 He said that because Mr Fuller told him, and he believed Mr Fuller, that the exchange of deposits had already occurred he did not consider that either Spargos or Beach was relying on him to make any inquiry or to give any advice about the transactions. He considered that both Mr Fuller and Mr Cummings were lawyers with considerable commercial experience. He assumed that they, their fellow directors and the management of Spargos and Beach were conscious of their obligations to the companies and had given the appropriate consideration to the transactions and decided that they were in the interests of Spargos and Beach.
73 He did not consider the assignment to be unusual or complicated, and he said it was a transaction in which both Spargos and Beach gave equal consideration. He believed that Mr Fuller and Mr Cummings and other directors of the companies were competent and honest businessmen, and it did not occur to him that the deposit in Switzerland could be encumbered as Mr Fuller had told him it had been assigned.
74 At 9.15am on 12 May 1989 Mr Fuller told Mr Thomas by telephone that he would be spending a couple of days fishing. Mr Thomas told Mr Fuller that Elders was insisting that the charge must have a representation that Rothschilds had given its consent to the second charge. Mr Fuller said he was willing to go ahead on the basis that an undertaking was given to obtain the consent within a definite time or, alternatively, the Petrogulf facility might not be reduced and the funds could be used to settle for Inspar. He said to Mr Thomas he had told Ms Ritchie it was impossible to get the consent in time for drawdown on 12 May 1989.
75 Mr Bateman said that his first involvement with the currency swap transaction was on 12 May 1989. On that day Mr Fuller telephoned him and told him he had tried to speak to Mr Thomas who was unavailable. He asked Mr Bateman to tell Mr Thomas that ELFIC was offering a facility of $3.8million to Inspar to finance the payment to the Petrogulf shareholders who had accepted the Inspar bid. Mr Fuller said that the solicitors for ELFIC required that the directors warrant to ELFIC that they had consent to the facility from Rothschilds and that this could not be done until it had been through credit committees, which would probably take a week. Mr Fuller also said that he agreed to reduce the Petrogulf facility by $5million on the assumption of getting the Inspar facility, that he could not communicate with Ms Ritchie, and that Peter Hawkins, the managing director of Roach Tilley Grice, a stockbroking firm in which the Elders IXL group were said to have an interest, had been told that unless the Inspar facility could be obtained it would not be possible to meet the undertaking to reduce the Petrogulf facility by $5million. Mr Fuller continued that he wanted to advise ELFIC that it must understand that the Inspar facility would proceed when the consent of Rothschilds was obtained and, in the meantime, that Beach would assign its deposit with ELFIC to Spargos and Spargos would use $2.5million to satisfy key people in the Inspar bid, excluding “internals or friendlys”. Mr Fuller said it would not be possible to reduce the Petrogulf facility by $5million “today” and that this assumed that ELFIC would not accept the representation that consent from Rothschilds would be obtained “next week”.
76 Mr Bateman asked about the significance of Rothschilds and Mr Fuller told him that it and the National Australia Bank had given a syndicated gold loan secured over the Bellevue mine and that Mr Winby had told him that while Rothschilds would not be a problem, National Australia Bank’s consent may take some time as it would have to be referred to its credit committee. Mr Bateman said he was unfamiliar with many of those matters, although he was aware that Inspar, which was a subsidiary of Spargos, had made a bid for the shares in Petrogulf. He agreed to pass the information on to Mr Thomas.
77 Mr Bateman said he did not recall any subsequent discussion on 12 May 1989 with any of Mr Thomas, Mr Fuller or Mr Cummings. His diary recorded an appointment at 10 am on that day with Mr Cummings but he said he could not remember what occurred during this appointment or those attendances and he had no further involvement in the currency swap transaction until 16 May, on which date either Mr Thomas or his secretary presented to him for signature two letters to Spargos and a letter to Beach which he signed.
78 Mr Thomas said that on 12 May 1989 he had another conversation with Mr Fuller in which Mr Fuller told him that he was looking to give ELFIC the deposit “but only if they lend about two and a half million or so now”. Next Mr Thomas had a telephone conversation with David Turnbull of ELFIC who told him that ELFIC wanted the Petrogulf facility reduced by $5million immediately and that ELFIC needed a direction from Beach about the $5million. In a further telephone conversation Mr Thomas told Mr Turnbull that Spargos wanted to withdraw about $2million from the existing account to be put into an account in its name. Mr Thomas said:79 Mr Thomas learnt that the deposit might be located in Melbourne and he discussed with a Victorian solicitor a stamp duty question. Thereafter he had a further conversation with Mr Turnbull in which he asked him what ELFIC’s requirements were for Spargos to collect the deposit. Mr Thomas asked:
“It’s as if Beach takes out its 5million, gives it to Spargos and Spargos puts it into an account in its name.”
“Will it be enough if you get an authority from Beach like this:
‘Elders is authorised and directed to pay the deposit held by Elders on behalf of Beach as Spargos may direct in writing’. ”
80 Mr Thomas composed and made a note of the proposed authority because he was concerned that the letter from Beach of 11 May 1989 might be construed as a memorandum evidencing an assignment of property and attract stamp duty payable by Spargos as the assignee. He remembered considering whether Spargos could choose not to use the letter from Beach of 11 May 1989 but request Beach to write a different letter along the lines of that he had proposed to Mr Turnbull.
81 In those circumstances Mr Thomas had a telephone conversation with Mr Cummings who told him that Mr Glossop had spoken to Rothschilds, which wanted to see the proposed charge documents before it decided whether it would consent and before the documents were signed. Mr Cummings said that Spargos would use the deposit by directing ELFIC to pay $3million in reduction of Petrogulf facility and $2million to Inspar. After that telephone conversation Mr Thomas deleted the figure “5” in the second last line of the last paragraph of the letter on typed letterhead from Spargos of 11 May 1989 and substituted the figure “3”. He then spoke to an officer of ELFIC and told him he would prepare letters addressed to ELFIC setting out the basis of Spargos’s instructions for dealing with the $5million. He was told there was no problem with Spargos withdrawing that money provided instructions were received by 11 am on the following Monday.
82 Mr Thomas subsequently told Mr Glossop that he would ensure that the currency swap was recorded in Spargos’s books as a purchase and not as a derivatives transaction; that the deal with ELFIC had been done, so that the money for the takeover should be with him on Monday; and that he should check with R & B to make sure they had done their paperwork. At that stage Mr Thomas did not know the correct name of the Swiss bank was Rahn & Bodmer. He referred to it incorrectly.
83 On the evening of 12 May 1989 Mr Thomas dictated a draft letter from Beach to ELFIC, which was based on the note he had written during the conversation with Mr Turnbull, and a draft letter from Spargos to ELFIC being a direction to ELFIC to pay the $5million deposit in the manner that Mr Cummings had told him had been agreed. He had the letters typed, and on 15 May spoke to Mr Fuller and asked him if the letters were OK. Mr Fuller confirmed they were and agreed to his request to use them. Later Mr Thomas had another telephone conversation with Mr Fuller and made certain changes to which Mr Fuller agreed. Mr Fuller asked Mr Thomas whether the letter could be printed on the letterhead he had left with him. Mr Thomas told Mr Fuller that there would be a problem in simply ignoring the 11 May letters “because they have been signed and delivered”. Mr Fuller said that if that was the case and if they could not be taken back “we will just have to send them”. Mr Thomas said that he would sent all four letters to ELFIC which he did.
84 On 15 May 1989 Spargos wrote to ELFIC enclosing a copy of a letter of authority and direction forwarded to ELFIC by Beach and pursuant to that direction asking ELFIC to pay the deposit of $5million, $3million to the credit of Petrogulf in partial repayment of the $3,078,000 facility advanced by ELFIC on or about 4 January 1989 and $2million to Inspar. That letter together with the letters of Beach and Spargos to ELFIC of 11 May 1989 and a further letter dated 15 May 1989 from Beach to ELFIC authorising it to pay the deposit of $5million as Spargos directed, were sent on 15 May by Mr Thomas to Ms Ritchie by facsimile.
85 On 16 May 1989 Mr Bateman signed a letter addressed to Beach referring to the “currency swap” transaction and enclosing copies of the correspondence and the original directors’ resolution of Beach authorising the transaction. On the same day Mr Bateman signed a letter addressed to Spargos enclosing copies of resolutions by Spargos (together with originals) and Beach in relation to the currency swap transaction and advising on what had occurred. Mr Thomas prepared the letter to Beach and arranged for Mr Bateman to sign it. He said that it was sent to Beach because Mr Fuller asked him to and not because he regarded Beach as his client. He regarded Spargos as the client and added that he would not have written to Beach or known to address the letter, as it was, to the attention of Mr Worthington. He considered it consistent with good practice that Beach be informed of what had happened to the deposit and how its share of interest would be paid to it and he said it was also necessary to return the original resolution to Beach.
86 On the afternoon of 16 May 1989 after receipt of the letter, Mr Worthington telephoned Mr Bateman. They spoke for about ten minutes. Mr Worthington asked “Is the US$5 million hedged?” referring to the money Beach was supposed to have received by way of contemporaneous assignment from Spargos. Mr Bateman told Mr Worthington that he did not know and suggested he speak to Mr Fuller.
87 Subsequently, Mr Thomas created a sub-file for the currency swap transaction and, on 20 June 1989, he sent a memorandum of professional fees, not in evidence, to Spargos. He did not send any memorandum of fees to Beach. It did not occur to him to do so.
88 At a meeting attended by Mr Fuller, Mr Johnson and Mr Main at R & B on 13 and 14 September 1989 the back to back arrangements at R & B were rearranged so that the monies purportedly on deposit by Spargos, Enterprise, Jingellic and Beach were thenceforth in the name of Firstway. Beach alleged that on those dates plans were effected to put in place arrangements disguising the illegal scheme entered into at R & B in October 1988. Under that scheme R & B ostensibly made loans in a foreign currency to IRL and IRAG and those companies ostensibly paid the amount of the loans into the escrow account of Brooke Blair Russell (BBR), London solicitors retained by Mr Johnson. In turn BBR as escrow agent ostensibly paid from the escrow account the various amounts which appeared to be credited to Spargos, Enterprise and Jingellic in their accounts at R & B to be treated as repayment of their deposits.
Loans to Beach
89 On 8 June 1989 Mr Cummings told Mr Bateman that Jingellic and Enterprise were proposing to lend money to Spargos in connection with the proposed acquisition by Beach of Burbank. Mr Bateman discussed with Mr Fuller and Mr Cummings the appropriateness of Enterprise being involved in lending and the application of s229 of the Companies Code from the point of view of Enterprise. Section 229 imposed duties and liabilities inter alia on directors of corporations. The concern was whether it was appropriate to have Enterprise lending money to Spargos, which would then lend it to Claremont, the possible concern about s229 being that Enterprise was not involved in the oil and gas sector, but rather the gold mining sector. Mr Bateman denied that he was discussing whether it was appropriate for any of Spargos, Enterprise, Jingellic or Beach to be involved in the acquisition of Burbank at all. That was a matter for them as directors. Mr Bateman said that the problems posed by s229 were not really matters a lawyer could express a view on because the relevant commercial considerations that would affect the decision of a director could not be substituted for by a lawyer giving advice. He said it was a matter of “their business judgment” and it was not of concern to him nor his province whether they made the loans.
90 On 3 July 1989 Mr Cummings telephoned Mr Bateman, mentioned Burbank and referred to loans. Mr Bateman said he did not understand the transactions to which he was referring and asked what loans he was talking about to which Mr Cummings replied a loan from Enterprise to Spargos and from Spargos to Beach. Mr Cummings continued that Mr Winby was threatening to resign because he was concerned at being involved as a director of Enterprise in a lending to Beach. According to Mr Winby, that used all Enterprise’s remaining funds and he did not hold an expectation of short term recovery of them. Mr Cummings asked Mr Bateman to give the matter some thought and telephone Mr Winby. Mr Bateman conferred with Mr Ferguson, Mr Thomas and Mr Willcock.
91 On 4 July 1989 Mr Fuller telephoned Mr Bateman and said that Mr Cummings and he had resolved that Spargos, Enterprise and Jingellic lend money to Beach for the purpose of financing the acquisition of Burbank; that Beach had acquired Burbank; that Mr Winby thought that if funds were applied Enterprise and Spargos might not be able to meet their commitments; that in fact he thought the companies’ position would be enhanced and that he was prepared to consider resignation later if Mr Winby’s prediction came true. He also said that Mr Winby’s resignation would severely prejudice the application to Standard Chartered. Mr Bateman asked what that was, to which Mr Fuller replied that Spargos and Enterprise were borrowing from Standard Chartered.
92 Later in the conversation Mr Fuller told Mr Bateman that Mr Cummings and he had resolved to do the business; that Mr Main did the lending under power of attorney over the weekend; that Mr Winby had not authorised the transaction; and that any further directors’ meeting was only to ratify what had happened. Mr Bateman said to Mr Fuller there may be conflicts of interest between the directors and, if there were, they should obtain independent legal advice. He said that as ATRK were acting for Spargos, whatever advice was given to one director had to be equally available to all others. Accordingly, the advice ATRK gave to Mr Winby should be equally available to Mr Fuller and any other director.
93 The prime advice was that if the director did not feel that what was done was proper, the director should resign. This was the safest course to avoid personal liability on the part of a director. If the director was not prepared to resign then, he must, at the very least, oppose any resolution passed to ratify what had happened and he should insist on his opposition being recorded in the minutes of the meeting. Having opposed the ratification resolution the director should consider resigning in any event. If the director continued on as a director and did not resign the director could still trip up and incur personal liabilities because there were ongoing duties. In relation to those ongoing duties, it might be the director should advise the Corporate Affairs Commission of any breaches of law of which he was aware or use his powers under the articles to convene an extraordinary general meeting and propose a resolution such as a vote of no confidence in one or more of the directors or seek to appoint a provisional liquidator to preserve the position of the company or seek a declaration that an unauthorised or improper payment was made.
94 Later on 4 July 1989 Mr Bateman met with Mr Ferguson and Mr Willcock and discussed with them the advice given. He informed Mr Winby of the advice and received a facsimile from Mr Cummings stating under the heading “Board Stability”:95 On 10 July 1989 Mr Cummings telephoned Mr Bateman and told him that it was necessary to document the loans made by Enterprise, Spargos and Jingellic to Beach. He said he would like to discuss with Mr Bateman the question of directors’ duties in relation to those loans and that he was thinking of the bona fides of and benefit to each of the lenders. He also said he wanted to discuss the period of repayment and the security to be taken for those loans and wished to have a meeting. This was held on 12 July 1989. During the meeting Mr Cummings said that he wanted ATRK to act for Spargos on the loan to Beach by the consortium of Spargos, Enterprise and Jingellic and to prepare the necessary documentation. He continued:
“The clarity of your advice seems, for the moment, to have settled things down and no resignations are imminent.”
96 Mr Bateman asked what had happened to Meridian which he thought had an option over Burbank and Mr Cummings told him that that had expired on 16 June 1989 and that Meridian was not proceeding but was looking at another venture. Mr Bateman said that the lender should have security over all parts of the chain, including the shares in Burbank Petroleum and that he needed to know the status of the assets comprising Burbank. Mr Cummings replied that he would get all the information from Mr Cordell, identify all the parts of the chain over which the consortium could take security and that he would like to explain the commercial justification for what each of the companies had done.
“The deal has already been done. Sheldon Cordell is acting for Beach. I have not got any documents from him to give you yet. Beach legally and beneficially acquired the total issued capital of Mazeley Limited which in turn owns 100 per cent of Burbank Petroleum Co which is the beneficial owner of 47 per cent of the north Burbank unit and 6 per cent of the south Burbank unit.”
SCAFA
97 In July 1989 Mr Thomas had a meeting with Mr Cummings at which he was told that Beach was buying an oil field in the United States called Burbank, that part of the purchase price was being funded by a loan from Spargos, Enterprise and Jingellic and that Mr Bateman had told Mr Cummings that Mr Thomas would prepare the documentation. Mr Cummings said that he wanted to make sure that it was in proper order “especially because Spargos, Enterprise and Jingellic are lending money to a company which has directors common to each of them”. Mr Cummings continued that he wanted to make sure that everybody could see that the interests of Spargos, Enterprise and Jingellic had been properly protected. Mr Thomas told Mr Cummings that he wished to make it very clear that he could not act for both lenders and the borrower in the transaction and that he would act for the lenders but Mr Cummings would have to find someone else to act for Beach. Mr Cummings agreed and said that Mr Cordell would do so.
98 Because of other commitments it was not until August 1989 that Mr Thomas took steps to draw up the documents. After preparing a resume of the proposed transactions he had a conversation with Mr Cordell about it on 4 August 1989. By 9 August he had prepared a draft of the proposed loan document which came to be known as SCAFA and on 10 August he received a further letter from Mr Cordell to whom he wrote on 11 August enclosing a draft of the proposed agreement.
99 On 16 August 1989 a list of title documents was forwarded to Mr Cordell concerning the Burbank oil field. On 22 August Mr Thomas received a letter from Mr Cordell stating he had reviewed the material with Mr Fuller and that a number of amendments had been made. On 30 August Mr Thomas received a further letter from Mr Cordell enclosing a copy of a letter he had sent to Mr Cummings. On or about 22 September Mr Thomas prepared a further draft of the SCAFA in which he included as Schedule 1 the commitments of Spargos, Enterprise and Jingellic in the respective amounts of A$2.35million, A$7.9million and A$4.275million. On 4 December 1989 Mr Cordell wrote stating that he would need instructions from the client, Beach. On 5 January 1990 Mr Cordell wrote a letter enclosing various documents relevant to the transactions in accordance with instructions received from Mr Cummings of Beach.
100 From time to time before 4 October 1989 Mr Thomas had told Mr Cummings that he needed instructions as to the precise amounts Spargos, Enterprise and Jingellic had lent Beach so that he could include the correct figures. On or shortly before 5 October copies of letters from R & B dated 14 September 1989 and addressed to each of Spargos, Beach, Enterprise and Jingellic were delivered to him stating that as at 30 June 1989 those companies held deposits at R & B which “were not encumbered in any way”. Mr Thomas telephoned Mr Cummings and sought confirmation that the principal referred to in the R & B letters “is the amount those companies lent Beach” to which Mr Cummings replied by words to the effect of “yes”. Mr Thomas assumed that the letters from R & B set out factual information as to deposits.
101 With a view to avoiding the imposition of stamp duty Mr Thomas proposed that the SCAFA should be executed in the ACT. It was his practice in 1989, in those circumstances, where there were a number of parties who did not have a representative in the ACT, to offer the services of Mr John Buxton of the Canberra firm of Abbott Tout Russell Kennedy, a partnership separate from and independent of ATRK, to act as attorney under power.
102 On 5 October 1989 he prepared powers of attorney in favour of Mr Buxton and himself from Spargos, Enterprise, Jingellic and Beach and at 6.15 pm on that day he attended at Beach’s offices and met Mr Cummings, Mr Fuller and Mr Worthington. He took with him the latest draft of SCAFA and the four powers of attorney and went through the changes that had been made since it was approved by Mr Cordell. Towards the end of the meeting Mr Fuller said that it was not certain whether Beach had 43 per cent or 47 per cent of North Burbank but subject to that confirmed the documents were in order and could be sent to Canberra for signing with which he said Mr Worthington agreed.
103 On 6 October 1989 Mr Thomas sent a letter to Spargos enclosing a letter of the same date to Beach which letter enclosed a memorandum of fees and statement of account addressed to Spargos. He regarded Spargos as ATRK’s client, but he knew that, under the terms of the SCAFA, Beach, as borrower, had agreed to pay Spargos’ costs, which he explained in the second paragraph of his letter to Beach. Mr Thomas said that his practice in 1989 was to refrain from sending documents such as the SCAFA for execution until final approval had been received from the client. From 11 to 24 October 1989 he spoke to Mr Cummings about other matters and ultimately obtained his final approval to send the document for execution. It was sent to Mr Buxton on 24 October, with the request that it not be dated, executed on 25 October and returned from Canberra undated. Mr Thomas wrote in the date “19 October 1989” and said he believed that it was on that date that Mr Cummings gave him final approval.
Section 12 Notices
104 On 27 June 1989 the NCSC issued notices under s12 of the Companies Code to Beach and Claremont requiring the production of books and other documents relating to any moneys received or applied by the companies during the period from 1 January 1988 to 26 June 1989 being amounts of not less than $500,000 and excluding amounts which related only to operating costs.
105 Despite Mr Bateman’s writing on 6 July 1989 to Frances O’Halloran, the secretary of the IRL group companies in Perth, indicating that the managing partner had directed that no further work be undertaken until money due on ATRK’s outstanding accounts by 30 June 1989 was paid, on 5 July 1989 ATRK by Mr Willcock accepted instructions from Mr Cummings on behalf of Beach and Claremont to attack the s12 notices. Mr Willcock made some telephone notes of Mr Cummings’ telephone call. These included a note - “don’t want them looking at an incomplete transaction (Burbank)?” [The underlining appears in the document].
106 ATRK wrote to the NCSC on 7 July 1989 declining to make available documents in accordance with the s12 notices, maintaining that the notices were defective.
107 On 11 July 1989 Mr Bateman discussed with Mr Willcock a draft letter to the NCSC which Mr Willcock had prepared for the consideration of Mr Fuller and Mr Cummings. Mr Bateman had a conference with them to discuss the draft letter and created a file note recording that either Mr Fuller or Mr Cummings said that they wanted the letter to state first that the NCSC was simply fishing and second that in the past there had been cooperation when the NCSC had identified areas of concern and this would not change. They wanted to object to notices being used for fishing and for the NCSC to identify areas of concern, stating there was nothing to hide. They wanted to remove any references to harassment from the draft letter.
108 On 12 July 1989 Mr Bateman discussed the draft letter with Mr Willcock and considered certain correspondence. The letter was sent later on 12 July and after further exchanges with the NCSC, Mr Cummings told Mr Bateman that the documents sought would be assembled and produced for inspection. This apparently happened on 18 July.
Commercial Justification
109 On 12 July 1989, Mr Bateman conferred with Mr Cummings. According to Mr Bateman’s evidence, Mr Cummings put before him a number of ways in which various companies in the group could justify the actions that had been taken. Mr Cummings said that Jingellic could take the view that gold was not a good thing to be in for the next two years; that its Australian dollar loan to R & B was at low interest rates and could be better invested; that interest rates would stay high in Australia for two years; that the Australian dollar would fall from 75 cents US to 70 cents US over the coming year; that oil/gas were appreciating assets; that if Jingellic lent in US dollars to Beach payable in two years at 22 per cent and did not hedge and took security over an asset worth more than US$28million consisting of oil and gas interests in the USA, it had the best of all worlds.
110 Mr Cummings continued that Beach could take the view that it had not been able to borrow externally to acquire Burbank; that this was an opportunity which could not be missed; that it could repay early to get out of the high interest rates and that it could hedge its borrowing. He said that Enterprise could take the view that its position was the same as Jingellic and that it wished to lend $4million short term for 180 days and $3.9million longer for 730 days.
111 In relation to Spargos he said that it could take the same position as Jingellic; that pursuant to its view about gold, it had already taken a position in Claremont, via Petrogulf, and Meridian on the oil sale and that a balanced asset portfolio had been pursued; and that it would be back to back for its loans from Jingellic and Enterprise. Mr Cummings also said it was the syndicate head and received $100,000 for itself; that it would, by putting the syndicate together, get a representative on the field management committee so as to further its oil and gas involvement; and that it lent its own $2.355million short term because it may need the money soon.
112 Mr Bateman said that during this part of the conversation he said little or nothing and that the commercial explanation Mr Cummings gave to him “appeared to be reasonable”. Mr Cummings continued that the end result would be that Jingellic would lend Spargos $4.275million for 2 years; that Enterprise’s loan to Spargos of $4million was for 180 days, but that its loan to Spargos for a further $3.9million was for 2 years; that Spargos on-lent to Beach the two sums it borrowed from Enterprise and Jingellic for 2 years; and that Spargos also lent to Beach for 180 days the $4million Spargos borrowed from Enterprise for that period plus Spargos’ own $2.35million. Mr Cummings told Mr Bateman that Spargos was the mortgagee and set out the terms on which the loans were to be repaid and the information he had from Mr Cordell and Mr Main as to loans, purchase price and the like which Mr Bateman recorded.113 From the point of view of Beach the crucial date with respect to the Charge and Option Agreement was 11 May 1989. On that date its Board of Directors comprising Mr Fuller, Mr Cummings and Mr Main resolved as follows:
The Charge and Option Agreement
“1. To exercise the option to acquire a 47% interest in the Burbank Oil Fields in Okalahoma [sic] if an appropriate and satisfactory price can be negotiated in the region of US$21 million to US$26 million, subject to satisfactory evidence of title and appropriate documents.
On the same day Mr Fuller wrote to Mr Cordell outlining the terms of the resolution and to the following effect:
2. To authorise and instruct Sheldon Cordell of Joelson, Wilson & Co Solicitors acting on the company’s behalf, to begin negotiations on the price to be paid within the range above, commencing at the lowest price.”
“Kindly note that at all material times Claremont in dealing with the Burbank interest and affiliated interest has been acting as a duly appointed and authorised agent for its principal Beach Petroleum NL.”
114 In May 1989 the Charge and Option Agreement was again amended to a form which was executed on 29 and 30 June 1989. The agreement as executed recited that in consideration of the advance by Beach to Firstway of US$8,197,564 between 13 September 1988 and 19 April 1989, which was referred to as the option fee, Firstway granted to Beach and Claremont a charge over the issued capital of Mazeley and the option to purchase that asset for US$28million less the amount of the option fee and any borrowings of BPC and BOG that remained outstanding. Beach exercised the option by notice on 30 June 1989. Beach did not allege that ATRK knew either that the acquisition of the Burbank oil field interests was not an arms length transaction or that the price paid by it was inflated “so as to strip Beach of its assets”.
115 Mr Bateman did not consider the Charge and Option Agreement dated 29 June 1989, the notice of exercise of option dated 30 June 1989 or the side letters, until 21 July 1989, when he was instructed to prepare security documentation in relation to the loans made by Spargos, Jingellic and Enterprise to Beach. He became aware on 28 April, 2 May and 8 June 1989 of proposals that Spargos make a loan to Claremont, which Claremont would on-lend to Beach, to enable Beach to acquire Burbank. Mr Bateman denied that he received or discussed a facsimile dated 9 June 1989 addressed to him from Mr Cummings headed “re Oil Investment”.
116 Before the Charge and Option Agreement was executed Mr Bateman was never asked to advise Beach and never gave it advice about any aspect of the agreement or the exercise of the option. He said that the proposal that Beach purchase an interest in Burbank had been mentioned to him on several occasions but he was never asked to do anything or to give any advice and he would not “have anticipated any such instructions”. The English solicitors, Gardner Weller, of which firm Phillip Ringrose was a partner, acted for Firstway and Joelson & Wilson for Claremont and Beach.
117 The agreement operated to the detriment of Beach in three ways. First, moneys owing by Claremont to it were reduced by the deduction of $8,197,564 paid by Claremont on behalf of Beach which became the option fee payable under the Charge and Option Agreement. Second, there was an appropriation in favour of Firstway of payments made by Beach in discharge of a loan of $14,525,000 purported to have been made to it by Spargos, Enterprise and Jingellic pursuant to the SCAFA. Those companies had no money to lend Beach so that the payments were not in discharge of any loan and Beach derived no benefit from them save to the extent of obtaining an asset worth US$3.2million. Third, there was a provision by Firstway of vendor finance of $6,028,704 in respect of the balance, an amount which was never paid.
118 On 21 July 1989 the Charge and Option Agreement was placed before Mr Bateman. He gave Mr Cummings extensive legal advice about amendments which he considered should be made to the agreement. Mr Cummings communicated these amendments to Mr Cordell and they were essentially incorporated in the agreement. The amendments related to and affected the position of Beach. In particular, they brought about a situation whereby the 90 per cent interest Beach was intended to take was converted into a 100 per cent interest. Claremont, which had held the other 10 per cent interest, continued to hold it as agent for Beach. ATRK said that they were retained to act for the lenders under the SCAFA and not retained to act for Beach and that in those circumstances it was totally appropriate for them to suggest amendments to the transfer document to ensure that the lenders were protected.119 Rolfe J said that Beach’s principal claim in the proceedings was for ATRK’s alleged breach of fiduciary duty to Beach and their knowing assistance of various breaches of fiduciary duties by Beach’s directors. Additional or alternative claims were ATRK’s knowing involvement in breaches of provisions of the Companies Code and negligence. His Honour outlined the way that Beach put its principal claim Beach Petroleum NL v Abbott Tout Russell Kennedy 26 ACSR 114 at 130-131:
ROLFE J’S REASONS FOR JUDGMENT
(a) ATRK, at all material times, carried on practice in the area of corporations law, takeovers, mergers and acquisitions and two of their partners, Mr Bateman and Mr Ferguson had particular experience and held themselves out as experts in that area of practice.
(b) Early in 1989 ATRK accepted instructions to advise the IRL group in relation to its proposed restructure and refinance, including the structure and funding of the proposed acquisition of Burbank. Members of the group included IRL, Spargos, Enterprise, Jingellic, Claremont and Beach.
(c) Those companies had a number of common directors and, in particular, Mr Fuller and Mr Cummings and, when the Burbank acquisition came to be implemented, Mr Main. The group was effectively controlled by Mr Johnson.
(d) When ATRK entered upon advising the IRL group, they assumed a relationship of trust and confidence with all of the companies in the group and Mr Bateman and Mr Ferguson, in particular, became privy to confidential information concerning the financial affairs of the companies and the problems they were facing. They formulated various proposals and gave professional advice in relation to the restructuring and refinancing of the group, including proposals which addressed the structure and funding of the Burbank acquisition, and they acted in a number of related ways, including the preparation of deeds of confidentiality. The advice given was of a nature and in circumstances such that it was to be expected that the companies in the group would rely on it in considering their options.
(e) The solicitor advising a group of companies is obliged to treat each member as a separate legal entity and to consult the interests of that member alone, rather than the interests of others, so that a solicitor who advises companies in a group is not in a different position, when it comes to conflicts, from a solicitor who has a number of clients with conflicting interests. A client is entitled to expect that a solicitor will be in a position to approach the matter with nothing in mind but the protection of the client’s interests against those of the other party and, in particular, the client is not required to depend upon a solicitor, who has conflicting allegiances and may be tempted, either consciously or unconsciously, to favour another or simply to seek a resolution in a way which is least embarrassing to the solicitor.
(f) A client is entitled to receive the benefit of all the skill and knowledge of the solicitor, including knowledge of the facts which are known to the solicitor and material to be known to the client, and not to suffer a divided loyalty in which his solicitor has a duty to maintain confidentiality in relation to the same information in favour of another client.
120 The starting point in putting the case of alleged breaches of fiduciary duty was that ATRK were retained to advise the IRL group (some members of which were in severe financial difficulties) about restructuring and refinancing. The issue was the extent of ATRK’s retainers, from which companies they were received, and, if they were received from the group, whether Beach was part of it. Rolfe J said that it was very difficult, in his opinion, to conclude that Beach was not part of the group. ATRK admitted that they advised IRL in relation to proposals to rationalise cross shareholdings between it and related companies and from time to time in relation to various proposals for rationalising the structure “of the so called IRL group”. ATRK denied that they were retained to give advice in respect of the refinancing of the IRL group, or in regard to the proposed restructuring and refinancing of the IRL group.
121 The case for Beach was that ATRK acted for various companies in the group, including Beach, on at least three significant occasions where there were conflicting interests between those companies and Beach. This was said to be under the general retainer of ATRK to act for the group in the restructuring and refinancing, once ATRK became aware that Beach’s acquisition of the Burbank interest had become, and was recognised by them as having become, a central part of the restructuring and refinancing. Although the proposed takeover did not go forward, the acquisition by Beach of the share in Mazeley did and in this way Beach was deprived of assets and money. Beach submitted that had ATRK not breached its fiduciary duty to it, the existence of the fraud would have been disclosed, or the proper activities of ATRK would have precluded the perpetrators of the fraud from proceeding with it, with the consequence that Beach would not have suffered financial loss. Beach submitted that it was sufficient that this breach was a cause of the loss.
122 The significance of the position at R & B, which was concealed not only by the fraudsters but also by officers of R & B, was that notwithstanding that the moneys could not be used, Spargos, Enterprise and Jingellic acted as if they were free to draw upon them. Beach’s case was that ATRK acted not only for Spargos on the currency swap but also for Beach and, at the very least, owed it a duty to ensure that it received value for the assignment in the form of valuable consideration in Switzerland. Beach submitted that there was a clear conflict of interest between Beach and Spargos in the sense that the asset of Beach was being paid to Spargos and a proper consideration of the position of Beach necessitated ATRK’s being satisfied that Spargos gave value to Beach for that assignment. But for this breach of fiduciary duty it would have ascertained that there was no money available to Spargos in Switzerland to enable it to make the assignment to Beach and that the rest of the scheme which involved the utilisation of the funds of Spargos, Enterprise and Jingellic in Switzerland, would not have been implemented.
123 As to the Charge and Option Agreement, Beach’s case was that at the meeting of 2 May 1989 the focus was not on what Beach was acquiring or whether it was obtaining value for money, but upon other aspects of the transaction, mainly funding, which paid little, if any, regard to the position of Beach. Beach submitted that in these circumstances there was an obligation on ATRK to advise Beach fully in relation to the proposed acquisition.
124 Alternatively, had Mr Bateman made himself aware of the nature of the transaction he must have advised that, in the interests of Beach, it could not go ahead. Rolfe J acknowledged that a difficult point arose. Had Mr Bateman become aware of all relevant facts in relation to the Burbank transaction and advised Beach on them, and had the directors simply refused to accept that advice and ceased to instruct Mr Bateman, his advice would have been beside the point. The directors would have perpetuated the fraudulent scheme, irrespective of it. A further complication was that the evidence suggested that if it came to the notice of Mr Bateman that the directors were not acting in the best interests of Beach there was an obligation on him to inform Beach, that is by writing to all the directors of Beach and also to the company secretary and/or the chief executive officer.
125 Beach submitted that the position in relation to the Charge and Option Agreement changed on or about 21 July 1989 when it was placed before Mr Bateman and he gave extensive legal advice about amendments which he considered should be made. These amendments were communicated to Mr Cordell and, essentially, incorporated in the agreement.
126 Beach submitted that the s12 notices directed to it raised immediately the question as to the nature of the Burbank acquisition transaction. ATRK had instructions from Beach to attack the notices. Beach claimed that ATRK should have ensured that the notices were complied with. Beach further claimed that there was a conflict of interest in ATRK acting both for Beach and Claremont in response to the notices.
127 Finally, there was the SCAFA prepared by Mr Thomas. Beach pleaded that ATRK was retained by it to act on its behalf or assumed duties to it in respect of the SCAFA and in breach of those duties, inter alia, did not advise Beach that they had a conflict of duty and did not disclose to Beach all the facts in their possession concerning the SCAFA.
128 As appears from the fate of the proceedings, Rolfe J found against Beach. Beach had disclaimed any allegation that Mr Bateman was a fraudster. Rolfe J was “totally satisfied” that none of Mr Bateman, Mr Ferguson or Mr Thomas was guilty of objective dishonesty and accordingly ATRK were not. Rolfe J described Mr Ferguson’s evidence as vague, stemming from his lack of recollection in so far as he was not assisted by notes. He formed the impression that Mr Ferguson was giving truthful evidence to the extent his memory allowed, and that his stated lack of recall of events some eight years previously was genuine.
129 Rolfe J said there was no doubt that Mr Johnson, Mr Fuller, Mr Cummings and Mr Main were determined to deprive Beach of its substantial assets by a totally fraudulent scheme. Moreover, Rolfe J was satisfied that irrespective of any legal advice Mr Bateman gave or may have given, the directors would have pursued the proposed fraudulent course to ensure that moneys were removed from Beach and used for purposes they had in mind.
130 However, it was necessary to determine what ATRK were retained by Beach to do. In so far as they were retained, they were receiving instructions from those who were perpetrating the fraud. ATRK themselves were unaware of the fraud. Rolfe J did not consider it proper to look at all matters being embraced in what was said to be a general retainer. The evidence made it clear which solicitors were retained and for what purpose in relation to the various transactions. Mr Bateman agreed in evidence that the IRL group was an important group of clients to ATRK and represented his biggest client during 1988 and into 1989. Until late 1989 they were clients he wished to keep and he and Mr Ferguson worked closely together on their matters during 1988 and the first half of 1989.
131 Rolfe J was satisfied that the instructions relating to the restructuring and refinancing of the IRL group were confined to a consideration of various proposals whereby the total number of companies in the group could be reduced to either one or two by a series of takeovers which, in turn, would require the provision of finance. He said that would have been necessary to enable shares to be purchased by the takeover companies from the target companies and that in his opinion the evidence established and, in this respect, he accepted the evidence of Mr Bateman and Mr Ferguson, that it was necessary to look at various proposals, including financing in the context referred to and, in doing so, to look at the relationship of the companies within the group, including Beach, and, to some extent, to consider their internal financial positions. The expression “to some extent” involved accepting the evidence of Mr Bateman as to the limitation on this for his purposes. His Honour did not regard that exercise, even to the extent of a more detailed consideration of the financial positions of companies within the group, as leading to any conflict, which could be described as ‘a real sensible possibility of conflict’. Of course, in carrying out this task it was necessary for ATRK to be furnished with certain information about each of the companies in the group. But, in his Honour’s opinion, no proposal could have been worked out without such information and without having regard to each company in the group. Rolfe J accepted Mr Bateman’s evidence that if a stage was reached where it was decided to go ahead with any particular proposal then the various parties would be separately represented.
132 Rolfe J was not satisfied that any instructions were given by Beach in relation to these proposals. Its position was undoubtedly taken into account, but it was not a party, which sought to give instructions. His Honour was of opinion that the instructions were given either by IRL or by the management company, CMS, to which latter company accounts were rendered. His Honour was satisfied that the currency swap transaction was not, in its original implementation, part of the Burbank acquisition procedure. The Burbank acquisition finance was not connected with it. The amount the subject of the currency swap transaction was only sought to be linked with the Burbank acquisition when it became necessary to disguise the re-arrangement of the deposits on 13 and 14 September 1989 to which we referred in para 88.
133 Rolfe J accepted Mr Bateman’s evidence that at the meeting of 22 February 1989 it was not his function to discuss anything other than the bids, the cost of undertaking them and the facilities ELFIC had offered. He was not there to give advice about questions of debts and cash flow, the value of assets and the refinancing options. Nor did he give such advice. Mr Bateman said that Beach did not “really arise in the restructuring at all”. It just happened to be an asset of one of the companies, namely Claremont, for which a bid was to be made. He denied he was giving advice to the controllers of Beach as to the effect that it would sell its shares in Spargos at a price to be nominated. He said that all he was doing was setting out a possible scenario based on the instructions he had received “and merely doing a mathematical process in some cases to identify what the effect is of making such theoretical bids” and, if such bids were made, the impact on the person making the bids. He said the exercise was theoretical, to consider what would assist in the restructuring so as to reduce the number of listed companies of fifteen to a smaller number. Rolfe J accepted this evidence which he said was consistent with the ambit of the retainer he was satisfied ATRK had.
134 Mr Bateman said the restructuring he was undertaking did not have to involve regard to the financial position of the companies, as the restructuring considerations were theoretical. He agreed there were types of restructuring where one undertakes such financial consideration, for example where a scheme of arrangement is being undertaken, but he said that the types of restructuring he was considering did not involve that, and that, during the course of his theoretical restructuring analysis, it was irrelevant who ended up controlling the group. Rolfe J said that this evidence was consistent with his instructions and he accepted it.
135 Rolfe J said that whilst at first blush the lack of detailed financial information for the purposes of considering the takeover structure might have seemed strange, Mr Bateman was a solicitor with experience in the field. He gave detailed reasons why he did not require such information. His Honour thought the evidence inherently credible and was convinced that he should accept it.
136 Dealing with Beach’s claim that ATRK was in breach of a fiduciary duty owed to it, Rolfe J reviewed the cases and turned to consider the various ways in which Beach alleged the retainer of ARTK gave rise either by its terms or by some assumption of duty to circumstances in which conflicts of duty arose.
137 As to the Charge and Option Agreement, ATRK were not instructed to act for any of the companies in relation to the entry into that agreement and its completion. Rolfe J said (26 ACSR at 275-6):
“The way in which it is sought to embroil ATRK into the entry into this agreement is by virtue of the advice given on 2 May 1989 that there would be no breach of s129. First, it is by no means clear that that advice was related to the acquisition of Burbank. However, even if it was, there is not a skerrick of evidence from which the inference could be drawn that that advice caused the entry into the charge and option agreement. …..
Accordingly I do not consider that ATRK had any retainer to act in respect of the charge and option agreement, nor does the evidence satisfy me that they assumed any responsibility in connection with the entry into that agreement.”
138 Not only was Mr Bateman not involved in the preparation of the Charge and Option Agreement and not acting on behalf of any party in relation to it, but two other firms of solicitors in England were. The evidence did not satisfy him that Mr Bateman ever became aware that the directors were not acting in Beach’s best interests.
139 Rolfe J accepted Mr Bateman’s evidence about ATRK’s statement of account to CMS dated 29 June 1989 for the period up to 23 June 1989, which was paid on 24 November 1989, and his response to Mr Cummings saying that he was looking at what legal fees might be passed on to Beach as the borrower under the SCAFA. Mr Bateman said that he did not think any of it fell under SCAFA and that he could not see how any of it might be payable by Beach. Mr Bateman said that “It was just restructuring work and work on the bids, particularly the bid by the consortium for Claremont”.
140 Mr Thomas had from time to time before 4 October 1989 told Mr Cummings he needed instructions as to the precise amounts Spargos, Enterprise and Jingellic had lent to Beach so that he could include the correct figures in the SCAFA. On or shortly before 5 October 1989 copies of letters from R & B dated 14 September 1989 and addressed to each of Spargos, Beach, Enterprise and Jingellic were delivered to him stating that as at 30 June 1989 those companies held deposits at R & B which “were not encumbered in any way”. Rolfe J said that in these circumstances it was hardly surprising that Mr Thomas had no suspicions about the accounts. As to the dating of the SCAFA, Rolfe J was satisfied that Mr Thomas dated the SCAFA in accordance with and because of instructions received from Mr Cummings.
141 In relation to the currency swap, Rolfe J was not satisfied that ATRK was acting on behalf of Beach in the transaction or, if for any reason they were, that there was any conflict of interest between Spargos and Beach which required ATRK to give any advice to Beach or, more relevantly, to advise Beach to obtain independent legal advice.
142 Rolfe J said that it was inherently probable that in May 1989 Mr Bateman had no knowledge of any connection which the currency swap transactions may possibly have had to an existing proposal, which had been mentioned to him, that Beach acquire an interest in the Burbank oil fields. He accepted Mr Bateman’s denial of the receipt of a facsimile transmission addressed to him from Mr Cummings and dated 9 June 1989.
143 Rolfe J said that ATRK’s position in the currency swap was limited to drafting another letter, which may have assisted Spargos’s stamp duty position; to delivering the letters to ELFIC and to advising Spargos and Beach what had happened. Their role was confined to one side of the currency swap transaction. They were not asked to act and did not act in the assignment from Spargos to Beach in Switzerland. They were acting only on behalf of Spargos. Mr Hughes QC, who appeared both at the hearing and on this appeal for ATRK, acknowledged that the view might be taken that there was a joint retainer. If so that which had to be carried out on behalf of Beach was minimal.
144 Assuming that ATRK was acting on behalf of Spargos and Beach the question arose as to what real sensible conflict arose between the two companies on the information available to ATRK. In his Honour’s opinion, prima facie, it was difficult to see any conflict of a real sensible nature. His Honour said (26 ACSR at 274-275):
“The suggestion that ATRK should have involved themselves in investigating the commercial reasons and justification for acting in this way carries the matter far beyond the retainer, which, on the assumption I am now making, was a retainer from Beach to effect the assignment to Spargos. In saying that, of course, I must have regard to the fact that to the knowledge of ATRK there was a substantial coincidence between the directors of Spargos and of Beach, such directors being experienced directors and solicitors. There is no reason put forward why ATRK should have been suspicious of this transaction or to have required further information in relation to it. The suggestions of suspicion and apprehension about the transaction really arise with the benefit of knowledge of the fraud the directors were perpetrating on Beach, which came to light much later. That was not a matter, as is expressly conceded, of which ATRK were aware. Looked at as at mid-May 1989 the transaction seemed to be completely unexceptional and, in my opinion, did not give rise to any conflict between Spargos and Beach.”
145 His Honour added that if ATRK had, for some reason, suggested to Beach that it should obtain independent legal advice that would not have prevented the transaction going ahead. His Honour was completely satisfied that if the directors of Beach had been told that they should obtain independent legal advice they would have declined to do so.
146 Rolfe J did not accept that Mr Bateman or anyone else at ATRK was ever made aware that the deposits standing in the names of Spargos, Enterprise and Jingellic were blocked or were not available to be lent to Beach at least until the IRL or IRAG indebtedness to R & B was discharged. Rolfe J said that irrespective of what ATRK had done or said those effectuating the fraud would have ignored their advice and ensured that the fraudulent scheme was effectuated.
147 Rolfe J accepted the evidence of Mr Bateman that the reference in the memorandum of 2 May 1989 to “real Swiss Accounts” was a record of the necessity to have actual Swiss accounts, so that the flow of money could be seen through them, rather than some form of assignment of the debts and did not indicate that Mr Bateman knew that the accounts with R & B were not “real”.
148 His Honour said that there was no suggestion that the s12 notices were not complied with fully and further that “several years later the NCSC had still not analysed the documents which were produced”. All parties acknowledge that the statement quoted was wrong. His Honour was inadvertently misled. There was nothing to suggest that the NCSC did not analyse the documents properly.
149 At the conference of 12 July 1989 Mr Cummings put before Mr Bateman a number of ways in which various companies in the group could justify the actions that had been taken. Rolfe J was satisfied that Mr Bateman was merely noting suggested explanations proffered by Mr Cummings, which he considered were relevant to some activity in which he was involved as a solicitor. Mr Cummings was, to the knowledge of Mr Bateman, a commercial lawyer as well as an experienced company director and there was, therefore, nothing surprising in his ability to tell Mr Bateman of suggested justifications for what had transpired.
150 Rolfe J was satisfied that ATRK were not acting for Beach in relation to the SCAFA. Mr Cordell was. His Honour accepted the evidence of Mr Thomas that he made it clear to Mr Cummings in relation to the SCAFA that he would not act on behalf of Beach. His Honour also accepted his evidence that Mr Cummings told him that arrangements would be made for someone else to act for Beach, namely Mr Cordell, who did so.
151 His Honour was completely satisfied that Mr Thomas’s involvement was confined to acting on behalf of Spargos, Enterprise and Jingellic. He considered that Mr Thomas was a witness upon whose evidence he could safely place reliance because he regarded it as truthful and inherently probable. His demeanour confirmed this.
152 The evidence satisfied Rolfe J that ATRK accepted the retainer to act on behalf of the lenders to Beach and that they insisted that Beach have independent legal advice which it did in the form of Mr Cordell. ATRK had no knowledge either of the fraud or that Mr Cordell was involved in it. His Honour said (26 ACSR at 276):
“In so far as Mr Bateman considered the Charge and Option Agreement and gave advice in relation to it the evidence is, which I accept, that that was done in the context of his advising the lenders to Beach of the terms of the document, a practice Mr Davidson [a solicitor called by Beach to give expert evidence] said would be undertaken by solicitors acting for lenders. In relation to the SCAFA I have referred to it in some detail earlier and I think it sufficient to say, for the reasons I have given, that I am not satisfied that ATRK were acting on behalf of Beach in relation to this transaction or assumed any responsibility as solicitors to Beach in respect of it.”
153 In the result Rolfe J was of the view that the principal case put forward by Beach failed at the threshold in the sense that it did not establish that there was any retainer of ATRK by Beach, which gave rise to a conflict of interest, which in turn, demanded that ATRK should have acted differently from the way in which they did.
154 Rolfe J went on to deal with the submission that ATRK failed to cease to act with a divided loyalty, relying on what had transpired on 2 May 1989 and the circumstances of the currency swap. Beach’s submission was that even if there was not a retainer from Beach there was an assumption of a fiduciary duty to it because the relationship between ATRK and Beach was one in which matters “entirely confidential” to Beach had been communicated to ATRK for the limited purpose of their giving advice in relation to the structure and funding of the group, which they proceeded to do “in circumstances where Beach was vulnerable to abuse” by ATRK of its position.
155 Beach submitted that ATRK were, as a matter of fact, inhibited by their “double engagement”. It submitted that the inhibition arose because there was a focus on matters other than the interests of Beach and Mr Bateman’s mind was closed to giving advice to it and was not focusing on the transaction from the point of view of Beach. Counsel submitted that the breach of fiduciary duty occurred “effectively” when “the fiduciary accepts the conflicting engagements”. In the course of discussing these submissions his Honour observed that ATRK did not raise as a defence the existence of fully informed consent. Beach submitted that there was an equitable fraud because of a conflict of duty between the same directors of various companies and that Mr Bateman was aware of that breach of fiduciary duty on the part of the directors. His Honour said (26 ACSR at 279):
“But the evidence does not support the submission that ATRK were aware of the conflict of duty. I do not think it can be correct to say [that] merely because two companies have a coincidence of directors, any transactions into which one enters with the other will automatically be tainted with conflict for the benefit of one to the detriment of the other. To give rise to a suspicion of conflict there would have to be some evidence that the transaction was not appropriate to one party. In the present case that type of submission could only apply to the currency swap transaction, because in the charge and option agreement and the SCAFA the parties were separately represented. In neither case did ATRK represent Beach.”
156 Having regard to the facts of the case, Rolfe J rejected, as applicable to ATRK, Beach’s submission that equity fixes upon fiduciaries a very high level of loyalty, including a duty to give undivided attention to the person with whom they have the relationship, and that it fixes very high standards, which were not met because subsequently another person “might repair his position” and that the breach of duty was complete when the conflicting engagement was undertaken.
157 Although it was not strictly necessary to do so in light of his conclusions, Rolfe J went on to consider causation and again reviewed the authorities which led him to the conclusion that the correct principle to apply, in assessing loss, was to have regard to “an assessment of it caused by the breach on a commonsense view of causation”. Accordingly, he rejected the submission that it was only necessary for Beach to prove that there was a breach of fiduciary duty and loss, and that it was not permissible for the Court to consider whether causation, viewed on a commonsense basis with the benefit of hindsight, demonstrated the loss would have occurred by consequence of the breach, rather than by consequence of some other relevant factor.
158 His Honour said he had not the slightest doubt that the only cause of Beach’s loss, when viewed from a commonsense viewpoint with hindsight, was the fraud of the directors involved. “Even if ATRK had discussed a conflict of interest and advised ‘Beach’ to obtain independent advice, the directors would have, nonetheless, pursued the fraud successfully.” His Honour then considered an argument drawing a distinction between the fraudulent directors and the company. One problem with this submission was that ATRK had no reason to suspect that the directors were engaging in fraud.
159 His Honour stated his conclusions on breach of fiduciary duty as follows (26 ACSR at 293):
“In the result I am not satisfied that Beach has established that ATRK ever came into a fiduciary relationship with it in relation to a number of matters raised, nor, to the extent to which they did, that they breached that duty. There is no evidence of relevant conflict or of ATRK favouring any party to the detriment of Beach. ATRK, in my opinion, acted with propriety in relation to the instructions they received. If I am wrong in these conclusions I am satisfied, on the tests propounded, that there was no relevant nexus between any breach of fiduciary duty and the losses Beach sustained. The losses flowed from the deliberate and determined fraud perpetrated on Beach and from no other cause. ATRK were, admittedly, unaware of the fraudulent conduct. Informing Mr Worthington would not have changed the position. In this context I have dealt with actual and assumed responsibility.”
160 Beach pleaded that ATRK knowingly assisted Mr Fuller, Mr Cummings, Mr Main and Mr Johnson in their breaches of trust and fiduciary duty with regard to the currency swap, the second Burbank acquisition and the SCAFA and that in the circumstances ATRK were liable as constructive trustees for the damage thereby caused to it. Reliance was placed on the second limb of Barnes v Addy (1874) LR 9 ChApp 244. In this context his Honour said that the evidence did not satisfy him that ATRK had any knowledge of, or reason to suspect, the existence of the fraudulent activities.
161 The second part of the argument led to a consideration of whether, and in what circumstances, common directors can allow companies to enter into contracts without being in conflict and what it is necessary for them to do to “eschew” that conflict. It also raised an issue as to the circumstances in which solicitors might be fixed with knowledge of conflict and a failure to eschew it. His Honour said that he was not satisfied that any of Mr Bateman, Mr Ferguson or Mr Thomas acted dishonestly on the objective test he was required to apply. They acted conformably with their instructions and in relation to each of the transactions with propriety. They did so in circumstances where each was totally unaware, as was conceded, that any fraud was being perpetrated on Beach and where each was aware that instructions were being received from directors of Beach and from other companies in the group, who had legal as well as commercial training. For these reasons his Honour rejected the claim based on accessory liability.
162 A further claim was made in relation to accessory liability under statute. It was submitted that pursuant to s38 of the Companies and Securities (Interpretation and Miscellaneous Provisions) Act 1980 (Cth) ATRK aided, abetted, counselled or procured or was by act or omission directly or indirectly knowingly concerned in the breaches by Mr Fuller, Mr Cummings, Mr Main and Mr Johnson of s229 of the Companies Code in relation to the various transactions. For reasons to which he had already referred, Rolfe J did not consider this allegation made out. However, he added that the evidence satisfied him that Mr Bateman, Mr Ferguson and Mr Thomas were totally reputable solicitors, who would not have turned a blind eye to any conduct which was unlawful or inappropriate.
163 ATRK relied upon the provisions of s68A of the Companies Code which entitled a person having dealings with a company to make, in relation to those dealings, certain assumptions and provided that in any proceedings in relation to those dealings “any assertion by the company that the matters that the person is so entitled to assume were not correct shall be disregarded”. His Honour reviewed the cases and came to the conclusion that the defence based on s68A failed. This is the subject of the cross-appeal and discussed later.
164 A substantial part of Beach’s particulars of negligence were dependent upon findings favourable to it on the issue of breach of fiduciary duty. Accordingly, his Honour did not further consider this part of the case. However further allegations were made that ATRK were negligent in that:
Rolfe J considered these allegations had not been established. ATRK did not act on behalf of Beach on the acquisition nor did they advise as to the funding.
(a) they advised in relation to the structure and funding of the Burbank acquisition without taking any steps, or any sufficient steps, to be fully acquainted with the nature of the transaction, the identity of the intended vendor and the merits of the acquisition; and
(b) they failed fully to investigate it to determine the identity of the proposed vendor, to ascertain that it was not an arms length transaction, and to advise that the requirements of the listing rules of ASX were complied with.
165 The allegation that ATRK were negligent in relation to the currency swap transaction in that they acted in relation to it as though they had no duty to Beach, as its solicitors, and were entitled to act without regard to its interests; failed to check with R & B and to obtain confirmation that Spargos had a US dollar deposit equivalent to $5 million Australian available to be swapped; failed to warn Beach that it was at risk of loss unless the check was made and to make known to Beach that Spargos had no access to funds on deposit at R & B or to obtain advice in relation to Swiss law, was rejected for reason that ATRK were not retained to act for Beach in relation to that aspect of the transaction which involved the assignment in Switzerland.
166 The third series of allegations of negligence related to SCAFA. His Honour concluded that it was the duty of Mr Cordell who was acting for Beach as borrower in this transaction, to take the various steps particularised and those particulars proceeded on the incorrect assumption that ATRK were acting on behalf of Beach.
167 Again the negligence relied upon in relation to the Charge and Option Agreement proceeded on the assumption that ATRK were acting for Beach in relation to this transaction. His Honour said (26 ACSR at 302):
“One of the particulars pleaded is a failure to advise Beach that it should cooperate with the NCSC and ensure that there were no transactions, which were the subject of the s12 notice, of which there was not a full and proper disclosure to the NCSC. As I have said this proceeded on the assumption that there was no such disclosure. However, there is no evidence of that. Rather the evidence is that there was a disclosure by both Beach and Claremont and that the documents were not analysed by the NCSC. There is no evidence that a full and proper disclosure was not made.”
168 The allegations that ATRK were negligent in relation to the s12 notice in that they advised Beach that it was invalid, and failed to advise it that the s12 notice required the production of all books and documents which referred to or related to the currency swap were said to have no validity.
169 His Honour reiterated that even if ATRK were guilty of any negligence the cause of the loss was the fraudulent activities of the directors involved in them not the negligence.
170 In their defence ATRK pleaded that in so far as the claim was based on negligence or breach of contract the real, effective and proximate cause of the loss was the conduct of Beach and that the loss was wholly or partly suffered by reason of its fault within the meaning of s10 of the Law Reform (Miscellaneous Provisions) Act 1965 (NSW) and s27 of the Wrongs Act 1936 (SA). In so far as Beach’s claim was based on a breach of fiduciary duty, the alternative argument was run that the equitable compensation to which Beach might otherwise be entitled should be reduced or apportioned to reflect the extent of Beach’s responsibility.
171 His Honour said these matters gave rise to very substantial issues which, having regard to the conclusions he had come to it, were not strictly necessary for him to consider. He thought it not appropriate to delay the resolution of the proceedings by dealing with and coming to final conclusions on the submissions. However, he said that if the directors’ conduct was attributable to Beach, there would not be any room either for the application of considerations of contributory negligence or reduction in or apportionment of equitable compensation. On the other hand, if the view were taken that there was a breach of fiduciary duty by ATRK, which was “a” cause of the loss, the further problem arose as to whether had ATRK acted in the way it should have, on the hypothesis being explored, the loss would have occurred. His Honour had expressed the view that so determined and deliberate was the fraud that, in all probability, it would have. In those circumstances he apportioned the loss as to 90 per cent to the directors and 10 per cent to ATRK. If there was negligence on the part of management attributable to Beach that was a failure not only to act on the information before management, but to make adequate enquiries and to conduct due diligence. His Honour expressed the opinion that the failure of management, if it was under an obligation to take the steps supposed, was the major contributing cause to the loss and in those circumstances made the same apportionment as he did in relation to the directors.
172 His Honour’s conclusions on liability led him to order that the proceedings be dismissed with costs.
173 As to damages, his Honour expressed some views though these were limited as apparently the submissions did not go to all issues of damage. It is unnecessary to rehearse what his Honour said.
GROUNDS OF APPEAL AND CROSS-APPEAL
174 Beach filed a notice of appeal on 14 January 1998 and a supplementary notice of appeal on 24 April 1998. ATRK filed a notice of cross-appeal which they sought leave to amend at the hearing of the appeal. The Court reserved its decision on this application. The notice of appeal contained 88 grounds of appeal. The supplementary notice of appeal contained a further 16. In order to make this proliferation of grounds more manageable Beach filed a document headed “Appellant’s Grounds of Appeal Regrouped by Topic”. Several grounds of appeal were not pressed. As frequently happens, the explanation for the profusion of grounds is that many are in substance the same but expressed in different language.
175 Both Beach and ATRK filed documents listing the issues on the appeal and cross-appeal. These were as follows:
(a) In relation to the Burbank acquisition, Currency Swap, amendment of the Charge and Option Agreement, and the SCAFA, whether the primary judge should have found that:
(i) ATRK were retained by Beach; or
(ii) ATRK had assumed a duty of care and/or a fiduciary duty towards Beach; and(iii) if so, that ATRK were in breach of such retainer or duty.
(b) In relation to the s12 notice, concerning which ATRK were retained by Beach, whether ATRK were in breach of their duty.
(c) In each case, what was the precise content of the retainer or duty and was there any real, sensible possibility of conflict in the performance by ATRK of their retainer or duty.
(d) Whether Rolfe J was correct in holding that for there to be a breach of fiduciary duty there had to be an intentional act based on the desire to prefer the interests of one client to another.
(e) Whether loss was sustained as the result of any breach and in particular whether Rolfe J was correct in relation to “causation” in the context of a breach of fiduciary duty, to hold that the breach of duty, if it took place, was ultimately irrelevant, because the directors would have pursued the fraudulent course in any event.
(f) Beach submitted that the appeal on these issues did not depend, except in some minor respects, in setting aside Rolfe J’s findings on the credit of Mr Bateman and Mr Main. Beach, however, contended that, in accordance with established principle for reviewing findings based on credit, Rolfe J was in error on the issues of credit and that its case on liability was thus stronger. In particular, Beach submitted that Rolfe J should have rejected the evidence of Mr Bateman that he did not know the accounts of Spargos, Jingellic and Enterprise with R & B were blocked and should have accepted the evidence of Mr Main which was consistent with the documents.
(g) The remaining issue was the quantum of damages or compensation to which Beach would be entitled if the appeal succeeded and whether this Court would make that assessment or there should be a new trial.
(h) In their notice of cross-appeal ATRK claimed that Rolfe J erred in holding that the defence based upon s68A of the Companies Code failed. ATRK also challenged Rolfe J’s calculations of damages or compensation in various ways. Two matters as to the amount of the loss to Beach calculated by his Honour were dealt with in a notice of contention. By their amended notice of cross-appeal ATRK asserted that Rolfe J erred in holding that they had not raised, as a defence, the existence of the fully informed consent of Beach and should have held that ATRK acted with the informed consent of Beach in each of the matters or transactions in respect of which Beach alleged a conflict of duty by ATRK.
OVERVIEW OF APPEAL
176 Beach’s proceedings were directed towards the recovery of the funds of which it had been fraudulently dispossessed. This dispossession occurred mainly through the acquisition, at a gross overvalue, of the Burbank oil exploration interests, and, insofar as it was a separate transaction, through the currency swap. The Burbank acquisition had two aspects. First, the acquisition itself was effected through the Charge and Option Agreement. Secondly, the financing of the acquisition was effected through the SCAFA.
177 The principal thrust of Beach’s submissions on breach of fiduciary duty was that a conflict of duty and duty arose by reason of the fact that ATRK were retained as solicitors for Beach in all, or, alternatively, in each of the relevant transactions: the restructuring; the Burbank acquisition; the amendment of the Charge and Option Agreement; the currency swap and the SCAFA.
178 The case with respect to the s12 notices, about which there was no contest as to retainer, involved a different kind of conflict, breach and causal mechanism from that identified with respect to the transactions where the retainer was in issue. This will be considered separately below.
179 Beach’s case with respect to the retainer was put at two different levels of generality. First, it was asserted that all of the particular transactions impeached were part of a more general retainer of ATRK from Beach as a member of the IRL group, including advice on the restructuring of that “group”. Alternatively, it was submitted that a retainer existed with respect to each of the specific transactions impeached.
180 After dealing with some legal issues that arise on Beach’s fiduciary duty case we first address the existence of ATRK’s retainer by Beach, if any, and its scope. Next we consider the retainer with respect to each of the following matters: restructuring; Burbank acquisition; the Charge and Option Agreement; the currency swap; SCAFA and the 21 July amendments.
181 In so far as the Court finds there was no relevant retainer, Beach relied on an alternative case for breach of duty: both fiduciary duties and duties of care. We discuss these below under the heading: Duties in the Absence of a Retainer. The acceptance or otherwise of Rolfe J’s credit findings, particularly the finding that ATRK did not know that the deposits at R & B were blocked, will necessarily affect the findings about the existence and scope of any fiduciary duty or duty of care. Accordingly, we deal with this aspect of the appeal before considering the submission on Duties in the Absence of a Retainer. Then we consider the case with respect to the s12 Notices.
182 The next matter raised on the appeal was ATRK’s alleged knowing assistance in the directors’ breach of duty.
183 As noted above, Rolfe J held that, even if he was wrong on issues of duty and breach of duty, he would have found against Beach on the basis of causation. We will consider issues of Breach and Causation under that heading and, separately, consider Causation and Fraud by Directors.
184 Finally, the judgment will deal with issues which arise on the cross appeal.185 Beach submitted that a relationship of solicitor and client was established between Beach and ATRK, either generally or, alternatively, with respect to each impeached transactions. “The solicitor is classically a fiduciary to the client and as such owes certain duties in each particular case.” (emphasis added) Maguire v Makaronis (1997) 188 CLR 449 at 463. Even so, at 464, the High Court pointed out that:
FIDUCIARY DUTY
186 In Clark Boyce v Mouat [1994] 1 AC 428 at 437, to which the High Court referred in Maguire v Makaronis, Lord Jauncey of Tullichettle, who delivered the judgment of the Privy Council, said:
“… to say that the appellants stood as fiduciaries to the respondents calls for the ascertainment of the particular obligations owed to the respondents and consideration of what acts and omissions amounted to failure to discharge these obligations.”
As Frankfurter J observed in SFC v Cheney Corp (1942) 318 US 80 at 85 “to say a man is a fiduciary only begins the analysis”.
“Their Lordships are accordingly satisfied that Mrs Mouat required of Mr Boyce no more than that he should carry out the necessary conveyances on her behalf and explain to her the legal implications of the transaction.
…….
When a client in full command of his faculties and apparently aware of what he is doing seeks the assistance of a solicitor in the carrying out of a particular transaction, that solicitor is under no duty whether before or after accepting instructions to go beyond those instructions by proffering unsought advice on the wisdom of the transaction.”
187 Whether or not there is a duty to advise on the wisdom of a particular transaction depends on the circumstances of the case. (See eg Haira v Burbery Mortgage Finance and Savings Ltd [1995] 3 NZLR 396 at 406).
188 Even in the case of a solicitor client relationship, long accepted as a status based fiduciary relationship, the duty is not derived from the status. As in all such cases, the duty is derived from what the solicitor undertakes, or is deemed to have undertaken, to do in the particular circumstances. Not every aspect of a solicitor client relationship is fiduciary. Conduct which may fall within the fiduciary component of the relationship of solicitor and client in one case, may not fall within the fiduciary component in another.
189 The relationship of solicitor and client has at its core an element of confidence and influence which equity will preserve and protect. Nevertheless, the confidence and influence are not always so pervasive as to require equitable intervention in every facet of the relationship.
190 The primary thrust of Beach’s submissions was to challenge the conclusions of Rolfe J that there was no relevant retainer and hence no conflict between the duty ATRK owed to Beach and the duty they owed to other companies in the group which retained them in all or any of the relevant transactions. In so far as this Court accepts that any retainer was broader than that found by his Honour, it will be necessary for this Court to identify the scope of the retainer in order to determine the scope of the fiduciary duty.
191 In so far as this Court rejects Beach’s submissions on the existence of, or extent of, a retainer, Beach submitted, in the alternative, that ATRK did owe fiduciary duties to it by reason of an assumption of responsibility to act on its behalf, or in its interest. It was submitted that ATRK placed themselves in a position of trust and confidence - even in the absence of a formal retainer - in circumstances where Beach was vulnerable to abuse of that position by ATRK.
192 It is well established that a person may take upon herself or himself the role of a fiduciary by a less formal arrangement than contract or by self appointment. (See Lyell v Kennedy [1889] 14 AppCas 437 at 456 and 459-460; Boardman v Phipps [1967] 2 AC 46 at 100, 118 and 126-127; Walden Properties v Beaver Properties Ltd [1973] 2 NSWLR 815 at 833; Meagher, Gummow and Lehane Equity: Doctrines and Remedies, 3rd ed para 505; Parkinson (ed) The Principles of Equity, 369-370). Ultimately a fiduciary responsibility is an imposed not an accepted one, one concerned with an imposed standard of behaviour; Finn, The Fiduciary Principle, in Youdan (ed) Equity Fiduciaries and Trusts, (1989) 1 at 54. But whether the relationship derives from retainer, a less formal arrangement or self-appointment, it must be examined to see what duties are thereby imposed on the fiduciary and the scope and ambit of those duties; see Boardman v Phipps at 127.
193 Beach relied on the reasoning of Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96-97:194 The existence and scope of the duty may derive from a course of dealing. In a passage frequently cited with approval from Birtchnell v The Equity Trustees, Executors and Agency Co Limited (1929) 42 CLR 384, a partnership dispute, Dixon J, as his Honour then was, said at 408:
“The critical feature of these [fiduciary] relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position.”
“The subject matter over which the fiduciary obligations extend is determined by the character of the venture or undertaking for which partnership exists; and this is to be ascertained, not merely from the express agreement of the parties, whether embodied in written instruments or not, but also from the course of dealing actually pursued by the firm.”
195 Moreover a role which was limited when originally assumed may, by reason of conduct in the performance of the role, be expanded so as to extend the duty. (See eg Australian Breeders Cooperative Society Ltd v Jones (1997) 150 ALR 488 esp at 514-517).
196 This case involves an alleged conflict of duty and duty, rather than a conflict of interest and duty. However, in both categories what is involved is a breach of the same overriding duty of undivided loyalty.
197 Maguire v Makaronis was a conflict of interest and duty case. But the High Court at 465 expressed its conclusion at a higher level of generality, namely “undivided loyalty” (as Gaudron and McHugh JJ had done in Breen v Williams (1996) 186 CLR 71):198 In Breen at 108, after referring to the obligation in these terms, Gaudron and McHugh JJ added:
“The conflict meant that the loyalty of the appellants to their clients had not remained undivided, with the result that they could not properly discharge their duties to their clients.”
199 The law of fiduciary duty with respect to a conflict of duty and interest rests on practical considerations, not morality. In Breen at 108 Gaudron and McHugh JJ quoted with approval from the judgment of Lord Herschell in Bray v Ford [1896] AC 44 at 51:
“Duty and self-interest, like God and mammon, make inconsistent calls on the faithful.”
Conflicts of duty and duty also make such inconsistent calls.
“… human nature being what it is, there is danger, in such circumstances, of the person holding a fiduciary position being swayed by interest rather than by duty, and thus prejudicing those whom he was bound to protect.”
200 It was for this reason that equity created what his Lordship described as an “inflexible rule” that a fiduciary is not allowed to put himself or herself in a position where duty and interest conflict. See also Warman International Ltd v Dwyer (1995) 182 CLR 544 at 557-558.
201 The conflict of duty and duty rule and the conflict of duty and interest rule may impact differently but both are manifestations of the overriding duty of undivided loyalty. In the case of a duty and duty conflict, there is no aspect of “human nature” which tends to bias choice in a particular direction. Rather:
“… the fiduciary … may be unable to discharge adequately the one obligation without conflicting with the requirement for observance of the other obligation.” ( Breen v Williams at 135 per Gummow J; see also Commonwealth Bank v Smith (1991) 42 FCR 390 at 392-393).
202 Expressed in this way, there is no substantive difference between a duty and interest conflict and a duty and duty conflict. (See Moody v Cox and Hatt [1917] 2 Ch 71 at 81-82 and 84-85; Haywood v Roadknight (1927) VLR 512 at 516-517, 521).
203 In Maguire v Makaronis at 465 the High Court referred with approval to the formulation by Richardson J in Farrington v Rowe McBride & Partners [1985] 1 NZLR 83 at 90, a conflict of duty and duty case. At the page referred to Richardson J said:
“A solicitor’s loyalty to his client must be undivided. He cannot properly discharge his duties to one whose interests are in opposition to those of another client. If there is a conflict in his responsibilities to one or both he must ensure that he fully discloses the material facts to both clients and obtains their informed consent to his so acting … And there will be some circumstances in which it is impossible, notwithstanding such disclosure for any solicitor to act fairly and adequately for both.
But the acceptance of multiple engagements is not necessarily fatal. There may be an identity of interests or the separate clients may have unrelated interests. Such cases seem straightforward so long as it is apparent that there is no actual conflict between duties owed in each relationship.”
204 There is a distinction between a case in which a fiduciary acts for separate clients in the one matter and a case in which a fiduciary has, on an earlier occasion, acquired information which is relevant to another matter when he acts for a different client. This distinction has been described as one between “simultaneous” representation and “successive” representation; Developments in the Law; Conflict of Interest in the Legal Profession (1980-1981) 94 Harvard Law Review 1244 at 1292 and 1315. Professor Finn, as his Honour then was, has described the two situations as respectively, “same matter conflicts” and “separate matter conflicts”. The former is “the very heartland of fiduciary law”. The latter, “in Anglo-Australian law is not seen as involving any question of fiduciary law”. Rather, Professor Finn has suggested that such a case falls to be determined under the law of negligence, breach of contract, confidential information, etc. (See Finn “Fiduciary Law and the Modern Commercial World” in McKendrick (ed) Commercial Aspects of Trust and Fiduciary Obligations 1992, 7 at 22 and 31).
205 The distinction has recently been affirmed by Lord Millett in Prince Jefri Bolkiah v KPMG (A Firm) [1999] 2 WLR 215 at 224-225 in a judgment with which the other members of the House of Lords agreed:
“… a fiduciary cannot act at the same time both for and against the same client and his firm is in no better position … His disqualification has nothing to do with the confidentiality of client information. It is based on the inescapable conflict of interest which is inherent in the situation.
..…..
Where the court’s intervention is sought by a former client, however, the position is entirely different. The court’s jurisdiction cannot be based on any conflict of interest, real or perceived, for there is none. The fiduciary relationship which subsists between solicitor and client comes to an end with the termination of the retainer. Thereafter the solicitor has no obligation to defend and advance the interests of his former client. The only duty to the former client which survives the termination of the client relationship is a continuing duty to preserve the confidentiality of the information imparted during its subsistence.”
(Compare National Mutual Holdings v Sentry Corporation (1989) 22 FCR 209).
206 By way of example, Spector v Ageda [1973] Ch 30 concerned an obligation to make information available even in the face of a duty to a former client. This involved liability in negligence, not breach of a fiduciary obligation.
207 A number of the matters which Beach urged on the Court as involving a conflict of duty and duty, were in substance “separate matter conflicts”. The thrust of some of Beach’s submissions was the failure to make available to Beach information which had been acquired when acting for others on an earlier occasion or being in possession of Beach’s information when acting as a solicitor for others. However, in these respects, Beach has available to it the pleading of an alternative case in negligence.
ATRK’s RETAINER
208 “Retainer” is a word used to describe a contract between the solicitor and the client for the provision of legal services by the solicitor for a fee and must be proved like any other contract. Like any other contract a retainer may be implied from conduct. See generally Greig & Davis, The Law of Contract, at 249 and Carter & Harland, Contract Law in Australia, 2nd ed, at 205. If such a contract is proved it must then be examined to determine what legal services the solicitor agreed to provide.209 Beach claimed that it retained ATRK to provide certain legal services. To prove this one would expect Beach to lead evidence of instructions given and accepted. To the extent that Beach led such evidence it was rejected and the evidence of ATRK personnel accepted. Mr Bateman said he undertook no legal work for Beach before May 1989 “save for some meeting advice on 22 November 1988”. He believed the first letter the firm ever received from Beach was on 6 June 1989. Mr Bateman did not recall ATRK ever acting for any of the companies on the purchase or sale of oil, gas or gold tenements or licenses. Neither he nor anyone else at ATRK had expertise in such matters.
210 ATRK were themselves unable to establish with certainty from whom they received their instructions. One of the difficulties ATRK faces in this appeal is that despite the trial Judge’s acceptance of the evidence given by ATRK’s witnesses it is said to remain open to Beach to establish retainer from conduct, a result which necessarily undermines those witnesses’ credit. ATRK dealt with persons, shown to be dishonest, who could have been instructing them for one or several companies in the group. They sent their memoranda of fees to CMS which was no more than a management company within the group. But when inquiring about payment in July 1989, Mr Bateman wrote to the Secretary of the IRL group of companies in Perth. Rolfe J was unable to determine whether the retainer was with CMS or IRL. Thus it is appropriate that Beach be allowed to rely upon evidence of conduct in an attempt to show that it retained ATRK to provide it with legal services by way of advice as part of the group or in respect of particular transactions.
211 It is possible and may be common for a holding company to retain a solicitor to advise it about its corporate structure and the relationship of its subsidiaries to each other and to the holding company. A solicitor so retained would not be retained, that is to say contracted to provide legal services, to the subsidiaries or any of them even though the advice or its acceptance might affect those subsidiaries. One can leave aside for the moment any question of whether the solicitor so retained owes a duty to the subsidiaries outside contract. The point is that the mere furnishing of advice by ATRK about proposals for restructuring the IRL group was not conduct which necessarily of itself meant that ATRK were retained by Beach merely because Beach was one of the group which would be affected by the proposals.
Retainer; Restructuring
212 At the same time that various steps in the Burbank acquisition and the currency swap were being taken, ATRK were involved in consideration of proposals for restructuring the IRL group. These proposals were in part initiated by the controllers of the group and in part driven by NCSC demands that an offer be made for Claremont because of the Petrogulf purchase of shares in Claremont.
213 With respect to the existence of a retainer for the various restructuring proposals, Rolfe J concluded that Beach was not a party to giving any of those instructions although, as his Honour said: “It’s position was undoubtedly taken into account”. As we have said, in his Honour’s opinion the instructions were given either by IRL or by the management company CMS. The memoranda of fees with respect to these matters were rendered to CMS.
214 We have outlined above his Honour’s conclusions with respect to the specific transactions impeached; first, that ATRK were not instructed to act for Beach in relation to the Burbank acquisition or to the amendment to the Charge and Option Agreement; secondly, that with respect to the currency swap transaction - which his Honour found was not part of the Burbank acquisition - ATRK acted on behalf of Spargos, not Beach and finally, with respect to the SCAFA, that ATRK acted for the lenders Spargos, Enterprise and Jingellic and not for Beach.
215 Beach submitted that Rolfe J erred in finding that either IRL or CMS instructed ATRK in relation to the restructuring proposals and should have held that ATRK were retained by the companies in the IRL group, including Beach, which were involved in the various proposals discussed and negotiated. Beach relied upon a number of matters. First, neither IRL nor CMS was mentioned in the file note of the telephone conversation on 27 April 1989 in which Mr Fuller gave instructions to Mr Ferguson to advise in relation to the Burbank acquisition and the proposed asset sales. Nor was either company mentioned in the evidence relating to any of the meetings which followed. Further, neither IRL nor CMS had a direct interest in the subject matter in relation to which advice was sought. IRL was a takeover target not a member of the consortium which was making a takeover offer for Claremont. CMS (as distinct from the new company Cambridge Resources) was not affected in any way by the advice given.
216 ATRK sent three memoranda of professional fees to CMS;
the first dated 5 April 1989 and headed:
“ RESTRUCTURING
01/02/89 TO 29/03/89”
the second dated 6 June 1989 and headed:
“ IRL GROUP RESTRUCTURING
01/04/89 TO 31/05/89”
and the third dated 29 June 1989 and headed:
“ CLAREMONT INQUIRY AND FINANCE NEGOTIATIONS
01/04/89 TO 23/06/89”
The headings of these files were distinct from other files where the client was identified as “IRL”.
217 During the period covered by the first of these memoranda Mr Bateman said that he was considering various modes of restructuring involving waves of bids. Mr Ferguson’s handwritten note of 2 February 1989 referred to obtaining an ACT shelf company and renaming it Cambridge Resources, a review of assets and the identification of the Victorian gas assets of Beach for sale. On 10 February 1989 ATRK, acting for Cambridge Resources, sent a letter to the Victorian Commissioner of Corporate Affairs enclosing drafts of a Part A statement. Apparently the targets were IRL and Moage. This was in the context of negotiations which Mr Bateman had conducted with the NCSC in December 1988 and January 1989 arising out of Petrogulf’s purchase from FAI of the 16.2 per cent shareholding in Claremont.
218 During February and March 1989, according to the “restructuring” memorandum of 5 April 1989, ATRK charged CMS, inter alia, for attendances of 4 hours on 1 February with Mr Glossop, Mr Winby, Mr Cummings and Mr Fuller, 9 hours on 2 February with Mr Fuller and Mr Cummings, 2-1/2 hours on 7 February with Mr Cummings and Mr Opie and others, 3-1/2 hours on 8 February, 6-1/2 hours on 13 February, and 5 hours on 21 February. On 22 February there was a 9 hour conference with Mr Cordell, Mr Main, Mr Winby and Mr Glossop. On 9 March 3 hours were spent perusing structures concerning Spargos contributing shares, with a further review on 10 March of 3-1/2 hours. On 13 March 8 hours were spent devising alternative structuring proposals and on 14 March 5 hours discussing these with Mr Cummings. References to further analysis and attendances and to the production of final pages “for cash flows and borrowings provided to alternative structuring” followed.
219 The “IRL group restructuring” memorandum of 6 June 1989 referred to the preparation for discussions with FAI and attending FAI on 7 April 1989 for 1-1/2 hours. Next was reference to attendance on Mr Cummings concerning FAI and ELFIC and the preparation of detailed strategy “providing for Spargos to be the key company” and advising that AGL withdrew from discussions. There followed revision of Spargos strategy and “review of alternative structuring involving US acquisition 27 April; detailed analysis of this question 28 April (2 hours) alternative structuring analysis 2 May; review of buy out proposals 8 May; further revision of strategies 22 May and discussion of these in conference on the same day (4-3/4 hours)”.
220 The “Claremont Inquiry and Finance Negotiations” memorandum of fees of 29 June 1989 recorded work done by Mr Ferguson and covered the period from 1 April to 23 June. As appears from its content it related to negotiations for the purchase of AGL’s parcel of Claremont shares, the proposed put option from FAI and the related proposed ELFIC financing. Part of it read:
“Attending Mr Cummings and others to discuss proposed financing on 21 April 1989; attending telephone in [sic] Mr Cummings on 21 April to receive instructions in relation to amended put option price; making amendments to put option letter and forwarding same to you; discussing amended put option letter with Mr Main; preparing schedule of costs associated with the proposed bids including details of shares to be acquired and forwarding copy of same to Mr Main, Mr Hawkins and Mr Fuller; discussing Burbank acquisition and proposed funding of same; discussing overall group debt situation; attending you to further discuss structure of proposed bids; and drafting various deeds of confidentiality.”
The memorandum continued:
“Receiving memorandum from Mr Cummings on 8 May 1989 setting out buy out proposal and discussing same with Mr Cummings.”
The memorandum referred to corresponding with ELFIC and their solicitors in relation to preparation of an ELFIC board paper for a proposed takeover facility; providing various information to ELFIC in relation to the preparation of such board paper and advising about the application of ss129, 229 and 230 of the Companies Code in relation to the proposed financing. No doubt to the extent thought appropriate, Mr Bateman and Mr Ferguson were cross-examined about these memoranda.
221 In his further supplementary statement of 21 October 1997 Mr Bateman said that prior to and during the period December 1988 to May 1989 he was involved in giving advice about possible ways of restructuring the relationships of a number of companies listed on the ASX. He considered various ways of restructuring which included a first wave of bids which were to comprise, first, a bid by “Newco” (a company yet to be formed the shares of which would effectively be owned by Mr Fuller and Mr Cummings) for IRL, second, a bid by Newco for Moage and, third, a bid by a consortium (which originally was to comprise IRAG, Inspar and Moage and which later was to comprise IRAG, Inspar and Newco) for Claremont. There were at least two proposals in relation to Newco. One was that it would be floated on the Stock Exchange some time after completion of the first wave of bids. Another proposal was that particular investors (such as FAI) would be invited to subscribe for preference share capital in Newco. The proposed financier for the first wave of bids was to be ELFIC. Part of the security to be offered to ELFIC was a put option (originally to be granted by Elders Resources and later FAI) in respect of the Claremont shares the subject of the proposed bid.
222 As Mr Bateman understood it, his advice about restructuring was being provided at the level “of theoretical planning”. He said that so far as he was aware he was “merely considering and discussing various potential proposals and combinations of possible events”, and that he considered the client to be the management company, CMS, to which all memoranda of fees were rendered. He said it was necessary to consider the position of the various companies and the overall changes in shareholding relationships but, so far as he was concerned, actual representation of any particular entity would fall for consideration “only if and when any particular transaction was likely to be implemented”. Rolfe J said (26 ACSR at 273-4):
“In my opinion it is a very different thing to assert that in the circumstances where solicitors are seeking to establish proposals, which may be workable to achieve an end, that they are thereby, necessarily, acting in a way which will give rise to a conflict. In my view that does not follow and the evidence of Mr Bateman, which I accept, is that if a stage was reached where it was decided to go ahead with any particular proposal then the various parties would be separately represented. Accordingly, if any of the proposals had been sought to be implemented, as opposed to discussed as proposals, it was Mr Bateman’s understanding, and I accept this to be the position, that other solicitors would have acted for the various parties in carrying them to completion.
I think, to some extent, that this retainer of ATRK has tended to obscure the necessity for the Court to look at each retainer to decide the party or parties by which instructions were given, and the terms thereof: Hill(t/as R F Hill & Associates) v Van Erp (1997) 188 CLR 159.
I am not satisfied that any instructions were given by Beach in relation to these proposals. Its position was undoubtedly taken into account, but it was not a party, which sought to give instructions. In my opinion the instructions were given either by IRL or by the management company, CMS, to which latter company accounts were rendered. In this context I am satisfied that the currency swap transaction was not, in its original implementation, part of the Burbank acquisition procedure. It was undertaken for a very different purpose and the Burbank acquisition finance was not connected with it. The amount the subject of the currency swap transaction was only sought to be linked with the Burbank acquisition when it became necessary to disguise what had happened on 13 and 14 September 1989.”
223 Rolfe J also found that ATRK were not instructed to act for any of the companies, which were parties to the Charge and Option Agreement, in relation to that agreement or its completion. His Honour was satisfied that ATRK’s role was confined to one side of the currency swap transaction. They were acting only on behalf of Spargos. In relation to the SCAFA his Honour accepted that ATRK acted for the lenders Spargos, Enterprise and Jingellic and not for Beach, for which Mr Cordell acted. ATRK did act for Beach in dealing with the s12 notices issued in June 1989.
224 As noted above, his Honour concluded that the instructions about restructuring proposals were “given either by IRL or by the management company, CMS.” Clearly Rolfe J had doubts as to which.
225 In this Court, ATRK did not contend that the retainer was with IRL. It submitted the retainer was with CMS. It seems unlikely that ATRK was retained by CMS to advise it. The company’s role was to carry out secretarial and accounting services to “companies in the group”. Indeed, if either of these companies is to be the choice, the more likely of the two is IRL itself.
226 The consideration given to restructuring was clearly based on an assumption that a person or persons had the capacity to cause the various entity companies of the “IRL group” to act in such a manner as would effect a restructuring of the character or characters contemplated. The most likely contender for this overall controlling capability is IRL - it not being suggested that any of the individuals, specifically Mr Johnson, was the sole source of the instructions.
227 There was no evidence that Mr Bateman in considering the restructuring was asked to consider himself as acting only for one particular company or several particular companies. His own understanding of the relationship is not conclusive. The question of a retainer is not determined by the belief of the solicitor as to the company or companies for whom he or she is acting. It is determined by the objective facts. Mr Bateman’s evidence of his understanding of the relationship is little more than evidence of inferences he drew from the circumstances. In the absence of plain language from any of the directors of the various companies, the matter remains to be determined by inference.
228 At various times, with respect to particular matters, ATRK asserted they were acting for different parties. So in submitting a Part A statement they said they were acting for Cambridge Resources. In April 1989 letters were sent or prepared in which ATRK stated they were acting for Enterprise, Jingellic, Spargos and Claremont. In a fax dated 20 November 1990 referring to the memorandum of fees entitled “Claremont Inquiry and Finance Negotiations” of 29 June 1989, Mr Cummings noted:
“Patrick, after conferring with Abbot T we agree that a reasonable apportionment having regard time expended is as follows
Inspar Moage IRAG (40%)
Spargos, Enterprise, Jingellic (30%)
Claremont (15%)
Beach (15%)
(100%)
229 This might suggest that Mr Cummings, on the other side of the arrangement with ATRK, albeit at a significantly later time, thought differently from Mr Bateman about the parties to the retainer.
230 At that time Mr Bateman had a conversation with Mr Cummings about fees. Mr Cummings suggested that some $17,000 should be passed on to Beach. Mr Bateman told him that was quite “stretching it” and that he could not see how any fees were payable by Beach as the account was in respect of restructuring work and work on bids, “particularly the bid by the consortium for Claremont”. There was then further discussion about a division of fees between the various companies.
231 CMS did not seemingly have any direct interest in the restructuring proposals. IRL effectively controlled the IRL group and did have a direct interest but it was no more or less affected by the various matters under consideration than other companies. Plainly, Beach had an interest in the consideration given in the course of the restructuring to the proposed sale of its Victorian gas assets and as a potential purchaser of the Burbank oil interests. These oil interests were referred to in the restructuring documentation as a security to be given to FAI in support of the put option which in turn supported the ELFIC funding necessary for the consortium to bid for Claremont. Another part of this arrangement was to be FAI’s right, in certain circumstances, to fill positions on the Board of Directors of Claremont and its subsidiaries, which included Beach. As the Burbank transaction developed, Beach was to borrow from Spargos, Enterprises, and Jingellic. These dealings gave rise to perceived problems under the Companies Code, specifically ss129, 229 and 230 thereof, arising from inter-company lending and funding of the acquisition.
232 The perceived s129 problem involved Beach in the sense that the issue that arose was whether Claremont or Beach (more likely the former, but the submissions were not specific in this respect) would contravene s129 by making available the proceeds of the sale of Beach assets or by giving security over the Burbank oil interests for the financing of the acquisition of shares in Claremont. Contraventions of s129 were not only of interest to the company committing the breach. They might affect any company involved in the restructuring. For example, such a contravention would be of concern to the lender who relied on a security so provided. Indeed the issue was raised by ELFIC on 2 February 1989. Even if the contravention were by Claremont, via the exercise of its control over Beach, Beach itself would be a necessary party to any contravention and accordingly the advising on s129 affected it.
233 Furthermore, ATRK drafted confidentiality agreements for the benefit of companies, including Beach. These could only have been for the benefit of the companies whose confidences were to be protected.
234 The fact that the analysis was done at a level which Mr Bateman regarded as “theoretical” does not determine the matter. Specific steps were taken from time to time which did involve implementation of aspects of the restructuring, including the submission of documents to regulatory authorities and to potential financiers. However the position should be described with respect to the overall restructuring. Insofar as the bid for Claremont was concerned, the matter passed beyond the “theoretical” stage.
235 The issues that arose were plainly interrelated. They involved the direct interests of a number of companies which the directors were treating as a group to the knowledge of ATRK. The belief of the solicitors within ATRK and the way they structured their files and rendered their fees do not establish any arrangement to the contrary of an inference that the retainer was by each of the members of the group
236 There is therefore a case for drawing the inference from the whole of the circumstances that ATRK were retained to consider the restructuring proposals by each company in the IRL group to be affected by them notwithstanding ATRK’s understanding to the contrary. But, even though it seems unlikely that when considering the restructuring proposals ATRK were retained by CMS alone, or perhaps at all, and likely that they were retained by companies within the group other than or in addition to IRL, since execution of the restructuring proposals would require separate decisions from other companies in the group, we do not think that the inference can be drawn that Beach retained ATRK to consider the restructuring proposals. No document suggests this. Nothing said by the witnesses whose evidence Rolfe J accepted supported this conclusion. Even so, it is convenient when examining Beach’s arguments about breach of fiduciary duty and negligence to proceed, as we will, on the assumption that Beach, along with the other companies in the group, retained ATRK to consider the restructuring proposals. This puts Beach’s case at its highest.
237 The identification of the party or parties to the retainer is not however determinative of the issues in this case. It is necessary to specify the scope of the retainer so that it can be determined whether a conflict of duty and duty arose relevant to an impeached transaction. That will depend upon whether the restructuring proposal extended to the Burbank acquisition and or the currency swap.
Retainer; Burbank Acquisition, The Charge and Option Agreement Generally
238 The most significant act by which Beach was defrauded was the entry into the second Burbank acquisition at a gross over-value. The issue that falls for consideration is whether by reason of the place that this acquisition played in the consideration given to the restructuring of the IRL group or the bid for shares in Claremont or otherwise, the entry into this transaction fell within the scope of any relevant retainer of ATRK on behalf of Beach.
239 In our opinion, it is not sufficient for any relevant purpose, if all ATRK were asked to do was to accept the prospective Burbank acquisition as a datum for purposes of advice they were to give. It is necessary to establish that the scope of any retainer extended to some aspect of the acquisition itself.
240 The background is one of detailed legal advice given to Beach with respect to the Burbank acquisition by Mr Cordell of the English firm, Joelson Wilson. There is no doubt that he acted for Beach with respect to the Burbank acquisition. As noted in para 33, originally, the acquisition was to be made by Claremont. Subsequently it was to be a joint acquisition with Claremont’s subsidiary Beach. In the event the whole was acquired by Beach.
241 Between 13 October 1988 and 6 March 1989 six drafts of what became the Charge and Option Agreement together with other related draft agreements were prepared by Joelson Wilson in the name of Claremont Petroleum. On 10 March 1989 what was described as the sixth draft of a Loan Agreement and the seventh draft of a Charge and Option Agreement were prepared by that firm. This draft introduced Beach for the first time. Thereafter, an eighth draft of the Charge and Option Agreement was prepared on 25 May and a further draft on 26 June. These drafts were accompanied by correspondence from Mr Cordell, of a character which one would expect from a solicitor acting on behalf of a purchaser. A detailed memorandum of fees was provided by Joelson Wilson to Mr Fuller at Beach for the period October 1988 to August 1989 with respect to the Burbank acquisition.
242 Beach submitted that the fact that other legal advisers were retained by it did not mean that ATRK were not. Although Mr Cordell acted for Beach on the Burbank acquisition itself, Mr Jackson QC, who appeared for Beach on the appeal, submitted that this did not preclude a finding that ATRK also acted for Beach in the transaction. This is true, but the fact that all usual and necessary solicitor functions are being performed by one firm, is a relevant consideration in determining whether or not an inference that a retainer exists to another firm, with respect to the same subject matter, should be drawn from surrounding circumstances.
243 Beach’s basic submission was to the effect that in the context of the overall restructuring proposal, ATRK gave advice in relation to the “structure and funding of the Burbank acquisition”. It was unable in either its written or oral submissions to point to any advice which could directly be so described. Rather it pointed to a number of references in the materials indicating that communications about what was described as “structure” or “funding” had occurred, from which an inference of the general nature submitted could be drawn.
244 We have referred above to the meeting of 22 February 1989 and will further consider it below with respect to the challenge to his Honour’s credit findings on the subject of whether or not Mr Bateman knew that the R & B deposits were blocked. At that meeting the Burbank oil interests were identified as an asset worth $50million of the potential Newco. Nothing in this document suggests that these interests were anything other than a datum which ATRK had to assume as a fact. They do not suggest any advice with respect to structure or acquisition.
245 In its written submissions, Beach placed emphasis on the consideration given by ATRK to s129 of the Companies Code, particularly with respect to the provision of security over the Burbank oil interests.
246 In his whiteboard note of 2 May 1989, Mr Bateman had referred to the proposed inter-company loans, to the role of the Beach gas assets and the Burbank acquisition and concluded:247 In its written submissions on s129, Beach submitted that this was a record of advice that ATRK had given, not instructions which they had received. Beach relied in this regard on a selected extract from Mr Bateman’s cross-examination during which he had said:
“No Q[uestion] of s129 by Beach. Loans, sale of assets by Beach and [purchase] of Burbank are to occur irrespective of whether there is to be a [take over] or when it is to occur.”
“… there was an argument that, if the sale of assets of $32m or so that would assist the matter and, if the purchase of Burbank was said to be occurring regardless and was more distant in time, that would assist in the matter as well.”
248 Beach seized on the words “said to be occurring” to submit that they constituted advice rather than instructions. In context, it is clear that Mr Bateman’s oral evidence was directed to what could be argued to Clayton Utz, acting on behalf of ELFIC, to convince them that there was no s129 problem with the restructuring. Nothing suggests that the actual acquisition was anything other than a given - something which would occur. ATRK were not suggesting that Beach, or any one else, should or could proceed with the Burbank acquisition in any event.
249 In oral submissions in this Court, Mr Jackson submitted that it did not matter whether the proposition that the Burbank acquisition would go ahead irrespective of the takeover, was advice or instructions. It was said to be part of legal advice about the significance of the timing of the Burbank acquisition.
250 The evidence about the timing of the Burbank acquisition is relevant to the issue, which we have assumed in favour of Beach, that Beach was one of the companies which retained ATRK in relation to the restructuring. However, it does not lead to the conclusion that ATRK advised Beach in relation to the Burbank acquisition or the timing thereof. Rather, in our opinion, the evidence supports the conclusion that that acquisition and its timing were proceeding irrespective of the takeover. It was because ATRK accepted those instructions that they could give advice that Clayton Utz could be informed that the takeover did not give rise to a s129 problem.
251 The advice which ATRK gave was concerned with the structure and financing of the acquisition of Claremont shares. It was not advice concerned with the structure and financing of the Burbank acquisition.
252 Another matter to which attention was directed in the course of the oral submissions was the significant role which the Burbank oil interests played as security for the financing of the proposed restructure. Mr Jackson described them as “the lynch pin of the facility”.
253 The relevant facility was the loan of some $77 million from ELFIC, which was, in turn, to be supported by a put option to FAI in circumstances where FAI had access to the Burbank oil interests. The memorandum to the meeting of 21 April 1989 with Mr Cummings, Mr Main and Mr Johnson, referred to FAI having “direct access to the assets and income of Burbank”.
254 As a result of the meeting of 21 April 1989, Mr Bateman prepared and forwarded a draft of the put option, in the form of a document addressed to the directors of ELFIC with respect to the shares in Claremont that ELFIC would hold as security under the finance facility. The terms of this option included the following:
“FAI to have direct access to the assets and income of the Burbank interest (being a 47% interest in the Burbank field held by corporate entities) it being acknowledged that such access can be down [sic] through a number of routes.”
255 Further instructions were given on 27 April 1989 with respect to the Burbank acquisition. At the same time reference was made to the sale of Beach assets which, as we have indicated above, also was proposed to occur in the context of funding the bid for Claremont shares.
256 We have outlined above Rolfe J’s findings with respect to the occasion on 27 April 1989 when these matters were discussed (see paras 48-51). The reference in the note of 27 April taken by Mr Ferguson was simply: “Beach will acquire further assets - 47% of Burbank (Mazeley)”. This is more consistent with instructions that this will occur as a matter of fact, than advice. Mr Ferguson gave evidence, which his Honour accepted, that at this point of time the Burbank transaction was a “done deal”. There is no reason to disturb this finding.
257 The matter was further considered on 28 April 1989 by Mr Bateman and Mr Ferguson in a manner set out in para 50 above. Nothing in that consideration takes the matter any further. None of the references to which our attention has been directed suggests anything other than that the acquisition of the Burbank oil interests was to be taken as a fact by ATRK.
258 It is in this context that consideration must be given to the memorandum of fees from ATRK of 6 June 1989 addressed to CMS. As noted above this memorandum was on the subject of “IRL Group Restructuring” and covered the period 1 April 1989 to 31 May 1989. It overlapped with the subject matter of the memorandum of fees of 29 June 1989 also addressed to CMS on the subject of “Claremont Inquiry and Finance Negotiations” which covered the overlapping period of 1 April 1989 to 23 June 1989. The former memorandum reflected the work of Mr Bateman, the latter, that of Mr Ferguson.
259 In each case, we have assumed that Beach was at least one of the parties being advised. The issue is what was the scope of the retainer, particularly in relation to the Burbank acquisition.
260 In the first memorandum of 6 June 1989 with respect to the “IRL Group Restructuring” the relevant entry based on the events of 27 and 28 April 1989 was in the following terms: “Review of alternative structuring involving US acquisition 27 April detailed analysis of this question 28 April (2 hours)”. The account goes on to refer to “alternative structuring and analysis 2 May”.
261 The second and overlapping bill of 29 June 1989 of Mr Ferguson referred to the following: “Discussing Burbank acquisition and proposed funding of same.” This account does not, in terms, refer to a date on which these discussions occurred. It appears from the context of these two memoranda, however, that it was the practice of both Mr Bateman and Mr Ferguson, who prepared the respective memoranda, to set out matters attended to in chronological order. On this basis, it would appear that the matter to which Mr Ferguson was referring in his account of 29 June 1989 was the discussion with respect to the Burbank acquisition on 27 and 28 April and/or 2 May, to which Mr Bateman also made reference.
262 We have referred to the meeting of 2 May 1989 in paras 52-58 above. The notes of that meeting including the following:
“Spargos will enter into [agreement] to lend $16 million to Claremont (to put itself in good position re Claremont for future) to enable it to on lend to Beach to fund [purchase] of Burbank.”
There was also a reference to the minuting of loans from Spargos to Claremont which are said to be “on security of Burbank” and to “[Purchase Agreement] (Clare Beach, Beach sub’y (s129), vendor re Mazeley)”. The concluding note already quoted was significant:
“Loans, sale of assets, and pur of B’bank are to occur irrespective of whether there is to be a t/o or when it is to occur.”
263 In our opinion nothing in this material suggests that ATRK were advising on the “structure and financing of the Burbank acquisition”, in the manner asserted by the appellant. Rather, the express references suggest that ATRK were required to assume the acquisition as a matter of fact and to accept it as a datum for purposes of the work they were asked to undertake with respect to the restructuring in general, or with respect to that specific aspect of the restructuring involving the acquisition of Claremont shares.
264 We have referred above to the memorandum of 29 June 1989 in which Mr Cummings indicated that, after discussion with ATRK, he proposed to allocate an amount of 15% to Beach. In a separate note made, it appears, for his own purposes, Mr Cummings had written “Beach - B/Bank 15%”. This was not incorporated in the note addressed to Claremont’s internal accountant.
265 The fact that 17 months after the event Mr Cummings attributed the work done for Beach during this period to the subject matter of Burbank, is entitled to little, if any weight. No doubt with hindsight, the connection to Beach and the subject matter of Burbank would appear to be a logical one, at least when justifying an internal allocation. It does not assist in the identification of the scope of the retainer as at the relevant time, some 17 months before.
266 One of the matters discussed on 2 May 1989 was noted as “Consultancy Agt (300K) with Beach and Coy”. This was a reference to a consultancy agreement which was in fact entered into on 4 May with companies associated with each of Mr Fuller and Mr Cummings. They were arrangements entered into by Claremont on behalf of itself and its subsidiaries, which, of course, included Beach. These documents were prepared by Mr Bateman which indicate legal work being done for Beach as a member of a group of companies controlled by Claremont. Nothing links this arrangement to the Burbank acquisition.
267 The next matter that occurred after the meeting of 2 May 1989 directly involved Beach. These were the confidentiality agreements referred to in para 61. One was to be entered into between Partnership Pacific and companies in the IRL group including Beach. It was drawn by Mr Ferguson of ATRK. It was separately executed under power of attorney by Mr Fuller and Mr Cummings on behalf of Beach.
268 Each of the companies, including Beach, were referred to in the deed as “the group companies”. The deed recited:
“All or some of the group companies have entered, or may in future enter, into discussions with the bank in relation to various business matters including proposed financing arrangements and sales of assets”.
The document went on to impose obligations of confidentiality upon the bank.
269 The deed of confidentiality entered into by Beach, together with other members of the IRL group of companies, indicated that in certain respects ATRK were acting on behalf of Beach. This played a role in the submission that his Honour erred in identifying the retainer as being in the name of either IRL or CMS. However, nothing in the deed of confidentiality indicated anything as to the scope of the retainer. Specifically, it did not suggest one way or the other, that ATRK played any role in the acquisition of Burbank by Beach.
270 Beach also directed attention to a facsimile transmission of 21 June 1989 from Mr Cummings to Mr Bateman on the subject of “US Oil acquisition”. This communication occurred prior to the final execution of the Charge and Option Agreement on about 3 July 1989, which was backdated to 29 June 1989. The memorandum of 21 June stated:
“I refer to my fax of 9 June last regarding some additional thoughts on how best to structure the US oil acquisition.
If it is appropriate, I would like to call you this afternoon to discuss a couple of aspects of this transaction and would ask that you refresh your recollection of my memo preparatory to my call.”
271 Reliance was placed on this memorandum as indicating the involvement of Mr Bateman in the Burbank acquisition, presumably on behalf of Beach. It did not indicate about what aspect of the transaction Mr Cummings was interested in receiving advice. Nor did it state expressly that the advice was sought for Beach, or that it involved an aspect of a transaction involving Beach.
272 The fax of 9 June 1989, to which reference was made in the memorandum of 21 June, addressed itself to a potential s229 problem with the proposed Jingellic and Enterprise loan to Spargos. Of particular concern was the fact that Jingellic and Enterprise, as gold companies, were investing in an oil venture. The option considered in this fax of 9 June was a proposal by which Jingellic, Enterprise, Spargos and Beach could, in certain nominated proportions, combine together to make the Burbank acquisition through a special purpose vehicle. It was in this context that the memorandum of 21 June headed “U.S. Oil Acquisition” came to be written.
273 By this stage, of course, ATRK were acting on behalf of Spargos, Jingellic and Enterprise with respect to the loans to be advanced to Beach. The faxes of 9 and 21 June 1989 were, in this context, explicable in terms of Mr Bateman acting on behalf of those companies. There was no suggestion that in any relevant respect the conversation which Mr Cummings wished to have with Mr Bateman was a request for any form of advice on behalf of Beach. It will be necessary to consider below the proposition that ATRK were acting on behalf of Beach in relation to the SCAFA agreement. However, nothing in these faxes suggested that ATRK were acting on behalf of Beach with respect to the Burbank acquisition.
274 His Honour made a finding of fact (26 ACSR at 135) with reference to the meeting of 2 May 1989:275 This conclusion as to the role of Mr Bateman with respect to the Charge and Option Agreement was open to his Honour. We find no error in his Honour’s conclusions. The contrary proposition that ATRK were acting on behalf of Beach with respect to the Burbank acquisition is based on a unpersuasive process of inference. There is no evidence which is reasonably capable of supporting a conclusion that the restructuring retainer, which we have assumed was given to ATRK, on behalf of Beach and others, extended to the Burbank acquisition.
“…there is no evidence that at that time he [Mr Bateman] had anything to do with the preparation of the charge and option agreement or that ATRK acted for Beach in relation to it. The evidence established that at the meeting of 2 May 1989 it was made clear that the acquisition of Burbank would proceed irrespective of the takeover proposals being considered. The reason for this, no doubt, was that the fraudulent directors were determined to deprive Beach of its assets, a matter of which Mr Bateman was not aware.”
Scope of Retainer; Currency Swap
276 We have outlined at paras 63-88 above the steps taken with respect to the currency swap between Spargos and Beach. Beach appeals from the finding by his Honour that, with respect to this matter, ATRK were acting only on behalf of Spargos (26 ACSR at 274).
277 In support of its contention that the steps were taken on behalf of Beach, as well as Spargos, Beach relied on a number of circumstances including the following: Mr Fuller, who gave the instructions, was the Chairman of Directors of both Beach and Spargos; the conversations in which Mr Fuller gave instructions did not differentiate between Beach and Spargos; Mr Fuller left blank signed paper with the letterheads of Beach and Claremont as well as Spargos, with Mr Thomas; these letters were to be delivered by Mr Thomas in accordance with instructions given to him; in so far as those instructions were given with respect to Beach, there was no basis for any inference that Spargos had any authority to act on its behalf; after Mr Thomas had sent the letters for each of Beach and Spargos to ELFIC on 15 May 1989, Mr Bateman wrote to Beach on 16 May referring to the transaction and enclosing copies of the correspondence, in substance to the same effect as the letter he sent to Spargos on that day.
278 The currency swap transaction occurred when Mr Thomas of ATRK was already acting for Spargos on the loan arrangements to Inspar for the Petrogulf transaction. In such a context it is understandable that Mr Thomas formed the view that he was continuing to act for Spargos with respect to this matter, which was ancillary to the principal matter, namely the financial arrangements with ELFIC. This explains why he did not open a new file in the name of Beach, nor render any fees on Beach. However, Mr Thomas’s belief is not determinative of the issue before the Court.
279 Of particular significance, in our opinion, are the letters of 16 May 1989 where, in substantially similar terms, Mr Bateman wrote to both Beach and Spargos enclosing copies of the letters delivered to ELFIC on 15 May. Each letter ended with the following:
“Should you have any enquiries please do not hesitate to contact the writer.”
280 In our opinion, the sequence of events from the time when the Chairman of both Beach and Spargos left blank signed letterhead for each company with ATRK, through the steps involving the typing and delivery of letters, to the reporting back to each company, indicated that with respect to the acts involved in the preparation and delivery of the letters ATRK were acting on behalf of both Beach and Spargos.
281 His Honour’s findings in this regard were as follows:
“…the resolutions of Beach and Spargos were prepared on 10 May 1989 without any assistance from or intervention by ATRK. The facts also satisfy me that the several letters of 11 May 1989, the first being written on Beach’s printed letterhead to ELFIC, and the second being written on Spargos’ typed letterhead to ELFIC, were prepared by Mr Fuller, or on his instructions, and not by ATRK. ATRK were presented with the documentation and with instructions from Spargos to deliver the letters to ELFIC to enable the consequences of the agreements reached on 10 May 1989 to be implemented. ATRK’s position in the transaction was limited to drafting another letter, which may have assisted Spargos’ stamp duty position, to delivering the letters to ELFIC and to advising Spargos and Beach what had happened. ATRK’s role was confined to one side of the currency swap transaction. They were not asked to act and did not act in the assignment from Spargos to Beach in Switzerland. The evidence satisfies me that on this aspect of this transaction the correct view is that ATRK were acting only on behalf of Spargos. However Mr Hughes acknowledges that the view may be taken that there was a joint retainer, although that which had to be carried out on behalf of Beach was minimal. If this be correct it was not, in my opinion, a conflict of interest. There was no preferring of the interest of Spargos to those of Beach and there was no intentional act by ATRK which brought about any breach.” (26 ACSR at 274)
282 While his Honour appears to say that ATRK were not acting on behalf of Beach in any respect, he does nevertheless make the finding that ATRK did accept the function of “delivering the letters to ELFIC and to advising Spargos and Beach what had happened”. His Honour was correct to conclude that a retainer of this limited character had no implications with respect to the quality of the asset Beach was receiving in Switzerland.
283 ATRK acted for both Spargos and Beach with respect to the clerical acts involved in effecting the currency swap at ELFIC. They did not act for Beach with respect to the currency swap generally. A telling factor is that ATRK charged Spargos, not Beach, for the work it did in relation to the currency swap.
284 Beach also relied on an alleged estoppel which it expressed in the following way:
“The letter of 16 May 1989 represented to Beach that ATRK acted as the solicitors for Beach in relation to the currency swap; continued so to act; and had all the duties of the solicitor to Beach, as its client, including a fiduciary duty and a duty of care.”
285 The letter of 16 May 1989 did not carry with it any such broad implication. The letter was, in our opinion, confined to the reporting of the mechanical acts of delivery, and other clerical matters, which did not give rise to a representation of the general character alleged. The representation did not go beyond what we have found above to be the actual scope of the retainer on behalf of Beach.
286 Even if we were of a different view as to the representation contained in the letter of 16 May 1989, Beach’s estoppel case would not have led to a different result. The essential reliance evidence was that of a Mr Worthington. His evidence was limited to the proposition that if he had been advised that ATRK had a conflict of interest he “would have suggested to the Board they retain other solicitors to do that work”. This does not constitute action in reliance on the representation of a character which would give rise to a relevant estoppel. There is no evidence as to what any member of the Board would have done with Mr Worthington’s suggestion. In the absence of such evidence, it is not even necessary to draw the obvious inference that, as the members of the Board were involved in the fraud, the suggestion would not have been taken up.
Scope of Retainer; SCAFA
287 The basic sequence of events with respect to the SCAFA is set out above at paras 97-103. ATRK’s case with respect to the SCAFA was that they were acting on behalf of the lenders to Beach, namely Spargos, Jingellic and Enterprise. His Honour so found at 26 ACSR at 210, 229 and 276. Acting for both sides of a single transaction such as vendor and purchaser or lender and borrower is a classic conflict position. His Honour expressly accepted Mr Thomas’s evidence that at the time he was approached to act on behalf of the lenders to Beach, he indicated that he would not act on behalf of Beach and that in reply he was told that Mr Cordell would act on behalf of Beach. There is no doubt that Mr Cordell did act on behalf of Beach. The question is whether ATRK also did so. His Honour rejected the credit attacks on Mr Thomas. Of the plethora of appeal points taken in this case, we note that there was no attack on his Honour’s finding about Mr Thomas’s credit.
288 Beach’s submissions about this retainer were to a large extent circular. Beach pointed to a number of occasions on which some aspect of the interests and/or conduct of Beach arose in the course of implementing the loan transaction. It is, of course, inevitable that a lender is concerned with matters pertaining to the borrower, particularly with respect to matters that impinge on the security of the loan. Indeed it is matters of this character which create the conflict that, in the normal course, can only be avoided by separate representation. The circularity arises because of the reliance on matters of this character as the foundation for an inference that the particular solicitor was acting on behalf of the other party, in addition to a solicitor who was expressly retained to act for that party.
289 A typical example of this circular approach is Beach’s reliance on the fact that Mr Bateman on one occasion compiled a list of some of Beach’s assets and reviewed the Charge and Option Agreement pursuant to which the acquisition was to occur. However, even the expert evidence called on behalf of Beach confirmed that it was appropriate for a solicitor for a lender to be concerned with matters pertaining to security, including the document transferring the asset. (See 26 ACSR at 135-6, 209-10).
290 We have also referred above to the meeting on 12 July 1989 at which Mr Cummings outlined to Mr Bateman the commercial justification for entering into the transaction on the part of each of the companies, including Beach. This was the very occasion on which Mr Bateman received express instructions from Mr Cummings to act on behalf of the lenders. The matters discussed on that occasion are matters of legitimate concern to a lender’s solicitor. The fact that it would also be of concern to the borrower’s solicitor is another example as to why a potential conflict exists. It is not a proper basis for an inference that the circumstances were such as to create such a conflict.
291 Beach’s submissions also focused on the fact that Mr Thomas prepared Deeds of Assignment, including a deed to which only Claremont and Beach were parties. He also prepared a Power of Attorney and a Notice of Assignment. It was noted that, with respect to the drafting of these documents, Mr Cordell was not directly involved. However, the document between Claremont and Beach, by which Claremont assigned to Beach a deposit standing in its name, was part of a series of interrelated transactions by which the position between Beach and the lenders under the SCAFA was rearranged. Accordingly, it played a role in the loan transaction and was of significance from the point of view of the lenders.
292 His Honour dealt with the submissions based on the role ATRK played with respect to the execution under Power of Attorney of the SCAFA in the Australian Capital Territory, on behalf of Beach, amongst others. This involvement was understandable, particularly in circumstances where the solicitor for Beach was in England. No submission was put that anything flowed from the proposition that ATRK may or may not have had some limited retainer with respect to this tail end of the transaction on behalf of Beach. In so far as it was sought to bolster an inference that ATRK were acting for Beach throughout the transaction, it was not a proper foundation for such an inference.
293 Similarly, the reliance placed on the fact that Mr Thomas drafted minutes of the meeting of the Board of Directors of Beach held on 5 October 1989 resolving that Beach enter into the SCAFA is misplaced. This also involved a matter of interest to the lenders.
294 In our opinion, his Honour’s conclusion that ATRK were not retained by Beach to act for it with respect to the SCAFA was correct.
Scope of Retainer; 21 July Amendments
295 As we have indicated above, on 21 July 1989 Mr Bateman gave Mr Cummings some comments - referred to by Beach as “advice” - about amendments to the Charge and Option Agreement. These amendments were passed on to Mr Cordell, the solicitor retained by Beach, and incorporated into the Agreement on 14 August 1989. This was done even though the acquisition had, by then, occurred. The amendments affected Beach, notably, according to Beach’s submissions, by increasing its interest from 90 per cent to 100 per cent.
296 Rolfe J accepted Mr Bateman’s evidence that on 21 July 1989, he was not reviewing the agreement to advise Mr Cummings but to identify assets that were security for the loan made by parties for whom he was acting. Accordingly, this was a continuation of his role in relation to the SCAFA.
297 His Honour said on a number of occasions that ATRK did not act for Beach with respect to the Charge and Option Agreement. With respect to the 21 July Amendments his Honour referred back to his judgment at 209-210 and concluded:
“Insofar as Mr Bateman considered the charge and option agreement and gave advice in relation to it, the evidence is, which I accept, that this was done in the context of his advising the lenders to Beach …”.
298 Beach submitted that the advice of 21 July was part of the ongoing retainer in relation to the Burbank acquisition. For the reasons we have already set out, we reject that submission. The “advice” given on this occasion does not make us doubt our conclusion that there was no retainer on the acquisition.
299 The thrust of Beach’s submission in this respect was that:300 The advice was incorporated in a fax from Mr Cummings to Mr Cordell of 24 July 1989. The fax states:
“The advice of Bateman, related to subject matter outside the legitimate province of any appropriate request by a lender to a borrower/purchaser.”
“I spoke with Greg Bateman today regarding Charge and Option Agreement and accompanying documents. I think the final documentation should reflect the following matters:”
There then followed 15 points over three pages.
301 Three aspects of the amendments were the subject of specific submissions.
302 First, it was noted that it was unclear what would happen to interest on the loan when the option was exercised. It was submitted that whether interest on the option was payable by the vendor to Beach was not of concern to the lender. In our opinion, lack of clarity in this regard was of significance to the integrity of the agreement. All that was raised was a need for clarification.
303 Secondly, attention was directed to the vendor finance component. All that was involved was an observation as to inconsistency. It is not in the interests of lenders to allow a vendor and purchaser to execute an inadequate and inconsistent contract which could lead to unnecessary disputes.
304 Mr Cummings concluded his fax with a number of observations, including:
“As I indicated it the vendor finance component was going to be held back as a form of security against title matters being fixed up. Other payments were not to be held back. Bateman suggests that the two side letter and the main agreement are not at all clear and in fact probably inconsistent on these matters.”
305 This last passage is the third matter to which Beach referred in its submissions to support the conclusion that some matters were “outside the legitimate province of any appropriate request” on the part of a lender.
306 In our opinion, neither in this, nor in any other respect, does the “advice” by Mr Bateman reflected in this fax, answer the description of being “outside the legitimate province” of an appropriate request by a lender. The Charge and Option Agreement, with its inadequacies, errors and inconsistencies identified in the fax, constituted the root of title of the asset which was acquired. The corrections made were therefore of interest to the lenders. Those interests extended to suggesting amendments to clauses which, as drafted, had the vendor paying the purchaser money, rather than the reverse.
307 We also reject the other specific submission made by Beach that the advice of 21 July 1989 led to Beach increasing its interest from 90 per cent to 100 per cent. That had already occurred. On 12 July when Mr Cummings instructed Mr Bateman to act for the lenders, he told him that Beach had acquired the total issued capital of Mazeley (see para 95 above). The comments of 21 July simply pointed out that there was a discrepancy in this respect between the recital and the text of the Agreement. No doubt this was a hangover from an earlier draft. However, in no sense did the amendments of 21 July effect the increase.
308 In our opinion, the terms of the amendments do not form a basis for an inference that ATRK had a retainer from Beach, either generally, or with respect to these amendments. His Honour was correct to conclude that in this regard, ATRK were acting for the lenders.
Revisiting Credit
309 The grounds of appeal against findings about contested questions of fact which depend on the credit of witnesses, whom the trial Judge has seen give oral evidence, are met by rules propounded in decisions such as Devries v Australian National Railways Commission (1993) 177 CLR 472 at 479. To outflank the proposition that if the trial Judge’s findings depended to any substantial degree on the credibility of the witness the finding must stand, it must be shown that the trial Judge “has failed to use or has palpably misused his advantage” or has acted on evidence which was “inconsistent with facts incontrovertibly established by the evidence” or which was “glaringly improbable”.
310 In State Rail Authority of New South Wales v Earthline Constructions Pty Limited (In Liquidation) (1999) 73 ALJR 306 the High Court reiterated the need for intermediate appellate courts to scrutinise carefully credit findings, particularly where documentary evidence may support oral testimony and where significant evidence is unchallenged. At 307-8 Gaudron, Gummow and Hayne JJ in a joint judgment referred to Agbaba v Witter (1977) 51 ALJR 503 at 508 where Jacobs J said that primary findings based on credibility of witnesses might be displaced:311 There must be a consideration of the real strength of the body of evidence presented. At 321 Gaudron, Gummow and Hayne JJ said:
“….where in a complex pattern of events incontrovertible evidence can only be fitted into the pattern if a different view of the credibility of a witness is taken by the court on appeal.”
“It is true that the trial judge, in determining whether to accept the evidence of Mrs Page, was heavily swayed by his impression of her whilst giving oral evidence. However, this circumstance does not preclude a court of appeal from concluding that, in light of other evidence, a primary judge had too fragile a base to support a finding that a witness was unreliable. Apand Pty Limited v Kettle Chip Co Pty Limited (1994) 52 FCR 474 at 496-7. See also Voulis v Kozary (1975) 50 ALJR 59; Chambers v Jobling (1986) 7 NSWLR 1”.
312 It was not suggested in Earthline Constructions that any new principles were required to guide appellate courts. Rather the High Court pointed to the danger of attaching too much significance to the restraints expressed in Abalos v Australian Postal Commission (1990) 171 CLR 167. According to Kirby J at 322, if Earthline Constructions had any wider importance, it was to reaffirm the true principles governing appellate courts. At 326 his Honour mentioned the trilogy of Jones v Hyde (1989) 63 ALJR 349, Abalos and Devries as being seen in some circles as ‘locking and barring the door to successful appellate reconsideration of the facts’. At 330-332 Kirby J examined the advantages the trial Judge had in fact-finding but exhorted them to resort to impression and demeanour to resolve a conflict in the evidence only in the absence of documentary or other incontrovertible evidence. However, where it comes down to a clash of critical oral testimony, the trial judge’s advantage remains as relevant today as it was more than a century ago. Kirby J was at pains to elucidate situations where credibility findings did not bar an appeal. They did not represent the end of the analysis, rather the beginning. His Honour enumerated a non exhaustive list of instances where this might be so. The enumeration did not add any new principle to the law but helps ensure that adverse credibility findings are properly tested for error. We have borne in mind the High Court’s analysis in approaching Beach’s challenge to the credibility findings of Rolfe J.
313 Rolfe J noted that at the trial ATRK admitted the facts pleaded by Beach as giving rise to the fraud perpetrated on it but denied they were parties to or had any knowledge of the fraud. With one exception Beach did not suggest to the contrary. It conceded that it was not its case that Mr Bateman “was a fraudster”. The exception was whether Mr Bateman, particularly, or Mr Ferguson were aware that the moneys which appeared to be standing to the credit of Spargos, Enterprise and Jingellic (the SEJ deposits) at R & B were not available to those companies until IRL and, perhaps, IRAG repaid R & B moneys lent to them by R & B to repay ACC. In the introductory part of his judgment Rolfe J said (26 ACSR at 121):
“For reasons I shall explain I am satisfied that neither Mr Bateman nor Mr Ferguson was ever aware that the accounts were ‘blocked’, that is that there was no money in the accounts on which those companies were entitled to draw. I am satisfied that Mr Bateman thought that there was a problem in obtaining immediate access to the money for a short period because of the nature of the deposit. But this is very different, particularly in the context of this case, from knowledge that there was no money in the accounts, which could be utilised.”
314 The factual case Beach originally propounded and pursued until final addresses was that Mr Bateman had been told that the moneys in the accounts were “blocked” and that Mr Bateman had expressly acknowledged this. The inevitable conclusion of this would be that Mr Bateman was aware of and a party to the fraud.
315 A reading of the transcript and his Honour’s judgment illustrates the difficulty in understanding whether or not Beach was contending that Mr Bateman was aware of the fraud. Attempts by his Honour to clarify the position with Mr Kelly SC, then counsel for Beach, seemed at first successful but only temporarily. His Honour had asked whether Beach continued to assert subjective fraud or knowledge of matters which would give rise to a conclusion that Mr Bateman was a party to the fraud. Mr Kelly’s answer may be seen to be categorical. He said “that is undoubtedly correct your Honour. It is not and never has been part of our case that Mr Bateman was a party to the fraud. Our case under the knowing assistance heading ….is that it is a case under Barnes v Addy which is accessory liability.” The following interchange took place:
“His Honour: Mr Kelly, do you submit that I should find that a conversation took place in the absence of Mr Winby and Mr Glossop to the effect asserted by Mr Main?
Mr Kelly: Yes, Your Honour.
His Honour: That must mean that Mr Bateman was aware that there was no money at all available at Rahn & Bodmer.
Mr Kelly: With respect, those two propositions don’t follow, your Honour.”
No greater elucidation followed.
316 However, by what Mr Kelly later said, it seems that an allegation of subjective fraud or knowing assistance was pressed. If nothing else, these exchanges demonstrate the confused nature of Beach’s case. However, in so far as the case depended upon the evidence of Mr Main and its direct collision between his evidence and that of Mr Bateman as to what occurred at the meeting of 22 February 1989, it is clear that Beach was submitting that Mr Main should be believed and Mr Bateman should be disbelieved. That is, that Mr Bateman knew of the blocked deposits and their link with the outstanding loans and knew that the deposits were not available. This must have been an allegation of Mr Bateman’s knowledge of and involvement in the fraud, especially that the true position was to be kept from Mr Glossop and Mr Winby.
317 In the end, Beach’s counsel at trial put the case as follows:
“The main allegation against Mr Bateman is not that on 22 February 1989 he implicated himself in a conspiracy of silence to withhold from Winby and Glossop his alleged knowledge of the facts that the SEJ deposits at R & B were blocked so as to be unavailable for use. The main allegation against Mr Bateman is that Mr Bateman was aware throughout the material time (from 10 February 1988 to 3 January 1989 [sic 1990]) that the banking arrangements at Rahn & Bodmer were such that there were not deposits at the bank in the name of Spargos, Enterprise and Jingellic which were available to be freely drawn upon, loaned or otherwise dealt with.”
318 Rolfe J accepted Mr Bateman’s evidence about his understanding of the position of the deposits at R & B and why Spargos, Enterprise and Jingellic did not draw on them. Rolfe J rejected the evidence of Mr Main and accepted Mr Bateman as a witness of truth. Beach submitted that his Honour was incorrect in both respects. Each gave contradictory accounts of crucial meetings, in particular the meeting of 26 February 1989 where Mr Main alleged that Mr Bateman became a party to a conspiracy put forward by Mr Fuller that Mr Main, Mr Fuller, Mr Cummings and Mr Bateman would not disclose to Mr Winby and Mr Glossop that the SEJ deposits were ‘blocked’ so as to be unavailable for use until repayment of R & B’s loans to IRL and IRAG. Beach’s submission was that Mr Main’s evidence was corroborated by contemporaneous documents and by inferences which may be drawn from undisputed facts.
319 His Honour concluded that he would reject Mr Main’s evidence unless it was corroborated by evidence he accepted, or was contrary to his interest. He found that the evidence disclosed that Mr Main lacked commercial morality and was prepared to engage in activities which he knew were discreditable and dishonest, and to falsify the truth.
320 In the supplementary notice of appeal a further attack on the findings was made. Beach claimed that Rolfe J should have held that Mr Bateman and hence, ATRK, knew there was no money on deposit at R & B upon which Spargos, Enterprise or Jingellic could freely draw and erred in accepting Mr Bateman’s evidence that the reference on the whiteboard notes dated 2 May 1989 to “real Swiss accounts” was not a reference to real as distinct from blocked Swiss bank accounts. Rolfe J ought to have found that Mr Bateman knew that the deposits were not assets of the companies. His Honour was said to have erred in accepting Mr Bateman’s evidence other than where that evidence contained an admission against the interests of ATRK.
321 The first part of Beach’s submission goes to the total rejection of Mr Main’s evidence in so far as it was not corroborated by acceptable evidence or contrary to his interest. Beach maintained that Rolfe J placed undue emphasis on Mr Main’s past impropriety, which distracted him from properly assessing whether Mr Main was telling the truth in relation to the subject events. There are dangers in such a global approach to a witness’s evidence. No doubt a judge would treat the evidence of a discredited witness circumspectly, but it still remains necessary to weigh that evidence against the evidence of other witnesses and the documentary evidence before a finding can be made.
322 Early in his judgment Rolfe J summarised the evidence of Mr Main, Beach’s principal witness, and dealt with its significance. His Honour summarised the evidence of Mr Bateman and dealt with the question he expressed as “should the evidence of Mr Bateman be accepted?”.
323 The principal conflict, and the subject of extensive cross-examination of Mr Main and Mr Bateman, was Mr Bateman’s denial that he knew that the deposits at R & B were blocked so as to be unavailable for use until the loans were repaid.
324 It was argued that the 10 February 1989 memorandum prepared by Mr Glossop (in particular note (iv) p2) put Mr Bateman on notice that the R & B deposits were “blocked”. The memorandum was from Mr Winby to Mr Fuller, Mr Cummings and Mr Bateman with copies to Mr Main and Mr Johnson. In part it said:325 The $10,000 was a reference back to the debt of $24m to R & B referred to at para 40. Mr Bateman’s evidence was that he did not have the memorandum of 10 February after 14 February but this was contrary to Mr Glossop’s evidence that Mr Bateman had it with him at the meetings of 21 and 22 February 1989. Rolfe J said that “on this aspect I have come to the conclusion that it is more probable than not that Mr Bateman did have the memorandum and its attachments at the meetings on 21 and 22 February 1989”. His Honour’s preferring Mr Glossop’s to Mr Bateman’s evidence did not cause him otherwise to doubt the overall veracity of Mr Bateman’s evidence. His Honour concluded that Mr Bateman:
“IRL is critical because interest is running at $10,000 per day and the company has no income. In addition the companies which have deposits with R & B are earning taxable income whilst having no access to the use of those funds.”
“regarded the information, for reasons to which I have referred, as not of particular relevance to the task he was being asked to perform. I also think that Mr Bateman looked at the memorandum and its attachments with sufficient care to establish to his satisfaction that they were not documents to which he had to give further consideration.”
Beach submitted that his Honour’s finding regarding Mr Bateman and the 10 February 1989 memorandum was “glaringly improbable”.
326 ATRK submitted that since Mr Glossop testified that his belief in February was that they were fixed until June, and that there was an alleged conspiracy of silence to keep the ‘blocked’ status of the deposits from Mr Glossop and Mr Winby, Beach’s argument was empty. It depended on Mr Bateman being aware of something prepared by Mr Glossop about a fact which Mr Glossop (and Mr Winby) was unaware and which was not disclosed to him. The note itself, so it was said, was also entirely consistent with the deposits not being “blocked” but “term” deposits, which was Mr Glossop’s belief.
327 Rolfe J’s summary of Mr Main’s evidence dealt with the series of meetings beginning on 22 February 1989 at which Mr Main said both he and Mr Bateman were present. During that meeting Mr Fuller said words to the effect:
“We should be careful as to what we say in the presence of Winby and Glossop. I am particularly concerned that Glossop and Winby be encouraged to continue to sort out the financial crisis at the Perth Office and they must not be told of the arrangements at R & B by which the deposits are ‘blocked’. I do not want us to reveal too much of the IRL Group’s problems to them. If they knew all of the problems then Winby and Glossop might leave, putting me in the invidious position of having no one to sort out the day to day administrative cash flow problems. There is also a risk that they would, if questioned, give details of the arrangements to the NCSC.”
328 Mr Main said that Mr Bateman was present during this conversation. Mr Main produced various whiteboard printouts which came into existence on 22 February 1989. He said that Mr Bateman directed the meeting. Mr Bateman had put material on the whiteboard before the meeting. Mr Main said that during the February and March meetings in 1989 on a number of occasions he observed Mr Bateman write on a whiteboard a list of problems and proposed solutions. Those lists included the words written by him to the effect of “R & B deposits - Blocked”. On a number of occasions during the February meeting in the presence of Mr Bateman, Mr Cordell said: “I established the Spargos, Enterprise and Jingellic deposits and the IRL and IRAG loans” and “the Spargos, Enterprise and Jingellic deposits cannot be released without repayment of the IRL and IRAG loans”.
329 Beach relied upon the whiteboard note headed “Repayment Schedule”. The note amongst other things, identified debts which totalled $135.5m. The list included “IRL 24.0 (Deposits 17.7)” and at the bottom of the column after the total appeared “less 17, 8.5 and 17.7 = A$92.3”. It was said that in the circumstances where Mr Bateman was aware that the deposits were those of Spargos, Enterprise and Jingellic at R & B and the debt was the debt of IRL and IRAG at R & B, this note corroborated Mr Main’s evidence that “nowhere here [referring to the note] can you see Bateman suggesting that those deposits could be used to deal with the priority cash requirements of the group”. The amount of $17.7m does not appear to have been included as part of the assets of the group.
330 Rolfe J noted that Mr Bateman denied the deduction of $17.7m was made because there was no access to that money at R & B or that he was aware that the Beach was the “cash cow” of the group.
331 Mr Main gave evidence about the whiteboard sheet showing the list and total of debts. Mr Johnson put the numbers up showing the total of $135.5m. Mr Main said that in the discussion that followed he went to the whiteboard and pointed to the Petrogulf $17m, the Moage $8.5m and the deposits $17.7m and explained to the meeting that these items affected the debt position in words to the following effect “the $17.7m deposits cannot be accessed and are linked to the loan to IRL. They should not be included in available cash for cash flow projections and therefore should be deducted.” Mr Main then wrote at the bottom of the page “less 17; 8.5 & 17.7 = A$92.3”. Mr Main said he was careful not to use the words “back to back” or “blocked” in the presence of Mr Glossop and Mr Winby and noted that the others present did likewise.
332 Mr Main gave evidence about a meeting on 14 March 1989. Before it began, Mr Bateman had put material on the whiteboard. At the meeting, Mr Bateman summarised the critical problems of the IRL group in words which included “the need to resolve the situation at R & B where Spargos, Enterprise and Jingellic ‘deposits’ are ‘back to back’ with IRL and IRAG loans from R & B”.
333 One of the difficulties Beach faces is that Mr Main’s evidence that Mr Bateman wrote words to the effect “R & B deposits - blocked” on the whiteboard on 22 February 1989 was anything but definite. In his affidavit, para 34, it was a categorical statement. The printouts of the whiteboard notes provide no confirmation. In cross-examination Mr Main retreated significantly from the allegation and suggested that the handwriting was either his or Mr Johnson’s. He seemed to be suggesting that it was made “absolutely clear” by what Mr Johnson had written that the R & B deposits were blocked. For reasons to which we will come, we can see no ground to disturb the Judge’s finding on the whiteboard entries of 22 February 1989. On a careful assessment of the relevant oral and documentary evidence his conclusions cannot be said to be glaringly improbable.
334 ATRK’s reply to this line of attack was to point to the improbability that Mr Fuller would disclose the fraud to Mr Bateman on 22 February 1989 when Mr Bateman, with one possible exception, had no previous knowledge of it. Why would Mr Fuller embark on the risk-laden course of drawing Mr Bateman into the conspiracy, it was submitted. To do so would serve no purpose since Mr Bateman, unlike Mr Brooke and Mr Cordell in London, was to be given no role in implementation. Since Mr Fuller and Mr Main wanted to keep Mr Winby and Mr Glossop in the dark, why would they tell Mr Bateman?
335 Mr Bateman denied categorically that in February 1989 he was aware that the arrangements at R & B involved Spargos, Enterprise and Jingellic having a back to back arrangement. The following questions were asked and answers given in cross-examination:336 Mr Bateman said that at no time did he hear Mr Main say anything to the effect that the deposits “cannot be accessed” or that they were “linked to the loan to IRL” or otherwise to the effect about which Mr Main gave evidence. In the course of summarising this part of Mr Main’s evidence, which was taken from his affidavit of 30 July 1997, Rolfe J referred to Mr Bateman’s denial of particular parts. Mr Bateman said that at no time on 22 February 1989 or otherwise did he hear anyone say that any deposits with R & B were “blocked”, mortgaged in favour of some other entity or not beneficially owned by the relevant depositor company nor did he read any document which told him such a thing, nor did he write on the whiteboard the word “blocked”. To like effect was Mr Ferguson’s evidence. Mr Bateman’s evidence was that neither at the meeting of 14 March 1989 nor on any other occasion did he say anything to the effect that there was, nor was he aware of, “the need to resolve the situation at R & B” or that the Spargos, Enterprise and Jingellic deposits at R & B were “back to back” with any IRL or IRAG loans from R & B. Mr Ferguson said:
“Q. You knew full well that one of the items to which you now refer as having been double counted was 17.7m? A. Yes, I associated that with the fact that it had not been included in the list of assets on the previous page.
………
Q. But you understood very clearly, I suggest to you, that no $17.7million deposit at Rahn & Bodmer was available to be used by any company in the IRL group at Rahn & Bodmer by reason of the indebtedness of IRL? A. That’s untrue.
Q. You understood that no access was available to Spargos, Enterprise and Jingellic to any moneys that those companies might otherwise appear to have had on deposit at Rahn & Bodmer? A. Beyond being a deposit for a term, I don’t agree with what you have said.
Q. Are you saying to his Honour that, as at 22 February 1989, you had a belief that moneys at Rahn & Bodmer in the name of Spargos, Enterprise and Jingellic totalling $17.7million were not available to be used simply by reason of the fact that they were term deposits? A. That was my understanding, yes, and that they were assets available and had not been included in the previous page.
Q. So these assets, cash at bank $17.7million, were not included because they were term deposits? A. No, they were not included when the assets that were listed on the previous page, but when it came to consideration of the debts, somebody drew attention to the double counting and drew attention to the fact that there were these assets which had not been included in the list of assets.
Q. Somebody made it perfectly plain to Mr Main that they could not be included because there was no access to that money on deposit at Rahn & Bodmer? A. No.”
Rolfe J found this explanation inherently probable.
“Neither whilst I was at the meeting nor in any other occasion did I hear anyone say anything to the effect that any ‘deposits’ at Rahn & Bodmer were blocked.”
337 There was other evidence that Mr Bateman was given tables of inter-company debt from time to time but none of the matters relied upon, either singularly or taken together, would allow this Court to set aside Rolfe J’s findings about Mr Bateman’s knowledge concerning the deposits with R & B.
338 As to the 10 February 1989 memorandum, we accept ATRK’s submission. The trial Judge was entitled to conclude that plain logic and the contents of the document itself, particularly note (iv) on p2, lead to the acceptance of Mr Bateman’s evidence that he did not regard the information as particularly relevant to his task. In any event, the note was consistent with the deposits being “fixed” and not immediately available, as indeed it seems Mr Glossop believed at the time. To the extent of any inconsistency between the evidence of Mr Glossop and Mr Bateman regarding the memorandum, his Honour said that either could have been mistaken, and it did not adversely reflect on their respective credit.
339 Considering the oral evidence, and such documentary evidence as is material, we are unable to say that Mr Bateman’s evidence should be regarded as glaringly improbable. The documentary material was not such as would supplant an assessment by the trial judge of the extensive oral evidence of Mr Main and Mr Bateman, the latter being cross-examined for four days. Even if Mr Bateman was more familiar with the memorandum than he was prepared to concede, it is difficult to see how it achieved anything forensically unless Mr Main’s evidence is preferred over Mr Bateman’s with regard to the meeting of 22 February 1989.
340 Mr Main referred to four whiteboard printout sheets dated 2 May 1989 and identified the handwriting on the first three as that of Mr Bateman and the fourth, partly in his handwriting and partly in that of Mr Johnson. He said the sheets were produced at the offices of ATRK and were the subject of discussion during which Mr Johnson, Mr Bateman and he “together possibly with Fuller and/or Cummings” were present. He said one of the topics discussed was the Burbank transaction which by then “was to go ahead in any event”.
341 In the whiteboard notes of 2 May 1989 Mr Bateman referred to “real Swiss accounts (R & B plus?) for Enterprise, Spargos, Claremont, Beach + vendor”. Mr Bateman’s evidence was that by “real” he meant “separate” accounts and his advice was that they should be separate accounts. The words were not used in contra-distinction to a fiduciary or back-to-back loan but in the sense that each company should have its own account. Mr Bateman said that a reference on the notes to “real Swiss accs” was not “a reference to real Swiss bank accounts as distinct from blocked accounts”. He denied there was any discussion about “blocked accounts” or that he had any knowledge of any. Before writing the words he had said:
“Enterprise, Spargos, Claremont, Beach and the vendor will need to have a bank account in Switzerland, whether at Rahn & Bodmer or another bank, so that the flow of the funds from one bank account into another can be clearly recorded. This is in contrast to the notion of book entries arising from an assignment of a debt or chose in action such as can occur under s12 of the Conveyancing Act.
It would be unsatisfactory in my view to have a position where, for example, the money that Spargos holds is declared, by the operation of assignments equivalent to s12 of the Conveyancing Act, to be held for the benefit of Claremont and then in turn for Beach, and so on. Instead, it is preferable that you be able to clearly see, with each company in the chain having its own bank account, the loan from Jingellic to Enterprise and then, separately, the loan from Enterprise to Spargos and then, separately again, the loan from Spargos to Claremont, separately again, the loan from Claremont to Beach and lastly the payment by Beach to the vendor.
The sign and punctuation mark ‘+?’ after ‘R & B’ was to signify ‘that the separate accounts I was recommending could be at Rahn & Bodmer or any other bank’.”
342 Rolfe J accepted Mr Bateman’s explanation. Beach contended that, commercially viewed, his evidence was “quite improbable”. It submitted that “real” should be given its natural meaning thus evidencing a knowledge of the true position at R & B and the need for new accounts, as distinct from the artificial fiduciary accounts. This showed that Mr Bateman knew that the deposits were not “real”.
343 The trial Judge’s findings on this aspect should not be disturbed. It was open to him on the evidence to accept Mr Bateman’s explanation. It cannot be said to be glaringly improbable. This, we think, was confirmed by his whiteboard entry of 2 May 1989 of “Ent has cash (R & B)” which indicated that Mr Bateman believed that Enterprise had a deposit at R & B which was available to be lent to Spargos and eventually Beach, and was not “blocked”. It is improbable that Mr Bateman would have written this if he had known that the deposits were in fact blocked.
344 Rolfe J summarised the effect of Mr Main’s cross-examination. Mr Main agreed “that only the selected management team and advisers would know the truth of the blocked deposits at Rahn & Bodmer”. He was a willing participant in obfuscation about the true situation. He adhered to his evidence of what Mr Bateman said and wrote. In dealing with the significance of Mr Main’s evidence, Rolfe J extracted passages from the submissions of counsel for Beach and said (26 ACSR at 164):345 Still dealing with the significance of Mr Main’s evidence, Rolfe J said his conclusion was that Mr Bateman’s evidence, generally speaking, should be accepted in preference to Mr Main’s evidence. As we have already mentioned Rolfe J said that Mr Main’s evidence (26 ACSR at 167):
“These statements made it very clear that Mr Kelly was not then submitting that Mr Bateman’s awareness was that there was no money until such time as IRL and IRAG repaid the fiduciary loan accounts and that Mr Bateman did not know there were fiduciary loan accounts ‘as such’. The case he was propounding was that Mr Bateman knew there was some temporal limitation on dealing with the money, which was unconnected with Spargos, Enterprise and Jingellic not being entitled to do so when the time elapsed.”
346 A little further on his Honour said (26 ACSR at 167):
“……disclosed that Mr Main lacked commercial morality in that he was prepared to engage in transactions and activities which were, to his knowledge, completely discreditable and dishonest, and to falsify the truth. In my opinion, his evidence should be rejected in so far as it is not corroborated by evidence I accept, or is contrary to his interests.”
“In so far as Mr Main has sought to involve Mr Bateman in the fraudulent plan in which Mr Johnson, Mr Fuller, Mr Cummings and he were engaged and to attribute knowledge to Mr Bateman of the position of the Spargos, Enterprise and Jingellic deposits, his attempt has failed. Not only do I reject his evidence, but I accept the evidence of Mr Bateman that he had no knowledge of these matters. My conclusions as to Mr Main’s total lack of credibility are not only supported by the evidence he gave, but also by my observations as he gave his evidence.”
347 Next Rolfe J dealt with the evidence of Mr Glossop who said there was always some confusion about the nature of the deposits of Spargos, Enterprise and Jingellic at R & B, but before the meeting on 22 February 1989 and until 23 March 1989 it was his understanding they were fixed until June 1989. Nothing was said at the meeting of 22 February to dispel his belief that until 23 March the deposits were term deposits. Rolfe J said: “This evidence was contrary to that of Mr Main on the critical issue about the deposits being blocked, although Mr Main said that in the context of Mr Glossop and Mr Winby not being present when reference was made to those matters.” Mr Glossop impressed Rolfe J as an honest witness with some difficulty in recalling events of many years ago.
348 Rolfe J summarised Mr Bateman’s evidence and referred again to those parts about the deposits with R & B. In cross-examination, speaking of the meeting of 22 February 1989, Mr Bateman said:
“It was not my understanding of my role, nor was it ‘in fact the case’, that I was there to discuss matters beyond that and, in particular, not my function or role to discuss the matters which turned out to be discussed by those others present beyond Abbott Tout personnel, such as the question of debts and cash flow, the value of assets and the refinancing options. They are not matters that I was there to give advice on and are not matters on which I did in fact give any advice on.”
Rolfe J said that this approach exemplified what he was satisfied Mr Bateman was doing, which was consistent with ATRK’s retainer. He accepted Mr Bateman’s evidence as to the extent of the advice offered.
349 Rolfe J accepted the evidence of Mr Bateman and in particular said that he did not accept that Mr Bateman was aware either prior to, or as a consequence of, or subsequent to, the meeting of 22 February 1989 that the funds of Spargos, Enterprise and Jingellic at R & B were “blocked” in the sense that they were not available to those companies until IRL and, perhaps, IRAG repaid R & B.
350 The attempt to implicate Mr Bateman in the fraud depended, to a very great extent, on Mr Main’s evidence being accepted and Mr Bateman’s being rejected, in particular about what was said at the meeting of 22 February 1989. It was largely word against word and such documentary evidence as was relevant did not detract, to any great extent, from this direct collision. We have already examined the most relevant documentary evidence of the 10 February 1989 memorandum, the 22 February 1989 whiteboard entries and the 2 May 1989 whiteboard notes. As we have said, his Honour’s conclusions on these matters, and upon the relevant oral evidence, were open. It comes down therefore to oath against oath (the oath of Mr Main against the oath of Mr Bateman) as to what was said at the meeting of 22 February 1989. The direct conflict was resolved by his Honour in favour of Mr Bateman.
351 In our opinion, the credibility findings were open to his Honour and have not been demonstrated to be wrong. It cannot be said that the trial Judge took into account irrelevant considerations or failed to properly weigh all relevant ones. Nor do we accept that it can be said that his Honour’s conclusions on the respective credibility of Mr Main and Mr Bateman can be said to be “contrary to the compelling inferences of the case” or “glaringly improbable”. One cannot gainsay that part of Mr Main’s downfall was his Honour’s impression of him in giving evidence. His Honour, of course, had the advantage of being able to evaluate the strengths and weaknesses of the two witnesses (Mr Main and Mr Bateman) called before him.
352 It has to be borne in mind that:
(a) No doubt the arguments now advanced were put to Rolfe J and there is no reason to suppose that he did not take them into account in coming to the conclusion that he did; and
(b) Although findings different from those reached by Rolfe J might have been open, that does not mean that the findings Rolfe J made were not open to him.
353 Beach submitted that the expression “real Swiss accounts” in the whiteboard note of 2 May 1989 could only mean genuine Swiss accounts as distinct from artificial fiduciary accounts.
354 Mr Bateman’s explanation of the use of the word “real” does not alone strike us as necessarily persuasive. But as ATRK’s submission points out, if in fact Mr Bateman knew that the R & B accounts did not exist, the inevitable consequence would be that Mr Bateman was a fraudster and that was not Beach’s case. Rolfe J said (26 ACSR at 142-3):355 In our opinion, the evidence of Mr Bateman which his Honour accepted was not controverted by externally verifiable facts. Indeed, there is support in the contemporaneous materials for the view that he and other solicitors in the ATRK who acted on these matters, did so on the basis that the funds on deposit with R & B represented real assets of the companies in whose names they stood. These indications are more powerful than any adverse inference to the contrary which sought to be derived from ambiguous references such as that to “real Swiss accounts”. Amongst these matters are the following:
“Mr Bateman was cross-examined for almost four days before me. I had the opportunity to observe him closely and am satisfied that he would not have been a party to any arrangement, which can only be described as fraudulent, if he had been aware of its existence or of facts which could give rise to such an arrangement. I am equally satisfied that Mr Bateman would not be, and was not, a party to conduct which could give rise to a finding of objective dishonesty, particularly in the way that was presented in this case. In my opinion, it is wholly improbable, that Messrs Johnson, Fuller, Cummings, Main and Cordell would have taken the risk of jeopardising their arrangements by telling Mr Bateman. It must be remembered that Messrs Fuller, Cummings and Cordell had been or were legal practitioners and would have been fully aware of the great risk in disclosing any such scheme to Mr Bateman.
The writing on the whiteboard does not carry the matter, in my opinion, any further. Beach relied upon the deduction from indebtedness of three amounts including, as the third figure, the total of the deposits said to have been at Rahn & Bodmer. Mr Bateman denied that he gleaned from the deduction of the deposits from indebtedness that the deposits were not assets. I accept that denial.
The conclusions to which I have come are completely reinforced by the efforts taken by Rahn & Bodmer, Mr Main and Mr Brook to ensure that the position of the Spargos, Enterprise and Jingellic deposits was never disclosed. Although executive officers of the companies made every effort to ascertain it they were thwarted, and these activities are, in my opinion, completely consistent with it being totally improbable that Mr Bateman would have been made privy to the fraudulent activity.”
356 These matters weigh heavily against the conclusion that the various matters, or any particular one of them, upon which Beach now relies, justify this Court’s intervention with the trial Judge’s finding. In our view, the attack on his Honour’s credit findings, especially those referrable to Mr Main and Mr Bateman, must fail.
(i) On 28 April 1989 a note of the discussion between Mr Ferguson and Mr Bateman with respect to the restructuring of the Burbank transaction made reference to Beach borrowing from Jingellic Enterprise and Spargos. The following note appeared:
“Jing/Ent/Spargos funds held by R & B Õ R & B instructed to settle on behalf of Beach to vendor of Mazeley.”
This note is consistent with the author acting on the basis that the funds held in the name of those companies at R & B were available to be appropriated.
(ii) Another file note of Ferguson which was undated but according to Beach’s submissions was made on 27 April. In it the following appeared:
“1 Beach buys Burbank (16 mil cash component).
2 Beach funds acquisition by borrowing from Enterprise.
3 17.7 on Dep. R & B.
4 R & B instructed? to settle on behalf of Beach and pay to vendors.
………”
At the foot of the page appeared the following:
“* Who has R & B deposits.
Ent - $7.5
Jing. - $4
Spa - $7.1.”
Again this note was consistent with a belief that the funds available at R & B on deposit could be called upon.
(iii) The whiteboard printout of the meeting of 2 May contained the following reference:
“4. Ent. has cash (R & B) and has its eye on ‘merger’ with Spargos and will either
(a) lend to Spargos/subscribe for Spargos shares/combo 10%/com. notes.
(b) buy 25% of Bellview.”
The note went on to deal with other aspects of the use by Enterprise of what was described in the note as “has cash (R & B)”. Again this was consistent with a belief of the author that the Enterprise deposit with R & B was accurately described as “cash” and was capable of use and application by Enterprise.
(iv) In a file note of 12 July 1989 by Mr Bateman of his conference with Mr Cummings of that date, he took down the views of Mr Cummings which sought to justify acts by the companies in the group including the loans from Jingellic, Enterprise and Spargos, for which Mr Bateman was acting. Included in these notes were the following:
“Jingellic could take the view that:
…its A$ loan to R & B at low interest rates can be better invested.”
Further, in the chart certain cash flows were noted from Jingellic and Enterprise to Spargos and from Spargos to Beach and then to Firstway. From Jingellic an amount of “A$4.275” was identified and from Enterprise an amount of “$7.9” was identified. In each case these amounts were described as “nearly all of R & B deposit”. At the point of receipt by Spargos these two amounts were added to another amount of $2.350 which was described as “(own)”. Again these notes by Mr Bateman treated the amounts of the R & B loans as being available to be drawn on.
(v) On 14 September 1989, letters were sent by R & B addressed to each of Spargos, Beach, Enterprise and Jingellic. They were delivered to Mr Thomas at ATRK on 4 October 1989. These letters confirmed to the Directors of Spargos, the auditors of Enterprise, the Directors of Jingellic and the Directors of Beach that the relevant deposits “were not encumbered in any way”. As his Honour concluded (26 ACSR at 211):
“In these circumstances it is hardly surprising that Mr Thomas had no suspicions about the accounts”.
DUTIES IN THE ABSENCE OF A RETAINER
357 In the alternative to its primary submission that, in the various respects already considered, ATRK were retained by Beach as its solicitors, Beach submitted that ATRK owed duties to it even in the absence of a retainer. In some respects the circumstances were said to create a fiduciary duty in other respects a duty of care at common law. Notwithstanding the High Court’s rejection by a majority of the view that proximity can be the touchstone of a duty of care in Perre v Apand Pty Limited (1999) 73 ALJR 1190, the submissions in this case gathered under that heading the various factors said to support the duty of care or alternatively to show that no relevant duty of care existed. To adapt the language of Gaudron J at 27 the notion of proximity is used here to identify the factors of special significance in addition to the foreseeability of harm necessary before the law will impose liability for the negligent infliction of economic loss.
358 The factual substratum underlying consideration of Beach’s argument must be that the advice complained of or the alleged failure to give advice or warn was outside the scope of and did not involve a breach of any retainer Beach had with ATRK and occurred at times when Beach had separate legal advisers or ATRK were acting for other parties to the transaction. For the Burbank acquisition and the Charge and Option Agreement as a whole Beach had retained Joelson & Wilson (Mr Cordell). In the case of the SCAFA, ATRK were retained by the lenders Spargos, Jingellic and Enterprise. In the case of the currency swap, except for the limited clerical acts to which we have referred, ATRK were acting for Spargos, the other party to the transaction. In none of these transactions could a relationship of proximity between ATRK and Beach sit easily with the absence of a relevant retainer of ATRK by Beach or the presence of the separate retainer of Mr Cordell by Beach. In commercial transactions such as were being undertaken it could not easily be said that ATRK should have realised that they were giving advice which would be a basis for action on the part of Beach.
359 In order to show that advice or the failure to give advice or warn amounted to a breach of a duty of care owed by ATRK to it, for reasons which the High Court restated in Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241, Beach had to establish that a relationship of proximity between the parties existed, that is to say had to identify a factor or factors of special significance in addition to the foreseeability of harm, when ATRK acted or failed to act in the manner alleged. Foreseeability of harm alone was not enough to give rise to the necessary assumption of responsibility by ATRK.
360 To do this, in the context of this case, Beach had to show that ATRK gave advice or failed to give advice or warn in circumstances where ATRK realised or ought to have realised that they were being trusted to give their advice as a basis for action on the part of Beach; Mutual Life & Citizens’ Assurance Co Limited v Evatt (1968) 122 CLR 556 at 572.
361 Beach relied on Hawkins v Clayton (1988) 164 CLR 539 at 578-9. But in that case the relationship of proximity to the named executor and sole beneficiary under a will, a person not party to the retainer of the solicitor, depended upon the nature of the retainer itself, namely to retain in safe custody the will of a client with the “obvious object” of ensuring it would be available on the client’s death to the named executor. No such consequence flows from the only retainers of ATRK relevant to this submission, namely by Spargos for the currency swap and by the lenders for the SCAFA.
362 The grounds of appeal asserted either a fiduciary duty or a duty of care owed by ATRK to Beach in respect of ATRK’s advising on the restructuring of the group. However, Beach’s submissions were not directed to each of these duties as separate matters. The submissions focused on the specific transactions. We have dealt with the submissions on the basis that Beach retained ATRK to provide the restructuring advice.
363 As in the submissions asserting a retainer, primary consideration was given to the Burbank transaction, including both the formulation of the Charge and Option Agreement and the amendments to that agreement on 21 July 1989. Beach maintained its position that both the currency swap and the entry into the SCAFA were part of the Burbank acquisition. Alternate submissions were made with respect to the currency swap and the SCAFA, considered as separate transactions.
364 With respect to the Burbank acquisition, Beach contended that ATRK assumed a fiduciary duty or a duty of care or both by reason of the circumstances in which Mr Bateman and Mr Ferguson gave advice. The advice was said to concern “the structure and funding of the Burbank acquisition”. For the reasons we have given in the context of the alleged retainer, we do not accept that the advice ATRK gave can be so characterised. There was no assumption of responsibility with respect to the “structure and financing of the Burbank transaction”.
365 Detailed submissions with respect to the fiduciary obligations said to arise in the context of the Burbank acquisition proceeded on the basis that there was a retainer. There was no detailed elaboration of the basis on which it was asserted that there was such an assumption of responsibility as to give rise to fiduciary obligations in the absence of a retainer. This is in contrast with the submissions made as to why the facts and circumstances created a duty of care at common law. We do not see any proper basis for the assertion that the obligations said to arise in the absence of a retainer with respect to the Burbank transaction, were of a fiduciary nature. The submissions in this respect never rose above assertion.
366 A specific submission was made about the amendment of the Charge and Option Agreement in the context of what was said to be “advice” given to Beach on 21 July 1989. This was submitted to be both an assumption of responsibility giving rise to a fiduciary duty and, also the creation of a relationship in which a duty of care arose.
367 It was submitted that the “advice” given by Mr Bateman to Mr Cummings on 21 July required amendment of the Charge and Option Agreement and that it included advice “on issues that were exclusively the province of vendor and purchaser”. This advice led to changes to the Charge and Option Agreement notwithstanding that the options had been exercised and repayments under the SCAFA had begun.
368 For the reasons we have given under the heading “Scope of Retainer; 21 July Amendments”, the advice given on 21 July 1989 by Mr Bateman was well within the scope of matters of legitimate concern to the lenders under the SCAFA. There was, in our opinion, no assumption of responsibility to Beach. Nor did any relationship of proximity arise.
369 With respect to the currency swap, it was submitted that ATRK assumed a fiduciary duty and a duty of care arising out of the circumstances in which ATRK prepared the Beach authority and delivered the instrument to ELFIC. It was submitted that this was an act which ATRK undertook for and on behalf of or in the interests of Beach. Alternatively, it was submitted that ATRK placed themselves in a position of trust and confidence in relation to Beach in circumstances where Beach was vulnerable to abuse of its position, relying in this respect particularly on Hospital Products Ltd at 96-98. Alternatively, the same assumption of responsibility was said to place ATRK in a relationship of proximity, obliging them to exercise reasonable care. In this respect the primary authority relied on was Hawkins v Clayton at 579.
370 We have already indicated our opinion that ATRK did have a retainer on behalf of Beach. However that retainer was limited to certain clerical acts. There was no assumption of responsibility with respect to the currency swap in general. Nor, in our opinion, did the events create any obligation to exercise care beyond the scope of the clerical acts we have identified.
371 In relation to the currency swap Beach also asserted that by reason of the contents of the letter of 16 May 1989 ATRK were estopped from denying that they acted as solicitors for Beach. The estoppel was said to extend beyond preventing the denial of a retainer, to preventing a denial of fiduciary duty and of a duty of care. We have dealt with this matter in the context of the retainer. The reasons there set out apply to reach a conclusion that no such estoppel arose with respect to the extension to a fiduciary duty in the absence of a retainer or a duty of care.
372 With respect to the SCAFA, if this Court were to uphold the decision of Rolfe J that ATRK were acting only for the lenders, Beach submitted that there was still a conflict of duty and duty. It submitted that the duty to the lenders under this retainer, conflicted with “assumed duties” to Beach with respect to a number of matters, alone or in combination, namely “the acquisition of Burbank, the s12 notices, the AGL queries, and the Charge and Option Agreement”. It also asserted that “ATRK assumed duties to Beach in respect of the SCAFA and acted on Beach’s behalf”.
373 It appears that these submissions were directed to the same facts and matters said to constitute the basis for an inference of a retainer, which we have rejected above. There was no elaboration in the submissions as to why these facts and matters constituted an assumption of responsibility in the relevant sense absent a retainer. In circumstances where Beach had a solicitor acting on its behalf, the fact that ATRK did things which affected Beach’s interest but which also affected the interests of the lenders, establishes no basis for any assumption of responsibility for Beach.
374 An alternative submission was made in relation to the SCAFA to the effect that ATRK could not act on behalf of the lenders in that particular transaction by reason of the fact that it was acting, or had acted, for Beach in other matters, namely the restructuring generally and the s12 notices. In view of our conclusion that ATRK did not act on behalf of Beach with respect to the Burbank acquisition, nor assume any responsibility towards Beach with respect to that acquisition, this submission with respect to the SCAFA requires a conflict of duty and duty to arise from any of, or some combination of, ATRK’s involvement on behalf of Beach with respect to restructuring, the s12 notices and the AGL queries.
375 We have indicated above that even if there was a retainer with respect to the restructuring, no relevant conflict arose. Similarly with the retainer on the s12 notices. The “AGL queries” related to the shares in Claremont in a context which prompted the NCSC intervention that required the Claremont bid. The concern was directed to Claremont. It does not appear that ATRK did anything on the part of Beach. Beach’s own submissions at 216 (a) and 241 said that Mr Bateman was acting for Claremont.
376 In any event, the alternate fiduciary case concerned a “separate matter conflict” rather than a “same matter conflict”. No case was put that any identified confidential information of Beach was entitled to protection.
377 In our opinion, the appeal with respect to duties in the absence of a retainer should be dismissed.
SECTION 12 NOTICE RETAINER
378 In dealing with the issues arising out of the s12 notices it is important to keep steadily in mind that, unlike the other transactions, there is no issue as to retainer. ATRK were retained by Beach and Claremont respectively to act in relation to a s12 notice served on each of them by the NCSC. The second observation is that while the work undertaken by ATRK in relation to the s12 notices may be viewed in the context of what they knew about the various transactions of the IRL group, by reason of instructions they had received, eg concerning the Burbank acquisition, the s12 notices may be seen as a issue discrete from most of the other issues which arise in the appeal.
379 Before examining the evidence relevant to the s12 notices it may be noted, as earlier mentioned, that the notices required the companies to produce all documents relating to any moneys received or applied between 1 January 1988 and 26 June 1989, being amounts of not less then $500,000.
380 In disputing the findings of Rolfe J, Beach placed particular reliance on Mr Cummings instructions to Mr Willcock on 5 July 1989 that it was important to attack the notices because it was desirable to avoid the NCSC looking at “an incomplete transaction (Burbank)”. (The underlining is in the note). We will return to the underlying facts concerning the notices after setting forth Rolfe J’s relevant findings.
381 Concerning the notices under s12 of the Companies Code served on Beach and Claremont Rolfe J said (26 ACSR at 136):
“On 11 July 1989 Mr Willcock received instructions from Mr Cummings that s12 notices, issued by the NCSC in mid-July 1989, were to be attacked, inter alia, on the basis that there should not be a disclosure of the uncompleted Burbank transaction. As one of the notices was directed to Beach it raised immediately the question as to the nature of the Burbank acquisition transaction and, on 12 July 1989, Mr Bateman conferred with Mr Cummings during the course of which, according to the evidence of Mr Bateman, Mr Cummings put before him a number of ways in which various companies in the group could justify the actions that had been taken. Mr Kelly submitted that I should infer that Mr Bateman was in fact suggesting such methods to Mr Cummings and recording them. Mr Bateman’s evidence was that Mr Cummings, over a considerable period, told him of these justifications, which he noted, but he said that it was not a matter of concern to him. I am satisfied that Mr Bateman was noting suggested explanations proffered by Mr Cummings, which he considered were relevant to some activity in which he was involved as a solicitor. In the end Mr Kelly submitted it did not matter whether Mr Bateman was advising Mr Cummings, or, as I am satisfied, Mr Cummings was telling Mr Bateman about these purported justifications. It will, of course, be remembered that Mr Cummings was, to the knowledge of Mr Bateman, a commercial lawyer as well as an experienced company director and there is, therefore, nothing surprising in his ability to tell Mr Bateman of suggested justifications for what had transpired.”
382 There are agreed factual errors in this statement which are of no real consequence but ought to be corrected. Mr Willcock received instructions on 5 July 1989 (not 11 July) in relation to the notices which were served on 27 June 1989 (not mid July). The date was correctly referred to later in the judgment when Mr Bateman’s evidence of his involvement with the notices was being canvassed. After reciting Mr Bateman’s evidence about his instructions from Mr Fuller and Mr Cummings in conference on 11 July 1989, Rolfe J found that on 14 July 1989 Mr Cummings told Mr Bateman that the documents sought by the NCSC would be assembled and sent to Melbourne. His Honour then noted that it appeared that several years later the NCSC had still not analysed the documents. His Honour repeated this finding several times in his lengthy judgment, eg 26 ACSR at 206 and 250. The error was caused by misinformation ATRK provided to the Judge.
383 Leaving this mistake to one side, Rolfe J dismissed the concerns suggested by the expert witness Mr Davidson as having ‘evaporated’ and found that there was no suggestion of any attempt to conceal the uncompleted transaction or any conflict of interest in acting on the notices for both Beach and Claremont (or conflict with any other company).
384 The subject notices were served on Mr Worthington on 27 June 1989. It seems that he made an agreement with the NCSC to comply by 11 July 1989. He informed Mr Fuller of service of the notices and Mr Cummings and Mr Fuller then advised Mr Ferguson and Mr Willcock at ATRK’s offices later on 27 June. Mr Cummings’ initial reaction to the service of the notices was one of anger at what he saw as a “blatant fishing exercise”. He sought a conference with ATRK.
385 On 5 July 1989 Mr Willcock received a telephone call from Mr Cummings. There was no direct evidence of what was said. Neither Mr Cummings nor Mr Willcock gave evidence. However, as earlier mentioned, Mr Willcock’s telephone notes were in evidence. These include Mr Cummings apparently saying that it was a blatant fishing exercise and:
“v. important that we attack these notices - don’t want them looking at an incomplete transaction (Burbank) .”
386 In cross-examination Mr Bateman was asked about his knowledge of this but he had little or no recollection. Mr Willcock prepared a draft letter to the NCSC disputing the validity of the notices and Mr Cummings had some “input” into the draft. ATRK wrote to the NCSC on 7 July 1989 maintaining that the notices were defective for a number of reasons. Precise particulars of the basis of the notices were required to be supplied.
387 The NCSC responded by facsimile on 10 July 1989 joining issue with ATRK and maintaining the validity of the notices. The letter also noted that Mr Worthington had agreed to produce the records by 11 July 1989. However, the NCSC extended the time for compliance to 4 pm on 14 July 1989. Failing compliance it threatened legal proceedings.
388 Later on 11 July 1989 Mr Bateman conferred with Mr Fuller and Mr Cummings. The subject matter was how to respond to the NCSC. Mr Willcock had prepared another draft for consideration. As we have said, neither Mr Fuller or Mr Cummings gave evidence at the trial. Mr Bateman’s recollection was sparse unless aided by his file notes. However, with the assistance of his notes his recollection was that either Mr Fuller or Mr Cummings said:
“We want the letter to the NCSC to state, first, that the Commission is simply fishing. Then we want to say that in the past there has been co-operation when the Commission has identified areas of concern and this will not change. We want to make it clear we want to object to them using these notices as fishing. We want them to identify their areas of concern. We have nothing to hide. I emphasise that. In the draft we want you to take out the statements about harassment.”
389 The following day (12 July 1989) Mr Bateman discussed the draft with Mr Willcock and the letter was sent to the NCSC later that day. The letter generally complained about the NCSC’s notices to the group in the past, maintained that the notices were simply “fishing” and asserted that they were “clearly invalid”. The NCSC was invited to specify the areas of concern. There were also practical difficulties with compliance. Nonetheless, if the areas of concern were specified “our clients will make the documents available”.
390 The NCSC responded immediately and provided certain advice that there may have been a breach of s229 of the Companies Code. The NCSC asked whether it was intended to deliver the documents by 14 July 1989, again reiterating Mr Worthington’s earlier agreement. Mr Bateman faxed this letter to Mr Fuller for instructions.
391 On 13 July 1989 Mr Bateman responded to the NCSC seeking further information. The letter ended by stating that the documents would be provided but it would have to be early the next week after Mr Worthington returned from Perth. The response of the NCSC reiterated that it required compliance with the notices or legal action might be necessary to obtain compliance.
392 Mr Bateman had a telephone conversation with Mr Cummings. From his file note Mr Bateman reconstructed the following conversation. Mr Cummings said:393 Mr Bateman wrote to the NCSC repeating ATRK’s belief that the notices were invalid. The letter continued:
“Please send a letter to the NCSC saying that the original documents sought by the NCSC will be assembled and put in an airbag to arrive in Melbourne at about lunch time on Tuesday. That has to be a ‘best endeavours’ time because it is dependent on John Worthington reviewing the documents, deciding what is relevant to the section 12 notice, and then arranging for the documents to be copied before the originals are sent. The copies are needed for the continuity of the business.”
“However, we are instructed to advise that our clients do not wish to put the Commission to the trouble of preparing new Notices and will now take steps to assemble all original documents for dispatch by air-bag courier to the Commission. As we have previously advised, Mr. Worthington departs from Perth on Monday today and, we understand, will be available to assist with the location of the documents which the Commission seeks to inspect. As those documents include company records, copies will have to be made and repositioned to replace the originals which are to be dispatched to the Commission.
We are instructed to advise that Claremont and Beach will use their best endeavours to ensure that the original documents are dispatched for receipt by the Commission next Tuesday, 18 July, 1989.”
394 The NCSC responded that same day seeking confirmation that the companies intended to comply notwithstanding ATRK’s advice that the notices were invalid. On that basis, it said, production by 18 July 1989 was acceptable. Mr Willcock sought instructions of Mr Cummings before replying. This he did on 17 July 1989 indicating that notwithstanding that the notices were considered to be defective, the documents would be produced.
395 It appears that documents were produced to the NCSC, one assumes on 18 July 1989. The evidence was vague on this and emanated only from Mr Worthington. The statement of evidence of the latter was not particularly illuminating and contained no specific recollection. Paragraph 101 of his statement indicated a general practice with NCSC notices. This was for him and staff to assemble the documents they thought were covered by the notice and put them in a spare office where they were examined by Mr Fuller, Mr Cummings “and someone from Abbott Tout depending on who was available”. The documents were then provided to the NCSC for inspection. In cross-examination Mr Worthington agreed that he and two staff members had the task of assembling the documents in response to the subject s12 notices. The documents were then placed in a spare room which the directors (Mr Fuller and Mr Cummings) took over and had the key. After that he had no knowledge of the production of the documents to the NCSC. No mention was made of anyone from ATRK being present. Mr Worthington gave further evidence of the “practice” but this threw no light on whether anyone from ATRK assisted in the compilation of the documents for production.
396 From this summary of the facts a number of conclusions may be drawn. First, ATRK were never asked to advise what documents were called for by the notices or what documents were to be produced. Nor did they give any such advice. Second, there was no probative evidence that anyone from ATRK was present when the documents were assembled for delivery to the NCSC. Third, there was no evidence of what documents were produced and whether any “Burbank” documents were included. If, as appears, the NCSC made no complaint about the documents which were produced, it would be a reasonable inference that no “Burbank” documents were included. It is apparent however, from the August 1989 report of the NCSC, that the currency swap documents were produced. Next, the only reference to whether or not the Burbank documents should be disclosed was in Mr Willcock’s telephone notes of what Mr Cummings had said to him on 5 July 1989. Without more, and there was no more, this provided wholly insufficient evidence to conclude that ATRK either advised their clients not to produce any Burbank documents or somehow participated in the selection of the documents for production in order to ensure that no Burbank documents were produced to the NCSC. In our view, the trial judge was correct to find that there was no evidence to suggest that ATRK attempted to conceal any uncompleted transaction from the NCSC. It may be added that there was no evidence, from the NCSC or otherwise, as to what documents were actually produced. Nor was it put to Mr Bateman that ATRK were responsible for any incomplete production of documents, if that occurred. In short, there was no evidence that the Burbank documents were withheld from the NCSC.
397 It was submitted on behalf of Beach that ATRK had a fiduciary duty to it, which included a duty to advise in relation to the s12 notice and the selection of documents necessary to comply with the notice. It seems apparent that ATRK were asked to advise on the validity of the s12 notice but once their attack on the notice failed to deter the NCSC, their instructions were quite clearly to inform the NCSC that the documents would be produced. Thereafter, notwithstanding Beach’s submissions, the evidence did not disclose that ATRK took any part in the selection of the documents or their production. This exercise seems to have been carried out by Mr Worthington and his assistants in the first instance and then by Mr Cummings and/or Mr Fuller before production to the NCSC.
398 Beach submitted that there was a real sensible possibility of conflict between the interests of Beach and Claremont in having the Burbank acquisition documents disclosed to the NCSC. Looking at the matter as at 27 June 1989 and early July 1989 we are unable to see any real conflict for the solicitors acting for both Beach and Claremont on the s12 notices given their state of knowledge (which did not include any knowledge of the fraud) and the terms of their clear cut instructions to dispute the notices and, failing that, to indicate that the clients would co-operate in producing the documents required by the notices. If this is a too restrictive approach, then we are unable to see how it can be said that the solicitors placed themselves in a position where there may be a conflict of duty in accepting instructions for both Beach and Claremont.
399 What is plain is that there was no cogent evidence that ATRK were ever instructed to attack the s12 notices to prevent the disclosure of the Burbank transaction. We are unable to see how it can be said that there was a real sensible possibility of a conflict of duty by ATRK between that owed to Beach and that owed to Claremont and to Spargos, Enterprise and Jingellic, for whom ATRK were instructed in relation to the lending arrangements. We do not see that ATRK accepted conflicting engagements so that they were unable to give Beach their undivided loyalty so as to be in breach of their fiduciary duty. In acting for Beach on the notice, ATRK came into no knowledge or information which would disqualify them from acting for Spargos.
400 Beach submitted that any proper discharge of ATRK’s duty to it would have brought to light that, in exercising the option under the Charge and Option Agreement, Beach had not made proper disclosure pursuant to the Listing Rules of the Exchange (Rules 3A (1) and (17)). The Charge and Option Agreement and side letters were not executed until 29 June 1989 and Beach did not exercise the option until 30 June 1989. The s12 notices required documents relating to any moneys received or applied by Beach up to 26 June 1989. Listing Rule 3A (17) required a listed company to notify the Exchange of “an option or other agreement entered into”. In these circumstances it is difficult to see that ATRK had a duty to advise Beach that it had not complied with the disclosure requirements of Listing Rule 3A (17). The same may be said in relation to Listing Rule 3A (1) which required a listed company to notify the Exchange of any information likely materially to affect the price of the company’s securities or to avoid a false market in those securities. As already mentioned, ATRK undertook no perusal of the documents, so it is difficult to comprehend how they failed to advise that disclosure of the agreement was required by the Listing Rule. Beach further asserted that they had an independent duty to disclose the Burbank transaction to the Exchange, quite apart from the s12 notice. Beach did not elaborate how a duty in ATRK to advise Beach arose from this circumstance and we are unable to see that it did.
401 Turning to questions of causation, we do not see that any Jones v Dunkel (1959) 101 CLR 298 inference should be drawn from the failure to call Mr Willcock. There was no suggestion that Mr Willcock could give any evidence as to what documents were or were not produced to the NCSC. In the absence of any evidence that ATRK advised on the documents to be produced to the NCSC or participated in their selection prior to production, any proper inference drawn from Mr Willcock’s absence from the witness box cannot assist Beach’s case.
402 Beach also complained that Rolfe J should not have rejected the evidence of Mr Davidson in relation to the s12 notices. His Honour discussed this at 26 ACSR at 248-250. He noted Mr Davidson’s conclusion at para 181 of his statement of evidence that Mr Willcock’s retainer (and that of ATRK) was to attack the notice so that the NCSC “would not look at the Burbank transaction”. But, as Rolfe J observed, and we agree, the hypotheses which Mr Davidson was asked to make were not established by the evidence. There was no evidence that ATRK attempted to prevent disclosure of the Burbank transaction to the NCSC.
403 This assumption of fact by Mr Davidson not being borne out by the evidence, we cannot see how it can be said that Rolfe J was wrong to conclude that the issues raised in paras 248, 249, 251-253 and 255 of Mr Davidson’s statement did not arise or have any significance.
404 The only causal mechanism for any loss arising from the alleged conflict on the s12 notice claimed by Beach was based upon non-disclosure. Since there was no evidence of non-disclosure, causation cannot be established. Beach’s attack on the role of ATRK in relation to the s12 notices fails.
KNOWING ASSISTANCE
405 In the alternative to direct liability, Beach relied on an accessorial liability based on the involvement by ATRK in the manifest breaches of duty by directors of Beach. It was common ground that the appropriate test for such accessorial liability was “objective dishonesty”, in accordance with the reasons of the House of Lords in Royal Brunei Airlines v Tan [1995] 2 AC 378.
406 Beach submitted that the correct application of this test involved two steps. First, the Court should set out the whole of the knowledge available to the relevant person. Second, the Court should ask itself what an honest person would have done, with that knowledge. If the person did not do what an honest person would have done then the Court should draw an adverse inference and conclude that objective dishonesty was established.
407 In relation to the currency swap the state of knowledge of ATRK was identified as at 15 May 1989.
408 In relation to the Burbank transaction, Beach’s submissions did not distinguish between the Charge and Option Agreement and the SCAFA. For both of these matters, the submission was a global one. Further, the submission was not focused with respect to any particular point of time or period of time.
409 We have set out above Rolfe J’s findings on these matters. Beach contended that Rolfe J erred in applying the Royal BruneiAirlines v Tan test. It was submitted that although his Honour purported to apply an objective test of dishonesty, he in fact gave undue weight to ATRK’s lack of subjective knowledge of the fraud being perpetrated on Beach. It was also submitted that his Honour adopted too restrictive an approach when determining what aspects of ATRK’s state of knowledge were relevant:410 In its submissions with respect to the currency swap Beach set out:
(i) by confining his attention to, or giving inappropriate weight to, the scope of the retainers with respect particularly to the currency swap and SCAFA;
(ii) by referring and, impliedly, limiting himself to, a state of knowledge as to whether the accounts at R & B were “blocked”, not to “whether there was a problem with them”; and
(iii) by excluding from consideration ATRK’s knowledge obtained from other and earlier aspects of its relationship with the IRL group.
411 The submissions with respect to the charge and option agreement and SCAFA follow a similar format:
(i) facts said to be within the knowledge of ATRK as at 15 May 1989;
(ii) matters said to constitute “assistance in relation to the currency swap”; and
(iii) steps that an honest person would have taken in all of these circumstances.
(i) facts said to be within the knowledge of ATRK;
(ii) matters said to constitute “assistance by the accessory”; and
(iii) steps that an honest person would have taken in the circumstances.
412 Plainly this part of the case would be materially affected by a finding that ATRK knew that the R & B funds were blocked. For the reasons we have discussed above, his Honour’s findings, based on credit, should not be disturbed. This places the Beach’s submissions in a different light.
413 As noted above, the structure of the submissions is to draw an inference from what it is said an honest person would have done, by reason of the particular state of knowledge which it is alleged ATRK had. The failure by ATRK to do these things was, it was submitted, a proper basis for an inference of dishonesty. Each of the matters which it is said an honest person would have done involved some process of investigation. The relevant terminology includes “questioned”, “specifically asked”, “explained”, “put on inquiry”, “asked”, and “recommended”.
414 In our opinion, the structure of these submissions is fundamentally flawed. They operate on the assumption that given a certain state of knowledge of the character in issue here, there is only one thing that an honest person will do. Nothing in the circumstances of this case suggest that such a conclusion was open by way of reasonable, let alone necessary, inference.
415 We do not set out in full Beach’s lengthy written submissions in this regard. It is not, in our opinion, necessary to do so. One of the difficulties with the submissions is Beach’s failure in its original written submissions to identify any one or other of the steps said to have been required by an honest person, as more important than any other. They invite the Court to enter a bewildering number of alternate inquiries as to causation.
416 In further written submissions with respect to this matter, (February 1999) Beach directed particular attention to the knowledge on the part of ATRK that the directors of Beach were in a position of conflict as directors of companies which had potentially conflicting interests with respect to the relevant matters, namely the currency swap and the Burbank acquisition, including in the latter both the Charge and Option Agreement, the 21 July Amendments thereto and the SCAFA.
417 Emphasis was given to the fact that there was a “problem” with the deposits at R & B and that whatever that “problem” may be - even if it be only the matter of immediate availability - that was enough to give rise to the potential conflict of interest between Beach and other companies involved in the transaction. Failure to discern the potential conflict in these circumstances was said to reflect an absence of honesty.
418 We reject this submission. Even if questions of negligence could arise in a context such as this - we do not accept that they do - nothing in the nature of objective dishonesty can be inferred from the failure to draw some conclusions as to a conflict of interest of relevant significance, arising from the mere fact that the R & B deposits may not be immediately drawn upon. The existence of a term deposit or the like does not even remotely constitute a basis for an inference of dishonesty.
419 The assertion that failure to take active steps because funds may not be immediately available is a badge of dishonesty - as distinct from lack of skill or judgment, even if it could rise so high - is typical of the submissions made on this aspect of the case. There is simply no recognition that there is any relevant distinction between the conduct of a “prudent person” and that of an “honest person”. Most, if not all, of the alleged indicia of dishonesty on which Beach cumulatively, without discrimination as to their significance, relied, raised issues of prudence or skill and judgment.
420 In some respects, the submissions were internally inconsistent. In relation to the currency swap it was submitted that an honest person would have asked whether Beach had independent representation, and if not, asked why not. This was said to be one of the factors which constituted a badge of dishonesty. However, with respect to the Charge and Option Agreement and the SCAFA, Beach did have separate representation. In that context, the alleged badge of dishonesty was expressed in terms of the fact that there was no Australian lawyer to advise on Australian legal issues and that independent solicitors did not attend particular meetings. Nevertheless, what was regarded as a badge of dishonesty in one context was present in another context, but was not to be regarded, in the second context, as relevant to honesty.
421 Looking through the long list of matters said to constitute badges of dishonesty, there was none that appears to this Court to constitute anything remotely capable of being indicative of dishonesty in the relevant sense. In particular the various steps which it was said an “honest person” would have taken are, without exception, not matters involving honesty. Many may well be steps that a prudent person would take. Neither individually, nor cumulatively, did they reflect on the honesty of ATRK.
422 The submissions on knowing assistance are rejected and the grounds of appeal dismissed.
BREACH AND CAUSATION
423 We have assumed that, contrary to his Honour’s conclusion, ATRK did have a retainer on behalf of Beach with respect to the restructuring. However we have concluded that neither as part of the restructuring, nor otherwise, did ATRK have a retainer to act for Beach in relation to the Burbank acquisition.
424 We have also found that there was a limited retainer with respect to the preparation and delivery of documents in relation to the currency swap.
425 In a situation of alleged conflict of duty and duty, there must be “a real sensible possibility of conflict”. It is not enough to identify “some conceivable possibility” which may result in a conflict. (Boardman v Phipps at 124 per Lord Upjohn, frequently cited with approval, eg by the Privy Council in Queensland Mines Ltd v Hudson (1978) 52 ALJR 399 at 400G and in Hospital Products Ltd at 103 per Mason J).
426 Mr Hughes submitted that in neither case - a retainer for restructuring or for the currency swap - did a “real sensible possibility of conflict” arise in the circumstances of this case.
427 We accept this submission in the case of the currency swap. The limited retainer for completion and delivery of documents to implement a transaction which had already been agreed, was restricted to clerical acts that give rise to no conflict of the relevant character.
428 The position with respect to the restructuring cannot be so readily resolved. Mr Hughes submitted that there was no “real sensible possibility of conflict” because the restructuring was concerned with merely theoretical proposals. However, as we have indicated above, real steps were taken with respect to the aspect of restructuring that concerned the bid for shares in Claremont. This matter, driven by the NCSC investigation, had passed beyond the theoretical.
429 There was, with respect to the bid for shares in Claremont, in which Beach’s assets were to be used to support the financing, a real sensible possibility of conflict between Beach and other parties for which ATRK was acting, particularly the company making the bid. The issue here, in our opinion, was one of accountability for breach of fiduciary duty and “an adequate or sufficient connection between the equitable compensation claimed and the breach of fiduciary duty”; Maguire v Makaronis at 473. If Beach’s claim was that it suffered loss then it had to show that ATRK’s divided loyalty or performance of duty to others led to that loss. In such a case accountability depends upon causation.
430 There is a normative aspect to the determination of issues of causation, especially in a developing area of the law, such as equitable compensation. Should the solicitor bear responsibility for losses arising from a transaction in the specific context of the scope of the obligations assumed by the solicitor and the manner in which these obligations were breached?
431 The rules for the recovery of equitable compensation are less developed than the rules for proprietary remedies in equity. The rigour of the remedy is of comparatively recent vintage. At this stage of the development of the remedy, each case requires a precise focus on both the nature of the obligations and the nature of the breach.
432 The authorities on this matter have recently been reviewed in O’Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 272-273. The law in Australia was there held to be as stated by Lord Browne-Wilkinson in Target Holdings v Redferns [1996] 1 AC 421 at 439:433 Applying this test to the facts of the case leads to the conclusion that no relevant loss occurred. The takeover of Claremont never went ahead. The position of conflict never led to any relevant consequence. Specifically, neither the currency swap nor the Burbank acquisition came about by reason of any aspect of the restructuring. They were matters to which the restructuring proposals, including the bid for Claremont shares, had to adjust. They were not caused by the breach.
“Equitable compensation for breach of trust is designed to achieve exactly what the word compensation suggests: to make good a loss in fact suffered by the beneficiaries and which, using hindsight and commonsense, can be seen to have been caused by the breach.”
and by McLachlin J in Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129 at 163:
“… it is essential that the losses made good are only those which on a common sense view of causation, were caused by the breach.”
Causation and Fraud by Directors
434 As we have indicated above, Rolfe J came to the conclusion that, even if he had been wrong on the existence of fiduciary duties, ATRK’s breach of their alleged duty in relation to the currency swap and the Burbank acquisition to advise Beach against those transactions or to inform Beach about matters of which they had knowledge, caused no loss. This was because the loss was caused by the fraud of the directors, who would have perpetrated their fraud irrespective of any advice or information that ATRK may have given Beach. In view of our conclusions above, as for Rolfe J, it is not necessary to consider this matter. However, as the proceedings may go further it may be useful to do so. A similar issue arose in Gilbert v Shanahan (1998) 3 NZLR 529. The New Zealand Court of Appeal had before it a case in which a solicitor acted for both the principal debtor and a guarantor. The Court proceeded on the basis that the solicitor was in breach of a fiduciary obligation to advise the plaintiff to seek independent legal advice. The Court decied that the plaintiff would have entered into the transaction even if full disclosure had been made by the solicitors and, accordingly, their default had not caused any loss.
435 Beach submitted that in the case of causation for purposes of determining equitable compensation, authority “forbids speculation as to what might have occurred if not for the breach of fiduciary duty”. The appellant relied on the judgment of the Privy Council delivered by Lord Thankerton in Brickenden v London Loan and Savings Co (1934) 3 DLR 465 at 469, where his Lordship said:
“When a party, holding a fiduciary relationship, commits a breach of his duty by non-disclosure of material facts, which his constituent is entitled to know in connection with the transaction, it cannot be heard to maintain that disclosure would not have altered the decision to proceed with the transaction, because the constituent’s action would be solely determined by some other factor, such as the valuation by another party of the property proposed to be mortgaged. Once the court has determined that the non-disclosed facts were material, speculation as to what course the constituent, on disclosure, would have taken is not relevant.”
436 In Brickenden a solicitor was acting for both the mortgagor and the mortgagee in a land transaction in circumstances in which he had a personal interest in the discharge of existing mortgages, under which the borrower owed him monies. The existence of these mortgages was not disclosed to the new lender. The principle there stated requires some adjustment to accommodate the case of solicitors failing in their duty to give advice or impart information because of a divided loyalty.
437 To the same effect was the reasoning of Lord Radcliffe, in another judgment of the Judicial Committee on appeal from Canada, Gray v New Augarita Porcupine Mines Limited (1952) 3 DLR 1. This was also a case involving non-disclosure by a fiduciary, albeit in circumstances in which the relevant relief was for an account of profits. Lord Radcliffe, after referring to the facts of that case, said at 15:438 The judgment of the Judicial Committee in Brickenden does not recite the precise submission with which it was dealing in the passage quoted above. However, in the Supreme Court of Canada (sub nom Biggs v London Loan & Savings Co (1933) 3 DLR 161), it appears that there was an issue as to whether or not a breach of duty by directors of the lending institution had also played a role in the transaction. In delivering the judgment of the Court, Crocket J said at 168-169:
“It is said that it would have made no difference if he had told them. They had decided on the basis of settlement that they were going to impose upon him, they did not think that they could get any more out of him, and their main concern for the company was to recover for it some cash that would keep it running and to achieve an agreement that would regularise its disordered affairs. There may be an element of truth in all this, but in fact it constitutes an irrelevant speculation. If a trustee has placed himself in a position in which his interest conflicts with his duty and has not discharged himself from responsibility to account for the profits that his interest has secured for him, it is neither here nor there to speculate whether, if he had done his duty, he would not have been left in possession of the same amount of profits. It has often been said that a trustee who is accountable is not less accountable if he shows that the transaction impugned is both reasonable and fair …, and the principle is the same.”
“While it may for this reason well be said that Brickenden was not wholly responsible for the unfortunate transaction, he cannot invoke the connivance or dereliction of others as an excuse for his own breach of duty. It only renders his own breach of duty the more indefensible. He assuredly ought not to be allowed in such circumstances to excuse himself on the ground that the managing director or any other director or officer of the company with whom he negotiated ought not in any event to have accepted his proposal.
That the transaction was highly improvident and one which was fraught with disaster to both Biggs and the Loan Company, and advantageous only to himself, is perfectly obvious from the documentary evidence concerning the transaction itself and the subsequent history of the mortgages and the Loan Company.”
It appears that a similar submission was made in the Privy Council.
439 Brickenden was a clear case of a conflict of duty and interest. However, the principle has been applied to conflict of duty and duty situations. (Commonwealth Bank of Australia v Smith at 393-394; Farrington v Rowe McBride & Partners).
440 It is important to emphasise that the proposition on which reliance is placed refers only to an act of non-disclosure by a fiduciary of “material facts which his constituent is entitled to know in connection with the transaction.” The central word in the formulation in Brickenden is the word “material”. Before applying the principle, it is necessary to identify a fact which is “material” in the requisite sense. Once a fact is so identified, the principle establishes that the defaulting fiduciary will not succeed in an argument that, even with disclosure of this material fact, the transaction would still have gone ahead.
441 Once there has been a breach of the duty not to put oneself in a position where there is conflict of duty and duty, the solicitors become accountable for the “non-disclosure of material facts”. Additionally or separately the solicitors may be obliged to advise one client in a way against the interests of the other. Whether this is so and what is material must depend on all of the circumstances of a particular case.
442 In Brickenden itself, the circumstances included the finding by the trial judge accepted by the Privy Council, to the following effect (at 469-470):
“I am satisfied on the evidence that at the date of these $13,500 mortgages there was no equity in the properties which they covered, above the prior mortgages, not including Brickenden’s $5,000 mortgage, and that on a forced sale at that time not enough could have been realised to pay the prior encumbrances.”
The reference to the $5,000 mortgage was a reference to an earlier mortgage by Brickenden which was in fact disclosed. Accordingly, the factual finding was to the effect that the other mortgages in favour of Brickenden, which were not disclosed and which were paid out from the new loans, would not otherwise have been met from the sale of the properties. The materiality of a disclosure of the relevant conflict in such circumstances was clear.
443 Under such circumstances, the only alternative causal explanation on which Brickenden could have relied involved breaches of duty by the directors of the lending company of the character identified in the Supreme Court judgment and implicitly accepted by the Privy Council. It was in these circumstances that the Privy Council concluded that “speculation as to what course (the lender) …would have taken on disclosure” was said to be irrelevant.
444 Brickenden is not, in our opinion, authority for the general proposition that, in no case involving breach of fiduciary duty, may the Court consider what would have happened if the duty had been performed. The reasoning in Brickenden must now be understood in the light of the House of Lords decision in Target Holdings and the cases which have applied it.
445 We bear in mind the caution raised by Fletcher Moulton LJ in Re Coomber:Coomber v Coomber [1911] 1 Ch 723 at 729 and quoted with approval many times, including in the joint judgment of the High Court in Warman International Ltd v Dwyer at 559:
“Fiduciary relations are of many different types … and the Courts have again and again, in cases where there has been a fiduciary relation, interfered and set aside acts which, between persons in a wholly independent position, would have been perfectly valid. Thereupon in some minds there arises the idea that if there is any fiduciary relation whatever any of these types of interference is warranted by it. They conclude that every kind of fiduciary relation justifies every kind of interference. Of course that is absurd. The nature of the fiduciary relation must be such that it justifies the interference. There is no class of case in which one ought more carefully to bear in mind the facts of the case … than cases, which relate to fiduciary and confidential relations and the action of the Court with regard to them.”
446 The actions of a third party may impinge on a fiduciary’s responsibility as a matter of causation. Brickenden was concerned with a chain of events in which the alleged default of the fiduciary was a necessary component. The information which the solicitor was obliged to disclose was the very information upon which the third party had to act. It was such an act, necessarily linked to the performance of the fiduciary duty, about which “speculation” was said to be inappropriate.
447 The findings by Rolfe J in the present case are not of this character. His Honour was not concerned with what the directors of Beach would have done if ATRK had declined to act or had given particular advice. Rather, his Honour concluded that the loss would have occurred irrespective of anything ATRK did. This is not speculating on what the directors would have done if ATRK had performed their alleged duty. It is a finding that loss would have occurred whether or not any such duty as alleged had been performed.
448 It was, in our opinion, open to his Honour to find that the fraudulent directors and their associates were determined and able to perpetrate the fraud and nothing would have inhibited them from carrying it to fruition.
449 A fiduciary, including a solicitor, is not an insurer. In O’Halloran v R T Thomas this Court considered and, in the event, applied a stringent test for causation in the case of a breach of duty by a trustee of a traditional trust. The formulation most frequently cited is from Street J in Re Dawson (deceased); Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211 at 215:
“… the inquiry in each instance would appear to be whether the loss would have happened if there had been no breach.”
450 Even on this stringent test, which we assume, without deciding, is appropriate to each of the alleged breaches of fiduciary duty (in the absence of participation or knowledge of the fraud), as we understand Rolfe J’s conclusion, the causal link was not established. The fraud, his Honour found, would have happened “if there had been no breach”. Once we reject the challenge to the credit findings, there is no basis on which this Court should intervene with this conclusion. It was open to his Honour on the facts.
451 The same result follows if, contrary to our reasoning above, Beach had made out a case of negligence. The common law test of causation would, even more clearly, not be satisfied.452 In our opinion the appeal should be dismissed with costs. This makes it unnecessary to consider the cross-appeal. However, in deference to the arguments submitted we will deal with the matters raised on the cross-appeal.
CONCLUSION TO APPEAL
CROSS APPEAL
Section 68A of the Companies Code
453 One of the defences pleaded by ATRK (para 111) relied upon s68A of the Companies Code. It was maintained that ATRK were entitled to rely on certain specified assumptions, in particular that Mr Fuller, Mr Cummings and Mr Main, as directors of Beach, properly performed their duties to Beach in relation to each of the dealings between ATRK and Beach.
454 The section relevantly provided as follows:
“1. A person having dealings with a company is, subject to sub-section (4), entitled to make, in relation to those dealings, the assumptions referred to in sub-section (3) and, in any proceedings in relation to those dealings, any assertion by the company that the matters that the person is so entitled to assume are not correct shall be disregarded ……
3. The assumptions that a person is, by virtue of sub-section (1) … entitled to make in relation to dealings with the company ..… are:
(a) that, at all relevant times, the memorandum and articles of the company have been complied with;
(b) that a person who appears, from returns lodged … to be a director … has authority to exercise the powers and perform the duties customarily exercised and performed by a director …
(c) that a person who is held out by the company to be an officer … has been duly appointed and has authority to exercise the powers and perform the duties customarily exercised or performed by an officer or agent of the kind concerned;
………..; and
(f) that the directors … of the company properly perform their duties to the company.
4. Notwithstanding sub-section (1), a person is not entitled to make an assumption referred to in sub-section (3) in relation to dealings with the company if:
(a) he has actual knowledge that the matter that, but for this sub-section, he would be entitled to assume is not correct; or
(b) his connection or relationship with the company is such that he ought to know that the matter, but for this sub-section, he would be entitled to assume, is not correct …,”
455 Rolfe J found that ATRK were a “person having dealings with” Beach within the provision and were, prima facie, entitled to the benefit of the assumptions in subs (3). Beach disputed this but it seems apparent that, consistent with the reasoning in Story v Advance Bank Australia Limited (1993) 31 NSWLR 722 and Australian Capital Television Pty Limited v Minister for Transport and Communications (1989) 86 ALR 119, Rolfe J was correct. Giving the words “dealings with the company” their ordinary meaning leads to the conclusion that ATRK, when retained by Beach (as must be assumed for the purposes of this defence) were within the terms of the section.
456 Having found that ATRK came within the provision his Honour rejected the defence in the following terms (26 ACSR at 299):
“I think the proper approach is that if ATRK were acting as the solicitors for Beach that gave rise, prima facie, to a fiduciary duty and constituted a dealing with the company. The existence of such a duty, in turn, gave rise to a connection or relationship from which, assuming the existence of the duty, ATRK, by complying with the obligations imposed by the duty, ought to have known that they were not entitled to make the assumptions. Therefore, if ATRK had a fiduciary duty arising in those circumstances, they could not rely on the assumptions, because that duty created the necessary connection or relationship.”
and later (26 ACSR at 300):
“My view is that the person dealing with the company, who is entitled to make those assumptions, cannot be a person who has an independent duty to it, by virtue for example of the fiduciary relationship created by the retainer as a solicitor. Unless this were so a solicitor would be able to avoid the consequences of the fiduciary duty in circumstances where this would be contrary to its very assumption. Therefore, the solicitor/client retainer, relevantly for present purposes, creates the dealing and the connection or relationship.”
It was these conclusions which led ATRK to cross-appeal alleging that Rolfe J was in error in rejecting the defence.
457 Rolfe J’s conclusions were, of course, based on the hypothesis that in so far as ATRK were acting for Beach, they could not assert that by virtue of the fiduciary relationship thereby created, they ought not to have been aware of the facts.
458 At first blush it may seem that his Honour was excluding a solicitor acting for a company from ever being able to rely on the assumptions in s68A. However, we do not think that his Honour so intended. Rather, Rolfe J was saying that assuming a fiduciary relationship, and its breach, as it seems one must for the purposes of the argument, then the section cannot be relied on. This was because to do so would override the fiduciary duty.
459 As we understand the submission on behalf of ATRK, Mr Hughes concedes that if the duty included the need for ATRK to check the status of the deposits at R & B, and they failed to do so, then s68A would have no application.
460 The complaint made by Mr Hughes was that in considering the s68A issue, Rolfe J did not specify the content of the assumed duty owed to Beach. Did it extend to a duty to check on the status of the Swiss deposits? While it is true that his Honour’s earlier factual findings negative any fiduciary duty extending to checking on the deposits, these findings were not made in the context of s68A. They cannot be transposed to the s68A issue. Although Rolfe J did not specify the extent of the duty in his analysis of the s68A defence, it is our view that the defence must assume that the duty included the need to inquire about the R & B deposits, as well as ATRK’s breach by their failure to do so. This would lead to the conclusion that Rolfe J was correct to reject the defence. In such a case, it is unnecessary to visit subs (4) (b) to test whether the respondents ought to have known that the matters they would otherwise be entitled to assume, were not correct. However, on the assumed fiduciary duty, seen in its wider connotation, and its breach, it would be likely that the conclusion would be that ATRK would not be entitled to rely on the assumptions. Accordingly, this part of the cross-appeal fails.461 This was the ground ATRK sought leave to add in their amended notice of cross-appeal. The issue was whether Beach gave its fully informed consent to the double employment with potentially conflicting engagements of ATRK. The starting point was that his Honour said that ATRK did not raise (in their pleadings) the existence of a fully informed consent. This was not correct. Paragraph 112 of the second further amended defence pleaded, in the alternative, that ATRK acted in the transactions “with the informed consent of Beach”. Two particulars were given. One referred to s68A of the Companies Code and the second incorporated particular (i) to para 108 of the pleading. The relevant particular stated:
Informed Consent
“At all material times in 1989, Fuller, Cummings and Main constituted the whole of the board of directors in relation to all relevant decisions of the plaintiff and were its directing mind and will. Their conduct, in acting as the board of directors of the company, is the conduct of the plaintiff or its identified with, or attributed to, the plaintiff.”
462 It may well be that his Honour’s finding arose from the way in which ATRK argued the s68A issue and its overlap with the informed consent issue. Be that as it may, it is plain that the issue of informed consent is separate and distinct from the s68A issue.
463 The next matter to be noted is that ATRK did not include any ground relevant to informed consent in their cross-appeal. This led to an application being made on 12 February 1999 to amend the cross-appeal, by adding paras 11 and 12 raising the issue. These paras claimed as follows:
11. His Honour erred in holding that the respondents had not raised, as a defence, the existence of the fully informed consent of the appellant.
12. His Honour should have held that the respondents acted with the informed consent of the appellant in each of the matters or transactions in respect of which the appellant alleged a conflict of duty by the respondents.
464 Although Beach opposed the amendment, Mr Jackson could not point to any prejudice if the amendment was permitted and fully argued the substance of the issue both orally and in written submissions. Accordingly, leave should be granted to amend the cross-appeal in the form handed to the Court on 12 February 1999. By letter dated 19 February 1999 Beach sought to amend paras 10, 13 and 63 of its grounds of appeal to add reference to the issue of knowledge relevant to the fraud. Although argument had been addressed to this topic in the submissions, the pleading had not specifically included such a reference. This amendment should also be granted.
465 In Maguire v Makaronis at 466 it was stated that what constitutes a fully informed consent is a question of fact to be determined in all the circumstances of each case. The court said that there is no precise formula which will determine in all cases whether a fully informed consent has been given. ATRK’s submission on informed consent is straightforward. Clearly there was no express informed consent in the sense that ATRK told Beach that there would be a potential conflict of interest in acting for it in the transactions while acting for other companies within the group and Beach consented to ATRK so acting. However such fully informed consent is to be inferred from the undisputed facts. The three directors of Beach, Mr Fuller, Mr Cummings and Mr Main, were the directing minds and will of Beach. When they instructed ATRK, on behalf of Beach, they did so with full knowledge of the circumstances that ATRK were acting for the other companies in the transactions. They knew exactly what was going on and what ATRK were asked to do.
466 Reliance was placed on an analogous situation in Bristol and West Building Society v Mothew [1998] Ch 1. At 18-19 Millett LJ said:
“A fiduciary who acts for two principals with potentially conflicting interests without the informed consent of both is in breach of the obligation of undivided loyalty; he puts himself in a position where his duty to one principal may conflict with his duty to the other: see Clark Boyce v Mouat [1994] 1 AC 428 and the cases there cited. This is sometimes described as ‘the double employment rule’. Breach of the rule automatically constitutes a breach of fiduciary duty. But this is not something of which the society can complain. It knew that the defendant was acting for the purchasers when it instructed him. Indeed, that was the very reason why it chose the defendant to act for it. The potential conflict was of the society’s own making: see Finn, Fiduciary Obligations , p 254 and Kelly v Cooper [1993] AC 205.
It was submitted on behalf of the society that this is irrelevant because the defendant misled the society. It did not know of the arrangements which the purchasers had made with their bank, and so could not be said to be ‘fully informed’ for the purpose of absolving the defendant from the operation of the double employment rule. The submission is misconceived. The society knew all the facts relevant to its choice of solicitor. Its decision to forward the cheque for the mortgage advance to the defendant and to instruct him to proceed was based on false information, but its earlier decision to employ the defendant despite the potentially conflicting interest of his other clients was a fully informed decision.”
467 So too here. Beach, through its directors, knew that ATRK were acting for other companies within the group on the various transactions. Indeed, they had quite deliberately given instructions on behalf of those other companies to ATRK. If there was any conflict, it was of their own making and a decision which was made by them with knowledge of all the facts relevant to the choice of solicitor. It was a fully informed decision.
468 Beach’s answer was two-fold. First, it submitted that Mr Fuller, Mr Cummings and Mr Main could not constitute the directing mind and will of Beach once it was accepted, as it was, that Mr Johnson effectively controlled them and Beach. Notwithstanding Mr Johnson’s apparent de-facto directorship and apparent power over the others, the directors were duly elected as directors, were acting as such and must, it seems to us, be taken to be the directing minds and will of the company. This submission is rejected.
469 Next, Mr Jackson submitted that there could not be a fully informed consent of Beach if its directors were acting fraudulently against the company. Mr Jackson’s submission was premised on the basis that whenever there is a hidden fraud, no question of informed consent to double employment can ever arise. The directors were in breach of their fiduciary duty to Beach by reason of their fraud, and accordingly they could not absolve the solicitors from their fiduciary obligation not to act for clients with conflicting interests. In other words, there could be no question of a fully informed consent arising if the directors acted fraudulently, even if this was a hidden fraud of which ATRK had no knowledge.
470 The proposition may be tested by asking what if ATRK expressly sought and obtained the fully informed consent of the directors of Beach. Mr Jackson submitted that there could be no informed consent unless the directors had informed ATRK of the fraud. This cannot be correct. If ATRK, unaware of the fraud of the directors, disclosed their conflict and obtained consent to their double employment, they should be entitled to rely on that consent. Why, one might ask, should it be any different if ATRK, being unaware of the fraud, were instructed by directors who themselves were fully aware of the circumstances of any potential conflict of ATRK but chose to have them carry out their instructions which might result in divided loyalty?
471 Reliance was placed on Abcos v Jones (1997) 150 ALR 488 at 512 where the Full Federal Court said that one fiduciary cannot absolve another fiduciary of the latter’s obligations. We do not believe that, since ATRK had no knowledge of the directors’ fraud, anything said in that case is inconsistent with the conclusion that Beach, by its directors, gave a fully informed consent.
472 The consequence of directors’ fraud has recently been considered by the Full Court of the Supreme Court of South Australia in Duke Group Limited (In Liquidation) v Pilmer (1999) 31 ACSR 213, particularly at 320 and following, when considering whether the company was guilty of contributory negligence. Their Honours, after a careful review of the cases, concluded at 336 that the relevant conduct of the directors was to be treated as fault. The company was vicariously liable for the conduct of its directors in supplying unreliable and inadequate information to its adviser and in the way it made use of the report the adviser provided. The Full Court was concerned with submissions not dissimilar to those Beach advanced to Rolfe J on this aspect of the matter.
473 Beach did not submit that its directors acted outside the scope of their actual or apparent authority when dealing with ATRK; see Turton v London & North Western Railway Company (1850) 15 LT (OS) 92 and Dresser v Norwood [1864] 17 CBNS 466; 144 ER 188 and compare El Ajou v Dollar Holdings plc [1994] 2 All ER 685 at 702. Acts of agents within the scope of their actual or apparent authority do not cease to bind the principal merely because the agents were acting fraudulently and in furtherance of their own interests; see Bowstead & Reynolds on Agency, 16th ed, Article 76 at 402. Beach relied upon decisions such as Re Hampshire Land Co [1896] 2 Ch 743, J C Houghton & Co v Nothard, Lowe & Wills Limited [1928] AC 1 and Belmont Finance Corporation Limited v Williams Furniture Limited [1979] 1 Ch 250 for the proposition that where directors of a company are acting in total fraud of the company their knowledge is not to be imputed to the company.
474 Those cases stand for the propositions that in a claim by a company against directors, who have conspired to defraud it, the knowledge of the conspiring directors is not imputed to the company because it would be irrational to do so; Belmont Finance Corporation Limited at 261-2; and that, where a third party claims a company is estopped by conduct amounting to acquiescence, the knowledge of directors acting in fraud of the company and outside their authority will not be treated as knowledge of the company, for reasons of justice and commonsense; J C Houghton & Co at 14-15 and 19; see Beach Petroleum NL v Johnson (1993) 43 FCR 1. Such claims are quite different from those where solicitors are seeking to establish a defence of fully informed consent.
475 In Bowstead & Reynolds at 533 it is said:
“In knowledge cases, however, the presumption that information will be passed on may also be nullified by proof that the agent was defrauding the principal in that transaction, whether or not the third party knew this: it can, in such a case, be said that there was a moral certainty that the information would not be communicated, or that communication would require disclosure of the very fraud being practised upon the agent by the principal, or that the agent was not acting for the principal when he received the information.”
476 Such considerations do not apply to prevent the imputation to Beach of its directors’ knowledge about ATRK’s retainer by other companies in the IRL group. There is no reason of commonsense or justice to say that the directors’ knowledge about this was not the knowledge of Beach, because the directors were actively defrauding Beach. The position of conflict of duty and duty on the part of ATRK was not so integral a part of the fraud being perpetrated by the directors, as to suggest that the company ought not be bound by their conduct in this respect. Indeed, this may simply be another way of stating the conclusion we already expressed, to the effect that his Honour was entitled to conclude that there was no causal link between the breach and the loss. We do not think that our conclusions in this regard differ from those the Full Court arrived at in Duke v Pilmer.
477 Because they had no knowledge of the fraud, we would not conclude that ATRK are prevented from relying on Beach’s fully informed consent (whether it be express or implied). The proposition advanced on behalf of Beach lacks both logic and fairness.
478 In our opinion, ATRK, even if they were liable for breach of fiduciary duty under the double employment rule, have established that they did so with Beach’s fully informed consent and are absolved from any liability. Absent knowledge of the fraud and of the ‘blocked accounts’ there was nothing to be disclosed by ATRK to Beach. Accordingly, this part of the cross-appeal would succeed if it was necessary to determine.479 Beyond allowing it in part it is unnecessary to make any substantive order on the cross-appeal. Beach should pay ATRK’s costs of the cross-appeal.
Conclusion to Cross-Appeal
ORDERS
1. Leave to the respondents to amend the notice of cross-appeal to add the following grounds:
11. His Honour erred in holding that the respondents had not raised, as a defence, the existence of the fully informed consent of the appellant.
12. His Honour should have held that the respondents acted with the informed consent of the appellant in each of the matters or transactions in respect of which the appellant alleged a conflict of duty by the respondents.
2. Leave to the appellant to amend paras 10, 13 and 63 of its grounds of appeal in accordance with the amendments proposed in the letter from its solicitor to the Court dated 19 February 1999;
3. Appeal dismissed;
4. Cross-appeal allowed in part;
5. Appellant to pay the respondents’ costs of the appeal and cross-appeal.
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ABBREVIATIONS
ACC Atlantic Capital Corporation
AGL Australian Gas Light Company
Agreement
AOM Asia Oil and Minerals
ASX Australian Stock Exchange
ATRK Abbott Tout Russell Kennedy
BBR Brooke Blair Russell
Beach Beach Petroleum NL
BOG Burbank Oil and Gas Limited (Bahamas)
BPC Burbank Petroleum Corporation (Colorado)
CGMA Consolidated Gold Mining Areas NL
Claremont Claremont Petroleum NL
CMS Cambridge Mining Services Pty Limited
Coronet Coronet Resources NL
Cortaus Cortaus Limited
ELFIC Elders Finance & Investment Co Limited
Enterprise Enterprise Gold Mines NL
FAI FAI Insurance Limited
Firstway Firstway Inc
Inspar Inspar Pty Limited
IRAG Independent Resources (Asia) Group Pty
IRL Independent Resources Limited
Jingellic Jingellic Minerals NL
Limited
Mazeley Mazeley Limited
Meridian Meridian Oil NL
Moage Moage Limited
NCSC National Companies and Securities
Commission
Petrogulf Petrogulf Resources LimitedR & B Rahn & Bodmer
SCAFA Syndicated Cash Advance Facility
SEJ Deposits Deposits held at Rahn & Bodmer by Spargos, Enterprise and Jingellic
Southern Goldfields Southern Goldfields Limited
Spargos Spargos Mining NL******
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