Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd - [2019] SASCFC 151

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
BLONG UME NOMINEES PTY LTD & ORS v SEMWEB NOMINEES PTY LTD & ORS
[2019] SASCFC 151
Judgment of The Full Court
(The Honourable Chief Justice Kourakis, The Honourable Justice Stanley and The Honourable Justice Lovell)
10 December 2019
EQUITY - GENERAL PRINCIPLES - FIDUCIARY OBLIGATIONS - PARTICULAR CASES - JOINT VENTURER
EQUITY - EQUITABLE REMEDIES - EQUITABLE COMPENSATION - BREACH OF FIDUCIARY OBLIGATIONS
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS
CORPORATIONS - MEMBERSHIP, RIGHTS AND REMEDIES - MEMBERS' REMEDIES AND INTERNAL DISPUTES - OPPRESSIVE OR UNFAIR CONDUCT
Appeal against the decisions of a Judge of this Court dismissing in all respects the claims of the plaintiffs (the appellants) and awarding costs against the appellants.
Messrs Orfanos, Michaels and Ouwens formed a joint venture under a joint venture deed, comprising of their respective corporate vehicles, of which they were the principals, Orfanos Nominees Pty Ltd (Orfanos Nominees), Melrob Investments Pty Ltd (Melrob) and Ouwens Corporate Services Pty Ltd (OCS), referred to collectively as the Joint Venturers.
Under a trust deed, the joint venture company, Semweb Nominees Pty Ltd (Semweb), was to purchase a property, an office building, as trustee for the corporate vehicle beneficiaries. The three principals were also the directors of Semweb. Clause 3.5.1 of the joint venture deed purported to appoint the three principals as the directors. Clause 10 of the joint venture deed stipulated that nothing in it ‘shall be construed so as to constitute any of the parties hereto a party agent or representative of the other or to create any trust or commercial partnership or their partnership with any company or corporate or commercial entity for any purpose whatsoever’.
Mr Michaels’ operated his professional practice through Sims Richmond Pty Ltd (Sims Richmond). Mr Orfanos was also the principal of Orfanos Corporate Services Pty Ltd (Orfanos Corporate).
Semweb leased, on a five-year term that would expire on 1 December 2007, part of the building to Sims Richmond and part of it to OCS and Orfanos Corporate through a joint venture between OCS and Orfanos Corporate. In December 2007, Mr Orfanos vacated the property after falling into dispute with Mr Ouwens. In the years which followed, Mr Orfanos raised on two occasions complaints that Semweb did not lease the property on market terms and conditions, but Semweb took no action.
The appellants brought an action seeking remedies for Semweb’s failure to do so. They also sought orders pursuant to s 233 of the Corporations Act 2001 (Cth) (the Corporations Act) flowing from the respondents’ allegedly oppressive, unfairly prejudicial or unfairly discriminatory conduct of Semweb’s affairs.
The Judge found that Messrs Ouwens, Michaels and Orfanos owed fiduciary duties to themselves and their associated Joint Venturers and that the Joint Venturers owed duties to each other. However, the Judge dismissed the action, in all respects, on the grounds that the appellants had not proved that the rent collected by Semweb was less than the market rent. The Judge construed cl 3.5.2 of the joint venture deed, which required any change of the directors of Semweb to be unanimously agreed between the joint venturers, to extend to the principals’ appointment of their alternate directors of Semweb.
The appellants appeal on the primary grounds that:
1. The Judge erred in his finding in respect of market rent.
2. The Judge erred in not holding that Messrs Michaels and Ouwens, Sims Richmond and/or OCS had breached their fiduciary duties in respect of market rent.
3. In any event, the Judge erred in not holding that Messrs Michaels and Ouwens, Sims Richmond and/or OCS had breached their fiduciary duties.
4. The Judge erred in the determination of causation and the measure of loss for the breach of fiduciary duty.
5. The Judge erred in failing to grant certain remedies.
6. The Judge erred in his findings in respect of the oppression remedy, if there is an error with the Judge’s finding in respect of market rent.
7. In any event, the Judge erred in his findings in respect of the oppression remedy.
8. The Judge erred in failing to grant a remedy under s 233 of the Corporations Act.
The respondents also rely on a notice of contention which contends that none of the principals owed a fiduciary duty to each other, that any fiduciary duty owed by the corporate vehicles to each other was excluded, that any fiduciary duty to avoid the possibility of conflict between the duty of Messrs Orfanos, Michaels and Ouwens as directors of Semweb and as tenants was excluded, and that Mr Orfanos and Orfanos Nominees had agreed to the basis on which rent would be charged and they could not then complain that Semweb maintained the same arrangement after Orfanos Corporate had vacated.
Held per curiam, allowing the appeal:
1. Clause 10 of the joint venture deed cannot operate more widely to exclude fiduciary obligations which might otherwise arise from the terms of the joint venture deed.
2. The Judge was correct to find that the three principals, in their positions as directors of Semweb, owed a fiduciary duty to the Joint Venturers not to procure a benefit for his associated professional practice by causing Semweb to breach the duty it owed to the Joint Venturers as beneficiaries.
3. The appellants have established that Semweb breached the fiduciary and other equitable duties it owed the Joint Venturers in their capacity as beneficiaries. A landlord in the position of Semweb exercising reasonable skill and diligence would have taken steps to obtain a market rental income from the property.
4. The Judge erred in his assessment of market rent and in his assessment of equitable compensation. The market rent of the ground floor on 1 December 2007 was $113,164 per annum, and on 1 December 2012 was $132,553.50. The market rent for the first floor on 1 December 2007 was $71,421 and on 1 December 2012 was $84,189.
5. Semweb is to restore the difference between the rents received by it and the market rent adjusted by such CPI increases as may be necessary.
6. Messrs Michaels and Ouwens are to pay a sum by way of equitable compensation to Orfanos Nominees to the extent that is necessary to ensure that it does not bear any loss arising out of the order made against Semweb. The parties are to be heard on the calculation of the quantum of those orders and interest and on the costs of the trial and appeal.
7. The Judge’s dismissal of the appellants’ claim that Semweb be removed as trustee and/or the trust wound up must be set aside because of his Honour’s erroneous finding that the rent obtained was not shown to be less than market rent. The parties are to be heard on what orders, if any, should be made.
8. The Judge’s order dismissing the claim pursuant to s 233 of the Corporations Act must be set aside. The parties are to be heard on whether the oppression claim should be remitted to the Judge or determined by this Court, and if so on what, if any, further evidence.
9. Mr Orfanos’ power to appoint an alternate director was not constrained by the joint venture deed. However, it has not been shown that the Judge was wrong to find that there was no irredeemable dysfunction in the affairs of Semweb.
10. It is not necessary to consider ground 3, and its relationship with ground 4, which is premised on the Judge’s finding as to the market rental not being disturbed.
Corporations Act 2001 (Cth) ss 181, 182, 201K, 232, 233, 234, 461; Trustee Act 1936 (SA) ss 36, 59C, referred to.
Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd [2017] SASC 137, discussed.
Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd (No 2) [2017] SASC 178; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; Breen v Williams (1996) 186 CLR 71; Byrnes v Kendle (2011) 243 CLR 253; Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187; Doneley v Doneley [1998] 1 Qd R 602; Bristol and West Building Society v Mothew [1998] Ch 1; Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165; Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383; Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534; Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; Maguire v Makaronis (1997) 188 CLR 449; Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46; Libertarian Investments Ltd v Hall (2013) HKCFAR 681; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; Singer & Friedlander Ltd v John D Wood & Co [1955-95] P.N.L.R 70; Interchase Corporation Ltd (in liq) v Grosvenor Hill (Queensland) Pty Ltd (No 3) [2003] 1 Qd R 26; Adwell Holdings Pty Ltd v Smith [2003] NSWCA 103; Friend v Brooker (2009) 239 CLR 129; Howard v Commissioner of Taxation of the Commonwealth of Australia (2014) 253 CLR 83; Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 92 ALJR 918; Agricultural Land Management Ltd v Jackson (No 2) (2014) 48 WAR 1; Chan v Zacharia (1984) 154 CLR 178; Clay v Clay (2001) 202 CLR 410, considered.

BLONG UME NOMINEES PTY LTD & ORS v SEMWEB NOMINEES PTY LTD & ORS
[2019] SASCFC 151
Full Court: Kourakis CJ, Stanley and Lovell JJ

THE COURT: In November 2002, Nicholas Orfanos and Michael Michaels were chartered accountants. Willem Ouwens was a solicitor. These three professional men, referred to at trial as the three principals, agreed to purchase a building on Frome Street, Adelaide (the property), for their respective practices.
They agreed that a company incorporated some years earlier by Mr Michaels, Semweb Nominees Pty Ltd (Semweb), would purchase the property as trustee for three corporate beneficiaries: Orfanos Nominees Pty Ltd (Orfanos Nominees) of which Mr Orfanos was the principal, Melrob Investments Pty Ltd (Melrob) of which Mr Michaels was the principal and Ouwens Corporate Services Pty Ltd (OCS) of which Mr Ouwens was the principal.
Their professional practices took leases over and occupied almost the whole property with some surplus space on the first floor to sublet to others. In December 2007, Mr Orfanos vacated the property after falling into dispute with Mr Ouwens. In the years which followed, Mr Orfanos raised on two occasions complaints that Semweb did not lease the property on market terms and conditions. No steps were taken by Semweb to procure written leases or to ensure that a market rent was paid by the occupants of the property. Later, Mr Orfanos and his corporate vehicles, Blong Ume Nominees Pty Ltd (Blong Ume) and Orfanos Nominees (collectively, the appellants), brought an action seeking remedies for Semweb’s failure to do so. The remedies sought included declarations, an order for the winding up of Semweb, an order regulating the affairs of Semweb and equitable compensation from Semweb, Melrob, OCS and Messrs Michaels and Ouwens. The Judge dismissed the action on the grounds that the appellants had not proved that the rent collected by Semweb was less than the market rent.
Semweb, the first respondent, took no part in the appeal.
We allow the appeal. Semweb breached its duty as a trustee by failing to take any steps to ensure that the property was leased at market rates. For the reasons which follow, the Judge erred in his assessment of the market rent. The market rent of the ground floor on 1 December 2007 was $113,164 per annum, and on 1 December 2012 was $132,553.50. The market rent for the first floor on 1 December 2007 was $71,421 and on 1 December 2012 was $84,189.
We would order that Semweb restore the difference between the rents received by it and the market rent adjusted by such CPI increases as may be necessary. We would make an order that Messrs Michaels and Ouwens pay a sum by way of equitable compensation to Orfanos Nominees to the extent that is necessary to ensure that it does not bear any loss arising out of the order made against Semweb. We will hear the parties on the calculation of the quantum of those orders and interest and on the costs of the trial and appeal.
The Joint Venture documentation
On 25 November 2002, Orfanos Nominees, Melrob and OCS (the Joint Venturers) entered into a Joint Venture Deed (JVD) with Semweb. Orfanos Nominees entered into the Joint Venture in its capacity as trustee for the Stables Trust, Melrob as trustee of the Michaels Family Trust 2, and OCS as trustee of the OCS Trust.
The expressly stated purpose of the JVD is ‘to acquire and hold the Property as an investment in the manner mutually agreed between the Joint Venturers from time to time and if agreed to further develop the Property’.[1] Semweb agreed to purchase and hold the property for the Joint Venturers as trustee under a contemporaneous declaration of trust (the Trust Deed). The JVD provides that the three principals, Messrs Orfanos, Michaels and Ouwens, would each hold one third of the issued shares in Semweb unless the Joint Venturers otherwise agreed.[2] In accordance with the JVD, each of them came to hold a single share in Semweb, with only three shares issued in total.
[1] JVD cl 3.1.
[2] JVD cl 3.4.
By cl 3.5.1 of the JVD the Joint Venturers purport to appoint the three principals as directors of Semweb but that clause rests on the false premise that it is the Joint Venturers who are entitled to appoint the directors of Semweb. Of course, they had no such power; it was for the three principals, as the only shareholders, to do so. Clause 3.5.2 of the JVD provides that any change of directors must ‘be unanimously agreed in writing between the Joint Venturers and no Joint Venturer shall be entitled to nominate or appoint any directors to the Company without the prior agreement in writing of the other Joint Venturers.’ Clause 3.5.2 rests on the same false premise. Clause 12.8.1 of Semweb’s Articles of Association allows a director to appoint an alternate director. After the Joint Venturers fell into dispute Mr Orfanos claimed that he was entitled to do so. The Judge construed cl 3.5.2 of the JVD to extend to the directors’ appointment of their alternates. However, the three principals were not parties to the JVD and, in any event, as we have already observed cl 3.5.2 is devoid of any practical legal effect because it is founded on the false premise that the Joint Venturers can control the appointment of directors. We therefore respectfully differ from the Judge. Mr Orfanos’ power to appoint an alternate director was not constrained by the JVD.
Clause 3.6.1 of the JVD provides that the directors ‘shall have full and unfettered management and control of [Semweb] and shall at all times act in the best interests of the Joint Venturers in and about [its] management and control’. It is common ground on the appeal that the directors, not being parties to the JVD, were not legally bound by cl 3.6.1. However, the Joint Venturers were, as earlier mentioned, also the sole beneficiaries under the trust. It follows that in discharging their duties the directors must necessarily act in the best interests of the Joint Venturers, subject only to their obligation to consider the interests of Semweb’s creditors. The three principals were therefore necessarily in a position in which their duty as directors of Semweb might conflict with their interests in securing beneficial rental terms for their professional practices. However, the JVD could not excuse them from their statutory duties to Semweb. For so long as the terms and conditions of the leases granted were agreed by, and did not discriminate between, all of the corporate vehicles of the three principals, the duty would not be breached.
Clause 3.6.1 also has some legal significance in that it impresses a duty on the Joint Venturers not to cause or procure the directors to prefer the interests of one or more of them over the remaining Joint Venturer or Joint Venturers. Clause 3.6.1, by implication, may also preclude the Joint Venturers from taking a benefit from Semweb if Semweb, at the direction of a director or directors acting inconsistently with cl 3.6.1, preferred one or more of them over the others, in breach of its duty as a trustee.
Clause 6.1.1 of the JVD obliges Semweb to ensure that the property ‘is managed and administered in a proper efficient and businesslike manner at all times’. That prescriptive duty accords with the duty which equity imposes on a trustee who holds real property. An ancillary provision, cl 6.1.2, requires Semweb to maintain the property in a proper state of repair ‘in order to ensure the maximum level of occupancy by lessees, tenants and other persons and maximum level of rent return’. Even though that clause is, on its terms, limited to the maintenance of the property, the purpose of maximising the occupancy and rental return of the property informs the adverbial clause ‘proper efficient and businesslike manner’ in cl 6.1.1.
Other parts of cl 6 of the JVD give wide general powers of management including the power to grant leases, tenancies and licences over the property. Clause 6.3 acknowledges the full unlimited power of the directors to make decisions necessary for the administration, management and sale of the property subject only to due consultation with, or reference to, the Joint Venturers.
The JVD grants the directors an immunity from liability for loss caused by their conduct ‘in the absence of fraud or gross negligence’,[3] but they are not parties to it.
[3] JVD cl 6.4.
Clause 9 of the JVD sets out a mechanism by which a ‘Retiring Joint Venturer’ can assign its interest in the property to the ‘Continuing Joint Venturers’. If, after giving a notice to retire, which constitutes an irrevocable offer to sell, the Continuing Joint Venturers reject the offer, the Retiring Joint Venturer can offer its share to a third party at a price not less, and on no more favourable terms, than those offered to the Continuing Joint Venturers.
Clause 10 of the JVD stipulates that nothing in it ‘shall be construed so as to constitute any of the parties hereto a party agent or representative of the other or to create any trust or commercial partnership or their partnership with any company or corporate or commercial entity for any purpose whatsoever’. The respondents contend that that clause, and in particular the word ‘representative’, relieves the parties to the JVD from any fiduciary obligations which might otherwise have been assumed by entering into it. That submission must be rejected. Clause 10 is an interpretative clause which precludes any construction of the other clauses of the JVD which would place the parties in any of the relationships, in law or equity, to which it refers. The meaning of ‘representative’ in cl 10 is coloured by the words ‘party’ and ‘agent’. Together those words of cl 10 exclude a construction of the other clauses of the JVD which would authorise any one of the Joint Venturers to legally bind the others. Plainly enough, to the extent to which any of those relationships would have carried with them fiduciary obligations, those obligations too are excluded, but the clause cannot operate more widely to exclude fiduciary obligations which might otherwise arise from the terms of the JVD. In this respect the respondents’ reliance on the passage in the judgment of Mason J (as his Honour then was) in Hospital Products Ltd v United States Surgical Corporation[4] is misplaced.
[4] (1984) 156 CLR 41 at 96-97.
In Breen v Williams (Breen), Brennan CJ explained that fiduciary duties may arise in other than representative relationships: [5]
Fiduciary duties arise from either of two sources, which may be distinguished one from the other but which frequently overlap. One source is agency; the other is a relationship of ascendency or influence by one party over another, or dependence or trust on the part of that other.
(Footnotes omitted)
[5] (1996) 186 CLR 71 at 82.

It is the interdependency of, and the mutual trust reposed in each other by, the Joint Venturers which may found fiduciary duties independently of relationships of agency (or other forms of representation), partnership and trustee/beneficiary. In Hospital Products Ltd v United States Surgical Corporation, Mason J explained:[6]
… The critical feature of these 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 expressions ‘for’, ‘on behalf of’, and ‘in the interests of’ signify that the fiduciary acts in a ‘representative’ character in the exercise of his responsibility, to adopt an expression used by the Court of Appeal.
It is partly because the fiduciary’s exercise of that power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed.
The concept of a representative in that passage is wider than the forms of agency contemplated by cl 10 of the JVD. The representative character to which Mason J referred includes both sources of fiduciary obligations identified by Brennan CJ in Breen, and extends to acting ‘in the interests of another’, whereas the word ‘representative’ in cl 10 of the JVD refers only to relationships, like an agency, in which one person acts ‘on behalf of’ another.
[6] (1984) 156 CLR 41 at 96-97.
The passage explains that in the accepted fiduciary relationships (trustee and beneficiary, agent and principal, solicitor and client, director and company, and partners) the fiduciary has an obligation to act in the interests of another when exercising the power. The passage introduced his Honour’s reasons for finding that Hospital Products Ltd owed United States Surgical Corporation fiduciary obligations in acting as the distributor of its products in Australia. It is that context which informs the passage on which the respondents rely. The passage was not intended to limit fiduciary obligations to agency or quasi-agency relationships. Nor is there any textual or contextual basis to construe cl 10 as an elliptical attempt to exclude any fiduciary obligations which might otherwise attach to the Joint Venturers, save for the particular relationships it identifies. Be that as it may, the Joint Venturers themselves had no power over the affairs of Semweb and therefore the, direct or indirect, interests of the principals in the occupancy of the building to which to attach a fiduciary duty. It is only on their retention of a benefit wrongly conferred by Semweb that a contractual or equitable duty might operate.
Clause 10 does not, of course, apply to the directors who are not parties to the JVD. As we earlier observed, their duty to Semweb is not to cause it to breach its duty to Joint Venturers by preferring one over another. Preferential terms given to their associated corporate vehicles which occupied the building must not have that practical effect.
On the same day as the execution of the JVD, the same parties entered into the Trust Deed. By the terms of the Trust Deed, Semweb, as trustee, acknowledges and declares that it had agreed to purchase the land and to hold it on trust for the beneficiaries, Melrob, Orfanos Nominees and OCS in three equal proportions.[7] The beneficiaries agree to indemnify and hold Semweb harmless in respect of all actions, claims, suits, demands, proceedings and expenses which Semweb, as trustee, may incur in relation to the purchase of, or holding of or dealing with, the property.[8]
[7] Trust Deed cl 2.
[8] Trust Deed cl 3.
The Trust Deed records Semweb’s agreement that it would not sell, transfer, assign, dispose of or otherwise deal with the property, or any part of it, other than as agreed in writing between it and the beneficiaries from time to time.[9]
[9] Trust Deed cl 4.
Informal tenancies
In October 2002, the Joint Venturers reached agreement on occupancy and rental arrangements for the property. Sims Richmond Pty Ltd (Sims Richmond), the corporation through which Mr Michaels operated his accountancy practice, occupied the ground floor at a rent of $75,000 per annum (with CPI adjustments) for a term of five years from December 2002. It was agreed that the practices of Mr Ouwens and Mr Orfanos would occupy the first floor. To that end OCS entered into a joint venture with Orfanos Corporate Services Pty Ltd (Orfanos Corporate), of which Mr Orfanos was the principal, for the occupancy of the first floor. Their joint venture agreement was called, eponymously, OCS². By that arrangement OCS, Mr Ouwens’ corporate vehicle, became both a beneficiary under the Trust Deed and a tenant of the trust property. The rent for the first floor was agreed at $60,000 per annum (with CPI adjustments) for a five-year term. OCS² sub-leased some of the space on the first floor to sub-tenants and also entered into service agreements with them.
All parties accepted that the tenancies operated on that basis until 1 December 2007. It was also accepted that the initial terms required that upon expiry of the initial five-year lease, the rent was to be reviewed and the market rent applied from the commencement of a new lease. The rent was to be increased, in subsequent years, in accordance with the CPI. The market rent was to be reviewed in 2012. The existence of that term was not disputed; its implementation was in issue.
A review of the rent was not undertaken in December 2007. The appellants alleged that, from that time, the rent paid by the respondents was lower than the true market rent for the relevant spaces occupied by the respondents. At trial, the appellants relied on the ‘market rent’ valuation of Mr Smithson from Knight Frank.
They contended in relation to Sims Richmond that, had the rent for the ground floor tenancy and car parks been reviewed to apply market rates from 1 December 2007 to 30 November 2013, after annual adjustments in accordance with the CPI (including a rent review in 2012), the amount paid should have been $831,988.10 (exclusive of GST). They contended that the shortfall in rent paid by Sims Richmond during that period was $248,648.30.
In relation to OCS, the appellants contended that if the rent for the first floor tenancy and car park fees had been adjusted to market rates from 1 December 2007, and adjusted annually in accordance with the CPI (including a rent review in 2012), the total amount of $490,635.16 (exclusive of GST) should have been paid during the period from 1 December 2007 until 30 November 2013. The appellants contended at trial that there had been a shortfall of $28,845.71 in the payments made by OCS for that period.
Formal leases were never entered between Semweb and its tenants but guarantees were given by the Joint Venturers to meet the rental obligations of the tenants. The leases between Semweb and the tenants were therefore partly in writing, partly oral and partly implied.
Relationship breakdown
By 30 June 2006, the relationship between Mr Ouwens and Mr Orfanos had broken down. On that day Mr Orfanos sent an email to Mr Ouwens agreeing to pay a percentage of the rent for the first floor based on the area occupied by his practice, together with another percentage for use of the reception area and utility area behind the reception area and foyer. He agreed to pay a proportionate contribution to other out of pocket expenses and disbursements. Mr Orfanos withdrew from an arrangement to make a contribution towards the costs of a receptionist.
It is common ground that by his conduct Mr Orfanos unilaterally terminated the joint venture, OCS², from the end of the 2005/2006 financial year. It is not clear who the tenant of the space occupied by Mr Orfanos’ practice was thereafter. It may well be that Orfanos Nominees and OCS remained jointly and severally liable to pay the rent for the whole of the first floor to Semweb despite the termination of their joint venture. Alternatively, the tenant may have been Mr Orfanos personally, Orfanos Corporate or Orfanos Nominees. In any event, the parties soon fell into dispute as to who was responsible to ensure the agreed rent of $60,000 for the first floor was paid to Semweb.
On 19 July 2006, Mr Orfanos emailed Mr Ouwens concerning their dispute over responsibility for the first floor rental. In that email he foreshadowed his intention to request Semweb to enter into formal leases with all its tenants ‘to better secure tenants’ obligations, for the remainder of the 5 year term’. On 24 July 2006, Mr Orfanos forwarded a copy of that email to Mr Michaels. By that email Mr Orfanos in effect drew the attention of his fellow directors to Semweb’s duties, as trustee, to lease the property in a businesslike manner.
On 9 October 2006, Mr Michaels on behalf of Semweb wrote to Mr Orfanos asserting that Semweb’s only interest was in the collection of ‘100% of the rent from both you and Bill’. The letter asserted that Mr Ouwens had paid 50% of the rent and warned that Mr Orfanos needed ‘to bring [his] 50% share of the rent into line immediately as otherwise [he is] taking advantage of the landlord’.
On 23 February 2007, Messrs Michaels and Ouwens on behalf of Semweb wrote to Mr Orfanos stating that the ‘facts are simply that Orfanos Corporate Services, in lieu of meeting its agreed liability to Semweb Nominees, has sought to prescribe rental terms for the space occupied by it at a rental determined by it, and it alone, without agreement from Semweb’.
On 13 April 2007, Messrs Michaels and Ouwens again wrote to Mr Orfanos. They made the point that OCS² was not in itself a legal entity but the name of the joint venture between Orfanos Nominees and OCS. Their letter continued:
How the whole of the first floor (or for that matter the whole of the ground floor) is administered in terms of rental collection from sub tenants or payment of overheads (or whether Orfanos Nominees Pty Ltd has refused to participates [sic] in this process on the first floor since July 2006) is not of concern to Semweb Nominees Pty Ltd. You are well aware that one of the underlying reasons that the rental agreements were made and structured as they were was to ensure that these issues would not be of concern to Semweb Nominees Pty Ltd.
Mr Orfanos replied by email dated 4 August 2007:
As you know, each of us committed to the tenancy of the building for a period of 5 years with an option to renew, I think for a further 5 year term. The initial term expires in December 2007.
It is appropriate therefore that Semweb is advised as to whether each tenant proposes to renew the lease so that as landlords we can determine the tenancies moving forward and or whether we need to appoint a real estate agent to commence a search for new tenants.
I for one will not be a tenant post December 2007.
Mr Orfanos’ email reminded Semweb, through its directors, of its duty to optimise the tenancy arrangements over the property.
On 7 November 2007, Messrs Michaels and Ouwens wrote to Mr Orfanos to inform him that a date he had proposed for a meeting of Semweb’s directors was inconvenient. The letter also advised that both Sims Richmond and OCS were ‘obviously prepared to pay a market rent’ and that an independent rental valuation would be sought. However, years were to pass before independent valuations were obtained and even then they were obtained only for the purpose of litigation. On the same day Mr Orfanos informed Messrs Michaels and Ouwens that he had appointed his solicitor, Mr Edgley, as his alternate director of Semweb. On 14 November 2007, Mr Edgley wrote demanding that a meeting of directors be held ‘at the earliest possible time’. In response Messrs Michaels and Ouwens proposed a meeting on Tuesday 18 or Wednesday 19 December 2007 but appeared to accept the nomination of Mr Edgley as an alternate director. Mr Edgley replied that those dates were not suitable to him.
By letter dated 19 December 2007 to Mr Edgley, Messrs Michaels and Ouwens claimed that Mr Orfanos required their permission to appoint an alternate and requested that he arrange a meeting of directors at which he would attend personally. They maintained their position as to the appointment of an alternate in letters dated 17 March and 9 July 2008.
Mr Orfanos vacated the property on 15 December 2007. The practices of Messrs Michaels and Ouwens continued to operate from the property and Sims Richmond and OCS continued to make rental payments to Semweb, based on the initially agreed rental with CPI increases.
By letter dated 26 May 2008, Mr Orfanos, through Mr Edgley, informed Messrs Michaels and Ouwens that he was prepared to meet his contribution to any shortfall on the first floor rent occasioned by the breakdown of his joint venture with Mr Ouwens. Mr Orfanos sought an accounting from Mr Ouwens with respect to the joint venture occupancy of the first floor for the financial year ending 30 June 2006. Mr Orfanos also requested a meeting of directors to ‘determine the unsatisfactory situation where no tenants appear to have formal leases or where they have no [sic] advised the Board of their requirements’. Mr Edgley’s letter continued:
The matter of the leasing agreements and the commercial value of the rentals contained therein need to be rectified urgently. This cannot be done without a proper and formal Board meeting of the Company being held.
Mr Edgley’s letter clearly raised for Mr Orfanos’ fellow directors’ consideration the need for Semweb to act to ensure that it complied with its contractual and equitable duties in leasing out the property. The letter also reserved Mr Orfanos’ position as to whether he would attend the meeting personally or by an alternate.
By letter dated 19 March 2012 to his fellow directors, Mr Orfanos again referred to the ‘current lease agreements’ and asserted that they had not been discussed with him nor approved by him. Almost five years had elapsed from the time Mr Orfanos first raised the need to regularise tenancy arrangements after the expiry of the initial five year term in December 2007. Mr Orfanos asserted that Messrs Michaels and Ouwens suffered from a conflict of interest in the granting of oral leases to their corporate vehicles.
On 10 September 2012, Mr Orfanos’ then solicitors, DBH Commercial Lawyers, wrote to the other Joint Venturers purporting to terminate the Joint Venture from 31 December 2012. By letter dated 28 September 2012, Melrob and OCS asserted that if the letter purported to be a Notice to Terminate it was defective but that they would not rely on the repudiatory conduct and would continue to comply with the JVD.
On 24 October 2012, DBH Commercial Lawyers wrote to Melrob and OCS advising of an intention ‘to issue proceedings for sale and partition of the land’.
Mr Orfanos unsuccessfully attempted to sell his interest in the Joint Venture pursuant to cl 9 of the JVD on the following occasions:
·in a letter of 13 November 2006, which offered his interest to the other Joint Venturers for $286,000;
·in a conversation with a sub-tenant of the first floor;
·in a letter to Messrs Michaels and Ouwens dated 29 October 2010, which outlined valuations obtained from leading leasing and sales agents for commercial buildings. The letter also referred to the square metre rental rate. On that basis the building was valued at $3,053,433 with a net equity after repayment of the loan of $1,810,633. Mr Orfanos asserted that his one third interest was $636,878, but offered to discount that to $575,000; and
·by letter dated 10 September 2012 in which Mr Orfanos, through his solicitor, offered to sell his interest at a price of $1,010,000 (net of GST).
The proceedings
On 3 June 2013, Blong Ume, brought proceedings (the action) against Semweb, Melrob, OCS and Messrs Michaels and Ouwens (collectively referred to as the respondents). Orfanos Nominees and Mr Orfanos were subsequently joined as plaintiffs. Blong Ume succeeded Orfanos Nominees as trustee of the Stables Trust. However, as at the time of trial the beneficial interest in the Joint Venture and the property had not been transferred from Orfanos Nominees to Blong Ume.
The standing of Blong Ume was challenged at trial. Ultimately Blong Ume accepted that its standing was limited to ensuring that the judgment bound it and the respondents in the event the beneficial interest in the Joint Venture was, at some future time, transferred to it.
The action proceeded to trial on the Third Statement of Claim filed on 19 December 2014. The appellants claimed that the JVD contained an implied term that it was terminable on reasonable notice, either with or without cause or for breach, even though the only expressly stated mechanism for bringing it to an end was by the sale of a Joint Venturer’s interest. The appellants claimed that Semweb as trustee owed duties to the beneficiaries to:
·act with utmost good faith and in their best interests;
·refrain from exploiting any commercial opportunities connected with the trust to the exclusion or detriment of the beneficiaries;
·preserve and protect trust property;
·avoid any conflict of interest;
·refrain from conferring an advantage upon one beneficiary at the expense of another; and
·not dispose of the land other than as agreed in writing with the beneficiaries.
The appellants claimed that Semweb breached its duties as trustee and under the JVD by allowing Ouwens Lawyers, Mr Ouwens’ firm, and Sims Richmond to continue to occupy the property from December 2007, without any review of the rent payable to market.
The appellants also claimed that Semweb had not administered the property in a proper, efficient and businesslike manner and had not managed it to obtain the maximum level of rent return. They claimed that Semweb had failed to preserve and protect the property of the trust and was in a position of conflict in preferring the interests of Messrs Michaels and Ouwens by allowing the occupation of the property by the corporate vehicles through which they practised. The appellants claimed that, in allowing that continued occupation, Semweb had dealt with the property other than as agreed in writing between it and the beneficiaries.
The appellants claimed that, as directors of Semweb, Messrs Michaels and Ouwens owed fiduciary duties to Semweb and to Blong Ume and Orfanos Nominees to:
·act with utmost good faith;
·not put themselves in a position of conflict between duty and interest;
·not gain an advantage for themselves at the expense of Semweb or the Joint Venture or the detriment of any Joint Venturer; and
·exercise their powers with care and diligence.
The appellants claimed Messrs Michaels and Ouwens had breached their fiduciary duties by procuring an advantage for Ouwens Lawyers and Sims Richmond by allowing their continued occupation of the first floor and ground floor respectively.
The appellants claimed that Messrs Michaels and Ouwens had breached their obligations as directors of Semweb under ss 181 and 182 of the Corporations Act 2001 (Cth) (the Corporations Act). The appellants accepted that, not having brought a derivative action through Semweb, they could not seek remedies for breaches of the statutory and fiduciary duties owed by Messrs Michaels and Ouwens to Semweb. However they relied on the conduct which they alleged breached those duties in their claim that Messrs Michaels and Ouwens had conducted Semweb’s affairs in a way which was oppressive and unfairly prejudicial to Mr Orfanos in his capacity as a Semweb shareholder.

The appellants also claimed that each of the Joint Venturers owed fiduciary duties to the others to:
·act with utmost good faith;
·not put a Joint Venturer in a position of conflict between duty and interest; and
·not gain an opportunity or advantage to the Joint Venturer’s own exclusive benefit to which the other parties were jointly entitled.
As against Melrob and OCS, the appellants claimed that the two Joint Venturers had put themselves in a position of conflict between duty and interest, had not acted in good faith and had failed to do all things reasonably necessary to achieve the purpose of the Joint Venture. They pleaded that Melrob had gained an opportunity or advantage for Sims Richmond and Mr Michaels to the detriment of Semweb, the Joint Venture and Blong Ume. As to OCS, the appellants pleaded that it had gained an opportunity or advantage for Ouwens Lawyers and Mr Ouwens to the detriment of Semweb, the Joint Venture and Blong Ume.
The appellants pleaded that they had terminated the Joint Venture by DBH Commercial Lawyers’ letter of 10 September 2012.
The appellants relevantly sought the following remedies:
1....
2.An order for the winding up of Semweb pursuant to section 233 or sections 461(1)(e), (f), (g) or (k) of the Corporations Act, 2001 (Cth).
3.An order terminating, revoking and winding-up the Trust and providing for the sale of the Land and the distribution of the sale proceeds thereof to the beneficiaries of the Trust, pursuant to section 233 of the Corporations Act 2001, (Cth) and/or sections 36 or 59C of the Trustee Act 1936, (SA).
4.Pursuant to section 233 of the Corporations Act, 2001 (Cth), order regulating the affairs of Semweb in the future, including to provide for the sale of the Land and distribution of the sale proceeds to the beneficiaries of the Trust.
5....
6....
7....
8....
9.As against the first, second and third defendants, an order for the sale of the Land and the distribution of the proceeds pursuant to section 69(2) of the Law of Property Act 1936, (SA) together with all necessary or proper consequential directions.
10.As against the forth [sic] and fifth defendants for the matters pleaded at paragraph 33C a declaration that the fourth and fifth defendants as directors of the first defendant, have breached clause 3.6.1 of the Joint Venture Deed.
11.As against the first, second, third, fourth and fifth defendants, equitable compensation for breach of fiduciary duty.
12.An order for an account and/or inquiry of profits made by the second, third, fourth and fifth defendants and a payment of any monies found to be owing by them to the first defendant.
13.As against the second, third, fourth and fifth defendants, an order that they indemnify the first defendant for any costs and damages suffered by the first defendant and for payment of any moneys found to be owing by them to the first defendant by way of underpayment of rent.
14....
15....
Fiduciary duties – The Judge’s findings
At trial and on appeal much time and energy was expended on three related and vexed questions. The first was whether or not each of the Joint Venturers owed fiduciary duties to each other, and whether each of the principals owed fiduciary duties to the Joint Venturers or to each other.[10]
[10] On the hearing of the appeal, counsel for the appellants submitted that they did not put a case at trial that Messrs Michaels and Ouwens, in their capacity as directors, owed fiduciary duties to Orfanos Nominees. However, paragraph [26] of the Third Statement of Claim expressly so pleaded and paragraph [40] pleaded a breach of that duty. The opening and closing addresses of counsel for the appellants, at trial, put arguments in support of these pleadings (T 33, 633, 660-668).
The fiduciary duties were said to arise out of the parties’ relationship as Joint Venturers under the JVD or their positions as beneficiaries under the Trust Deed.
The second issue was whether the alleged breaches were of proscriptive or prescriptive duties. As has been seen, the appellants claimed that those duties were breached by Messrs Michaels and Ouwens and their associated corporate Joint Venturers preferring their own interests over the interests of Orfanos Nominees or, at least, by engaging in conduct whilst subject to conflicting duties and interests.
The third was whether Messrs Michaels and Ouwens had breached their fiduciary duties to Semweb.
The Judge accepted that the three principals, as directors, owed fiduciary duties to Semweb and that Semweb owed fiduciary duties to the three beneficiaries, and found that the three principals were duty bound not to promote their own interests over that of their fellow directors:[11]
[496]I consider that a fiduciary duty arose because an objective observer would conclude that each of the Three Principals had trust and confidence in their colleagues to the extent that they would exercise their powers over the management of the Property only for their joint advantage. To put the matter another way, I consider that the nature of the arrangement was such that each of the Three Principals was entitled to expect that his colleagues would not exercise their powers in relation to the management of the Property to their own advantage and to the detriment of their colleagues.
[497]For these reasons Mr Orfanos was entitled to expect that Mr Ouwens and Mr Michaels would not act so as to benefit themselves and cause disadvantage to him in relation to the setting of the rent for the office accommodation. When all Three Principals occupied the Property and paid rents they had mutually agreed, the issue of a possible breach of fiduciary duty did not arise. However, the issue did arise when Mr Orfanos left the Property while Mr Ouwens and Mr Michaels continued in occupation under an informal arrangement that had not been endorsed by Mr Orfanos or by Semweb.
[498]For completeness, I also note that in some circumstances the Three Principals were entitled to prefer their own individual interests. Thus, when considering under cl 9 of the JVD an offer by one of the other joint venturers to sell their interest each of the Three Principals were clearly entitled to prefer their own interest to that of their colleagues. In that situation the joint venture clearly did not require them to sacrifice their own commercial interests. Accordingly, that matter was outside the scope of the fiduciary duty.
[499]My finding that Mr Ouwens and Mr Michaels owed Mr Orfanos a fiduciary duty in relation to the setting of the rent at the market rate is academic in that it has not been established that OCS and Sims Richmond were paying less than the market rent after December 2007.
(Footnotes omitted)
[11] Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd [2017] SASC 137 at [496]-[499].
We observe here that the Judge did not expressly deal with the appellants’ claim that each of the Joint Venturers owed the others a fiduciary duty. However, we read the Judge’s reference to the ‘Three Principals’ to include their Joint Venture vehicles. So much follows from the reference in paragraph [498] to each of them being entitled to prefer their own interests in the application of cl 9, which deals with the sale of the interest of a Joint Venturer. We proceed on the basis that the Judge found that Messrs Ouwens, Michaels and Orfanos owed fiduciary duties to themselves and to the associated Joint Venturers and that the Joint Venturers owed duties to each other.
The Judge dismissed the appellants’ claims brought pursuant to the Trustee Act 1936 (SA) because of his finding that Semweb had procured a market rental from the professional practices.[12]
[12] Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd [2017] SASC 137 at [500].
The Judge’s ultimate findings were:[13]
[13] Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd [2017] SASC 137 at [501]-[502].
[501]My findings may be summarised as follows:
(a)     The joint venture did not give rise to a partnership. Thus, the remedies under the Partnership Act are not available;
(b)     A right to terminate the joint venture upon the giving of reasonable notice cannot be implied into the JVD;
(c)     A right to terminate the joint venture for breach cannot be implied into the JVD. However, a right to terminate for repudiation can be implied. However, Mr Orfanos did not rely upon a breach or repudiation when he gave notice on 10 September 2012 of the termination of the joint venture;
(d)     The claim for partition and sale of the Property under the Law of Property Act must also be dismissed because the joint venture remains on foot and Mr Orfanos still has the option to exercise his right to sell the Property in accordance with cl 9 of the JVD;
(e)     The claim that OCS and Sims Richmond paid less than the market rent for their office accommodation in the Property after December 2007 has not been established on the balance of probabilities;
(f)     While the participants in the joint venture owed each other fiduciary duties, the breaches of duty alleged by the plaintiffs are entirely dependent upon the contention that Mr Ouwens and Mr Michaels had exercised their power over Semweb so as to permit Sims Richmond and OCS to pay less than the market rent. As the allegation that Sims Richmond and OCS were paying less than the market rent has not been established to the satisfaction of the Court, there has been no breach of fiduciary duty;
(g)     For the same reason, the breaches of trust alleged against Semweb and also the breaches of the JVD and the Trust Deed alleged against Mr Michaels and Mr Ouwens have not been established;
(h)     The conduct of Mr Orfanos in relation to the termination of the OCS² joint venture would not have provided a basis to refuse relief on discretionary grounds if the plaintiffs had otherwise made out their claim for relief connected with or arising from the alleged underpayment of rent;
(i)    The plaintiffs were entitled to proceed in respect of the duties said to be owed to Mr Orfanos and Orfanos Nominees by Mr Michaels and Mr Ouwens, even though they had not sought leave from the Court to bring a derivative action against Semweb in respect of the cognate duties said to be owed to Semweb by Mr Ouwens and Mr Michaels; and
(j)    the claims for relief on various grounds under the Corporations Act have not been made out.
[502]The result of my findings is that Mr Orfanos remains entitled to sell his interest in the joint venture in accordance with cl 9 of the JVD. Thus, the contractual rights he obtained in 2002 when he entered the joint venture remain available to him. The fact that the sale price for a partial interest in the Property may be less than the value of a proportionate interest in the Property is a consequence of the JVA.
Fiduciary duties of the principals and joint venturers
The appellants’ claims for breach of fiduciary duty against Melrob, OCS and Messrs Michaels and Ouwens based on the JVD are problematic. The directors of Semweb were not bound by the terms of the JVD, which purported to oblige them to have regard to the interests of all Joint Venturers, because they were not parties to it. Semweb was duty bound as trustee under the Trust Deed not to prefer the interests of any one of the Joint Venturer beneficiaries over another, and it follows that the directors owed Semweb a duty to manage its affairs consistently with that obligation. However, the claim by Orfanos Nominees against Messrs Michaels and Ouwens was not brought as a derivative action on behalf of Semweb to whom they owed fiduciary and other duties.
In Chan v Zacharia, Deane J explained how the duty of a fiduciary must be adapted to any instrument of appointment and the express authorisation of those to whom the duty is owed:[14]
The liability to account as a constructive trustee will not arise where the person under the fiduciary duty has been duly authorized, either by the instrument or agreement creating the fiduciary duty or by the circumstances of his appointment or by the informed and effective assent of the person to whom the obligation is owed, to act in the manner in which he has acted. The right to require an account from the fiduciary may be lost by reason of the operation of other doctrines of equity such as laches and equitable estoppel: see, e.g., Clegg v. Edmondson. It may still be arguable in this Court that, notwithstanding general statements and perhaps even decisions to the contrary in cases such as Regal (Hastings) Ltd. v. Gulliver and Phipps v. Boardman, the liability to account for a personal benefit or gain obtained or received by use or by reason of fiduciary position, opportunity or knowledge will not arise in circumstances where it would be unconscientious to assert it or in which, for example, there is no possible conflict between personal interest and fiduciary duty and it is plainly in the interests of the person to whom the fiduciary duty is owed that the fiduciary obtain for himself rights or benefits which he is absolutely precluded from seeking or obtaining for the person to whom the fiduciary duty is owed: cf. Peso Silver Mines Ltd. (N.P.L.) v. Cropper.
(Footnotes omitted)
[14] (1984) 154 CLR 178 at 204-205.
In Hospital Products Ltd v United States Surgical Corporation, Mason J emphasised that the categories of fiduciary relationships are infinitely varied:[15]
The categories of fiduciary relationships are infinitely varied and the duties of the fiduciary vary with the circumstances which generate the relationship. Fiduciary relationships range from the trustee to the errand boy, the celebrated example given by Fletcher Moulton L.J. in his judgment in In re Coomber, in which, after referring to the danger of trusting to verbal formulae, he pointed out that the nature of the curial intervention which is justifiable will vary from case to case. In accordance with these comments it is now acknowledged generally that the scope of the fiduciary duty must be moulded according to the nature of the relationship and the facts of the case: Phipps v. Boardman; Kuys; Canadian Aero Service Ltd. v. O'Malley. The often repeated statement that the rule in Keech v. Sandford applies to fiduciaries generally tends to obscure the variable nature of the duties which they owe. The rigorous standards appropriate to a trustee will not apply to a fiduciary who is permitted by contract to pursue his own interests in some respects. Thus, in the present case the so-called rule that the fiduciary cannot allow a conflict to arise between duty and interest (Kuys) cannot be usefully applied in the absolute terms in which it has been stated.
[15] (1984) 156 CLR 41 at 102-103.
In Clay v Clay, Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ described the moulding of a fiduciary duty to the nature of the relationship as a truism:[16]
[46]We should add that, in any event, we do not accept the reasoning whereby the Full Court concluded that Mrs Clay acted in breach of her fiduciary duties as guardian in acquiring Queenslea Drive from the estate of her late husband to provide a home for herself and the children. It is a truism that the scope of her fiduciary duty was, to adopt the words of Mason J, to be ‘moulded according to the nature of the relationship and the facts of the case’. His Honour also observed that, in some cases, ‘the so-called rule that the fiduciary cannot allow a conflict to arise between duty and interest … cannot be usefully applied in the absolute terms in which it has been stated’.
(Footnotes omitted)
[16] (2001) 202 CLR 410 at [46].
The respondents contend in the submissions set out below that it was inherent in the very position established by the JVD that the principals, as directors of Semweb, would be in positions of conflict, and that they therefore owed no separate duty to the Joint Venturers:
39.It seems manifest that the contractual directions in the Joint Venture Deed contemplated that in the granting of occupation to tenants, occupiers, licensees and others, the interest of Semweb – being the joint or mutual interests of the joint venture parties – would be opposed to the separate and individual interests of occupants, as regards the terms of occupation, including rent or fee; that is, that the interests of occupants with respect to terms of occupation, including rent or fee, might well be opposed to the joint and mutual interest of the joint venture parties, as represented by Semweb as owner and trustee of the property.
40. It follows that insofar as the three businesses would be, or continue as, occupants, the three Directors of Semweb would pursue the joint or mutual interests of the joint venture parties – that is the interests of Semweb – in securing terms favourable to Semweb, in opposition to the separate interests of the individual businesses, as intending or continuing occupants, in securing terms favourable to them (and unfavourable to Semweb).
41. In short, there was inherent in the very foundational arrangement an obvious potential conflict between the collective interests of the joint venture parties, represented by Semweb (and its Directors), and the individual interest of the joint venture partners as intending or continuing occupants of the premises. These were addressed in the Joint Venture Agreement and in the Articles Associates of Semweb, to the exclusion of fiduciary obligations.
42. At the very least, the fiduciary obligation of each Director to avoid the possibility of conflict between his duty as Director to Semweb, and his interest in an intending or continuing occupant was necessarily, and implicitly, excluded by the terms of the Joint Venture Deed and the Articles of Association of Semweb.
43.If the Directors failed in fact to pursue Semweb’s interests, they would have caused Semweb to be in breach of the Joint Venture Agreement, and would, themselves have acted in breach of their statutory obligations under s.181, Corporations Act. Any fiduciary obligations owed by them would be owed to Semweb.
(Emphasis in original)
Those submissions do not squarely address the underlying arrangement between the Joint Venturers and their respective principals that the principals would be the only shareholders and directors of Semweb. As has been seen, in October 2002 the three principals, their associated Joint Venturers and corporate professional practice vehicles had reached agreement on the rental terms for the occupancy of the building by their respective practices. It was necessarily contemplated that the conflicting interests of the Joint Venturers on the one hand, and the corporate practices of the three principals, would be accommodated by the consent of all relevant parties whilst all three practices remained in occupation. It is essential to the effectiveness of that arrangement, as between the Joint Venturers, that the directors not use their powers, as such, to manage Semweb’s affairs in a way which prejudiced one Joint Venturer to the advantage of the others if occupancy arrangements could not be agreed or were later terminated. It is not inconsistent with the JVD, or the duties of the three principals as directors of Semweb, to impose a fiduciary duty on the directors/principals of the practices remaining in occupation to the Joint Venturer, without an associated entity in occupation, to account for any benefits received by their respective professional practices by reason of a breach of their duty to Semweb to optimise the rental return on the property. The duty so expressed is proscriptive, prohibiting a use of their powers to benefit each of their associated Joint Venturers. It is consistent with cl 3.6.1 of the JVD.
We hold that the three principals owed separate, personal duties to the Joint Venturers not to prefer the interests of any one of them as against the other(s) if consensual occupancy arrangements broke down. Treating paragraph [1] of the respondents’ Notice of Contention as challenging the Judge’s finding, as we understand it, in paragraph [63] above, we would dismiss paragraphs [1] and [3] of the Notice of Contention and hold that the Judge was correct to find that the three principals, in their positions as directors of Semweb, owed a fiduciary duty to the Joint Venturers not to procure a benefit for his associated professional practice by causing Semweb to breach the duty it owed to the Joint Venturers as beneficiaries. Having found that Melrob and OCS did obtain the benefit of a reduced rent, it is strictly not necessary to consider the application of the conflict rule. Nonetheless, we find that the three principals were in a position of conflict in causing Semweb to maintain and continue the previous rental arrangements without the informed consent of Orfanos Nominees. Even though the JVD necessarily contemplated that the principals would be conflicted between their duty to Semweb, which was coincidental with the interests of their associated Joint Venturers, and their interests as principals of their respective professional practices, the JVD also contemplated that they would not place themselves in a position in which the interests of their professional practices conflicted with Semweb’s duty, as trustee, to the Joint Venturers. That duty was breached when Semweb and the directors maintained the same rental arrangements without the informed consent of Orfanos Nominees after Orfanos Corporate vacated the property.

In Agricultural Land Management Ltd v Jackson (No 2)[70] (Agricultural Land Management), Edelman J considered a claim that directors who were on the boards of two companies, one of which, Agricultural Land Management Ltd, bought a Kalgoorlie property from Bunbury Centro Pty Ltd, breached their duties as directors of the purchaser because they were subject to conflicting duties. The directors Messrs Jackson and Goff signed the contracts on behalf of Bunbury Centro Pty Ltd (as vendor) and on behalf of Agricultural Land Management Ltd (as purchaser). Agricultural Land Management Ltd planned to develop the Kalgoorlie property into a hotel. The Kalgoorlie property was sold for $2,250,000, and an additional amount, based on the calculation of various costs but to a maximum of $1,665,051, was payable for a non-exclusive licence to use ‘all of the information and know how in the possession’ of Bunbury Centro Pty Ltd necessary for the development of the property as a hotel.[71] Even though Agricultural Land Management Ltd made a loss in pursuing the development opportunity, its action against the directors was dismissed because it suffered no loss on the purchase of the Kalgoorlie property itself, because it was bought at value.
[70] (2014) 48 WAR 1.
[71] Agricultural Land Management (2014) 48 WAR 1 at [3].
Edelman J nonetheless considered whether the directors had breached their fiduciary duties by placing themselves in a position of conflict:[72]
[72] Agricultural Land Management (2014) 48 WAR 1 at [264]-[268], [275].
[264]But there remains the potential conflict that arose for Messrs Jackson and Goff in causing Agricultural to enter the Contract. That conflict was between their duties as officers of Agricultural and their duties as officers of Bunbury Centro. By acting to cause both Agricultural and Bunbury Centro to enter into the Contract they were acting in a position of owing duties to parties with directly conflicting interests. Agricultural’s interest was to obtain the lowest price possible. Bunbury Centro’s was to obtain the highest. Messrs Jackson and Goff did not obtain shareholder approval from the shareholders of Agricultural for the Contract between Agricultural and Bunbury Centro.
[265]The defendants sought to meet this allegation of breach of fiduciary duty by the submission that ‘[c]onflict per se is not actionable. A breach of duty arises where a fiduciary acts in a position of conflict and pursues (or prefers) the personal interest’. The submission quoted from a judgment of Owen J. It is pertinent that the passage from the judgment quoted commences with the words ‘generally speaking’.
[266]This submission must be rejected. The ‘conflict rule’ when concerned with conflicts between duty and personal interest is not limited merely to situations in which a fiduciary actually prefers personal interest. It includes also situations involving a potential for personal interest to be preferred or a potential for breach of duty to one principal where conflicting duties are owed to different principals. The same principles apply where, as in this case, the relevant conflict rule concerns two potentially conflicting duties.
[267]It has been said that it is a ‘counsel of prudence’ rather than a ‘rule of equity’ that a fiduciary ought to avoid placing himself or herself in a position of conflicting duties. The rule, it has been said, is that a fiduciary must not take advantage of a conflict. But those judges who have remarked on this limit to the fiduciary duty have done so in the context of considering the scope of the separate ‘profit rule’ or the ‘equitable principle governing the liability to account’. The assumption behind the statement may have been that there is no basis for the order of an account of profits in circumstances in which it has not been shown that any advantage was taken to make any profit.
[268]In contrast, when focus is directed to the prohibition against a fiduciary placing himself or herself in a position of conflicting duties there are many authorities which emphasise that the underlying duty upon the fiduciary is not circumscribed by whether actual advantage has been taken or whether the fiduciary has actually pursued the conflict.
…
[275]The conduct of Messrs Jackson and Goff in causing Agricultural to enter the Contract with Bunbury Centro in circumstances in which they were engaged as officers of Bunbury Centro involved a breach of their fiduciary duties to Agricultural. The breach of fiduciary duty to Agricultural was a breach of the usual duty to avoid placing themselves in a position in which their duties to Agricultural conflicted with duties to another principal.
(Footnotes omitted)
The application of the above statements of principle to this case must take into account Semweb’s obligations as a trustee, and the potential loss to Mr Orfanos as a shareholder and Orfanos Nominees as Joint Venturer due to conduct by Messrs Michaels and Ouwens, which allowed their corporate vehicles to occupy the building at an undervalued rent when entities associated with Mr Orfanos and Orfanos Nominees did not enjoy the same benefit.
The conflict in this case arose in a practical way only when Mr Orfanos ceased to operate his practice in the building. Messrs Michaels and Ouwens could have removed any conflict by engaging an independent valuer to value the tenancies, and an agent to lease them out, by appointing alternates,[73] by acting only with the informed consent of Mr Orfanos or by obtaining directions from the Court.
[73] Corporations Act 2001 (Cth) s 201K and cl 12.8.1 of Semweb’s Articles of Association.
Be that as it may, it is not strictly necessary to consider whether they breached their duty to Semweb, as directors, by merely placing themselves in a position of conflict after Orfanos Corporate vacated the premises. Whether or not they were in breach of the conflict rule, Messrs Michaels and Ouwens, in failing to secure a market rent from their corporate practices, breached their fiduciary duty to Semweb by causing it to breach its fiduciary, and prescriptive, duties to the detriment of Orfanos Nominees and to the benefit of their associated Joint Venturers.
The statutory obligations of directors, which are founded in the very corporate structure in which they hold their positions, cannot be modified by an agreement between them and the company, and/or all of its shareholders. Nor can the agreement between the Joint Venturers and Semweb have that effect.
We conclude that Messrs Michaels and Ouwens breached their statutory, equitable and fiduciary duties to Semweb in failing to procure a market rental return from the property.
We would hear the parties as to whether the oppression claim should be remitted to the Judge or determined by this Court, and if so on what, if any, further evidence. We again observe that in light of the other remedial orders we have foreshadowed the appellants might not pursue these grounds. We will hear the parties further.
Conclusion
We would hear the parties as to the calculation of the equitable compensation which should be awarded against Semweb and Messrs Michaels and Ouwens, their respective contributions and on the interrelationship of the remedial orders made against them.
We would also hear the parties on any other consequential relief.