Break Fast Investments Pty Ltd v Rigby Cooke Lawyers (a Firm)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

PROFESSIONAL LIABILITY LIST

S CI 2013 02758

BREAK FAST INVESTMENTS PTY LTD (ACN 090 648 990)	Plaintiff
v
RIGBY COOKE LAWYERS (A FIRM) (ABN 58 552 536 547) & ANOR	Defendant

---

JUDGE:	MACAULAY J
WHERE HELD:	Melbourne
DATE OF HEARING:	4, 5, 8, 9, 10, 11, 12, 15, 19 and 23 February 2021
DATE OF JUDGMENT:	2 July 2021; revised 13 July 2021
CASE MAY BE CITED AS:	Break Fast Investments v Rigby Cooke
MEDIUM NEUTRAL CITATION:	[2021] VSC 398

---

EQUITY – Conflict of interest – Defendant the former solicitor firm of the plaintiff – Defendant in this proceeding concurrently acted for the plaintiff (a defendant in Ambridge Investments Pty Ltd v Baker & Ors [2010] VSC 59) and its co-defendants – Allegation that defendant breached its fiduciary duty of loyalty to the plaintiff – Whether defendant had a real and sensible possibility of conflict of duty and duty – Whether duties to the clients were adverse – Whether defendant was duty-bound to protect or advance adverse interests that could not be protected or advanced at the same time – Breen v Williams (1996) 186 CLR 71 – Chan v Zacharia (1984) 154 CLR 178 – Farrington v Rowe McBride & Partners [1985] 1 NZLR 83 – Oceanic Life Ltd v HIH Casualty and General Insurance Ltd [1999] NSWSC 292 – Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1 - Maguire v Makaronis (1997) 188 CLR 449 – Boardman v Phipps [1967] 2 AC 46.

EQUITY – Whether equitable compensation available remedy for a conflict of duty and duty – Causation – Whether causal link between alleged breach of fiduciary duty and plaintiff’s alleged loss – But-for test – Effect of hypothetical independent legal advice and whether plaintiff would have followed it – Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd & Anor (2018) 265 CLR 1 – Youyang Pty Ltd v Minter Ellison Morris Fletcher (2013) 212 CLR 484 – Onus on plaintiff to prove a causal link – Meaning of ‘a Court should not speculate against the plaintiff’ when approaching causation – GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers & Ors [2005] VSCA 113.

EQUITY – Knowing receipt – Plaintiff was held to be a trustee in Ambridge Investments Pty Ltd v Baker & Ors [2010] VSC 59 – Whether defendant knowingly received trust funds when receiving legal fees from the plaintiff – Recipient liability under Barnes v Addy (1874) LR 9 Ch App 244 – Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 – Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 – Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 – Categories of knowledge pursuant to Baden v Société Générale pour Favoriser le Developpement du Commerce et de L’Industrie en France SA [1993] 1 WLR 509 – Whether category (v) Baden knowledge establishes recipient liability – Carl Zeiss Stiftung v Herbert Smith & Co (a firm) & Anor (No 2) (1969) 2 Ch 276 – Eagle Trust Plc v SBC Securities Ltd [1993] 1 WLR 484 – Whether defendant knew specific facts putting an honest and reasonable person on notice that the plaintiff was a trustee before judgment in Ambridge Investments Pty Ltd v Baker & Ors [2010] VSC 59.

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr P Collinson QC with Ms E Dias	Sinisgalli Foster Legal
For the Defendant	Mr S Horgan QC with Ms G Berlic	Lander & Rogers

TABLE OF CONTENTS

Introduction and Issues.................................................................................................................... 1

Background......................................................................................................................................... 6

The Property joint venture: 1999 – 2004..................................................................................... 7
Purchase of the Property.................................................................................................... 7
Key documents and events in 2000................................................................................... 9
Significant documents and events in 2001..................................................................... 16
Significant documents and events in 2002 and 2003.................................................... 18
Key events in 2004 including the caveat proceeding................................................... 21

The Ambridge Proceeding: 2004 to 2010................................................................................. 25
Significant documents and events in 2005..................................................................... 25
Significant documents and events in 2006..................................................................... 29
Significant documents and events in 2007 and 2008.................................................... 31
Significant documents and events from 2009 onwards............................................... 35

The Ambridge Proceeding: post 2010...................................................................................... 38
Key indicia.................................................................................................................................... 39
For an unincorporated joint venture............................................................................... 39
Against an unincorporated joint venture....................................................................... 40

Did Rigby Cooke have a conflict of interest?............................................................................. 42

What was the alleged conflict?.................................................................................................. 44
Some need for caution................................................................................................................ 49
Relevant legal principles............................................................................................................ 49
What were Rigby Cooke’s duties to Break Fast and the Voukidis Defendants?............... 60
What allegations were made against each defendant?.......................................................... 62
Writ (31 January 2005)....................................................................................................... 63
ASOC (26 March 2006)...................................................................................................... 63
FASOC (4 August 2006).................................................................................................... 64
2^nd FASOC (1 November 2006)........................................................................................ 64
3^rd FASOC (22 February 2008)......................................................................................... 65
4^th FASOC (30 June 2009).................................................................................................. 65
5^th FASOC (14 October 2009)........................................................................................... 67
Summary............................................................................................................................. 67

Did Break Fast have an interest in the Ambridge Proceeding?........................................... 70
Did the Voukidis Defendants have an interest in the Ambridge Proceeding?.................. 72
Were the interests of Break Fast and the Voukidis Defendants adverse or opposed?..... 72
Specific allegations of conflict................................................................................................... 73
Conclusion.................................................................................................................................... 81

Did Break Fast consent or acquiesce to Rigby Cooke acting in the circumstances?........... 82

Legal principles........................................................................................................................... 83
Submissions................................................................................................................................. 84
Analysis........................................................................................................................................ 85

Is Break Fast entitled to equitable compensation for breach of fiduciary duty?................ 86

Is equitable compensation an available remedy for a conflict of duty and duty?............. 86
Causation...................................................................................................................................... 87
Break Fast’s submissions.................................................................................................. 88
Rigby Cooke’s submissions.............................................................................................. 89
Legal principles.................................................................................................................. 90
Analysis............................................................................................................................... 94

Did Rigby Cooke knowingly receive trust money paid in breach of trust?........................ 97

Legal principles........................................................................................................................... 99
Carl Zeiss case.................................................................................................................. 103

Analysis...................................................................................................................................... 108

Is Break Fast entitled to equitable compensation for knowing receipt?............................ 113

What is the proper amount of compensation?.......................................................................... 113

Do any of the defences disentitle Break Fast from relief?..................................................... 118

Unclean hands........................................................................................................................... 118
Was Break Fast guilty of a depravity in a legal and moral sense?........................... 120
Was there the required relationship between the conduct and the equity sued for? 120
Did Break Fast wash its hands clean?........................................................................... 122
Court’s discretion in upholding the defence............................................................... 124

Laches, and statutory limitation of action by analogy........................................................ 125
Laches................................................................................................................................ 125
Statutory limitation of action by analogy..................................................................... 131
Contributory negligence and failure to mitigate........................................................ 135
Advocate’s immunity...................................................................................................... 135
Estoppel and counterclaim............................................................................................. 136

Other Matters.................................................................................................................................. 137

Conclusion....................................................................................................................................... 137

HIS HONOUR:

Introduction and Issues

A former client of a firm of solicitors sought to recover a sum equivalent to the fees the client had paid to those solicitors for representing the client in hard-fought commercial litigation. The former client did not allege that the solicitors had done a poor job or had acted negligently in representing the client. Rather, the former client claimed that in representing it in the litigation along with its co-defendants, the solicitors had breached the fiduciary duty of loyalty they owed to the client. The former client claimed that, alternatively, in receiving payments for legal fees, the solicitors had knowingly received monies that the former client had paid to them in breach of trust.

Since at least December 2004 this Court has entertained a series of proceedings associated with a business venture commenced in November 1999 for the purchase and development of a commercial property at 176 Wellington Parade, East Melbourne (‘the Property’).[1] This proceeding is brought by one of the participants in the business venture, Break Fast Investments Pty Ltd (‘Break Fast’), the plaintiff, against its former lawyers Rigby Cooke Lawyers (a firm of solicitors) (‘Rigby Cooke’).[2] The claim is for equitable compensation[3] arising from Break Fast paying legal fees to Rigby Cooke for representing Break Fast (and others) in litigation brought against them by another one of the participants in the business venture.
[1]Ambridge Investments Pty Ltd (in liquidation) (receiver appointed) (ACN 077 299 051) v Tress Cox Lawyers (a firm) (ABN 93 281 528 297) & Anor (S CI 2014 04954); Break Fast Investments Pty Ltd & Anor v Gravity Ventures Pty Ltd & Ors (S CI 2010 04463); Ambridge Investments Pty Ltd (Receiver appointed) (in liquidation) (ACN 077 299 051) v Baker & Ors (S CI 2005 02014).
[2]The claim had also been brought against Alan Herskope (a barrister). Break Fast’s claim against Herskope resolved at the commencement of the trial, so these reasons deal only with the claim against Rigby Cooke.
[3]An account of profits was claimed in the alternative but the plaintiff made an election during final submissions (as it was required to do) to pursue equitable compensation.

Before coming to the present proceeding, it is necessary to say something briefly about the litigation in which Rigby Cooke had acted for Break Fast. I commence with the outcome. On 12 March 2010, in Ambridge Investments Pty Ltd v Baker & Ors[4] (‘the Ambridge Proceeding’), Justice Vickery of this Court handed down a judgment on a preliminary question (‘Vickery J Judgment’) declaring that Break Fast, the sixth defendant in that proceeding, held the legal interest in the Property on trust for four joint venture partners in the development of the Property. Justice Vickery declared Ambridge Investments Pty Ltd (‘Ambridge’) to be one of the four joint venture partners, holding a 25% beneficial interest in the Property.
[4][2010] VSC 59.

Break Fast had disputed that it held the Property on trust, arguing that it owned the legal and beneficial interest in the Property in its own right. Its position was that the joint venture between the participating interests was reflected in their shareholding in Break Fast, rather than through any beneficial interests in a trust, and that Ambridge was neither a participating joint venture partner nor a shareholder in Break Fast.

In other words:

(a) Ambridge had argued (and the judge found) that it was a joint venture partner in an unincorporated joint venture, with Break Fast being the manager of the joint venture and trustee of the Property and each joint venture partner having an equitable interest in the Property; but

(b) Break Fast had argued that there was an incorporated joint venture which did not include Ambridge among the joint venture partners, with Break Fast being the operating company of the joint venture and absolute owner of the Property and neither its shareholders (representing the joint venture partners) nor the joint venture partners themselves having any equitable interest in the Property.

Ambridge commenced the Ambridge Proceeding against Break Fast and seven other defendants in January 2005. The other seven defendants were:

(a) the original directors and shareholders of Break Fast, namely Theodore Baker (‘Baker’), Chris Voukidis (‘Voukidis’) and Mark Stanley (‘Stanley’);

(b) companies associated with two of those three men, namely Career Path Pty Ltd (associated with Baker) (‘Career Path’), C&O Voukidis Pty Ltd (‘C&O Voukidis’) and Oxley Group Finance Pty Ltd (‘Oxley’) (associated with Voukidis); and

(c) IMF Pty Ltd (‘IMF’), a company associated with Todd McGrouther (‘McGrouther’), which Ambridge alleged held a 10% interest in the unincorporated joint venture.

In broad terms, Ambridge claimed that it was a 25% joint venture partner with Career Path (ie Baker) (40%), C&O Voukidis (ie Voukidis) (25%) and IMF (ie McGrouther) (10%) in the beneficial ownership and development of the Property.

Rigby Cooke was retained to act for all defendants except Stanley in resisting Ambridge’s claim. It is convenient to refer to Rigby Cooke’s clients as being Break Fast and, separately, the others (except Stanley) as ‘the Voukidis Defendants’. Break Fast and the Voukidis Defendants together will be referred to as ‘the Break Fast Defendants’. Rigby Cooke represented the Break Fast Defendants from the commencement of the proceeding in January 2005 through to and until shortly after the judgment on the preliminary question was handed down on 12 March 2010. In doing so, Rigby Cooke took its instructions to resist Ambridge’s claim from Voukidis and Baker, both in their capacities as directors of Break Fast and also for themselves and their associated companies, and from McGrouther on behalf of IMF.

Stanley (for whom Rigby Cooke did not act) had ceased to be a director of Break Fast in December 2002 and, by the commencement of the Ambridge Proceeding, his shareholding in Break Fast had been acquired by Oxley (a Voukidis company).

After the Vickery J Judgment in 2010, the control of Break Fast shifted. By at least May 2013, Break Fast was under the effective control of Gregory Taylor (‘Taylor’) and his son Eugene, both of whom had been appointed as directors on 31 October 2011. It was Taylor who had been the driving force behind the Ambridge Proceeding. One of his companies, Headland Pty Ltd (‘Headland’), had its own (sub) joint venture arrangement with Ambridge to conduct Ambridge’s role as joint venture partner in the Property joint venture. Another of his companies, The H20 Company Pty Ltd (‘H20’), a lender to Ambridge, had appointed a receiver to Ambridge in August 2004 who then instituted the claim against the eight defendants. H2O funded the receivership. Prior to the receivership, Ambridge had been under the control of Stanley.

Under Taylor’s control, Break Fast commenced this proceeding against Rigby Cooke, its former lawyers, in May 2013.

So, in summary:

(a) Ambridge, under the effective control of Taylor, sued Break Fast, the Voukidis Defendants and Stanley claiming that Ambridge was a joint venture partner in an unincorporated joint venture of which Break Fast was the manager and, in relation to which, Break Fast held the Property on trust for the joint venture partners;

(b) Break Fast, at that time controlled by Voukidis and Baker, instructed Rigby Cooke to represent the Break Fast Defendants in the Ambridge Proceeding to deny the claim that Break Fast was a trustee and that Ambridge had any interest in the joint venture (however it was structured); and

(c) Break Fast, having lost the Ambridge Proceeding and now under the effective control of Taylor, commenced this proceeding suing Rigby Cooke over the fees that Break Fast had paid to Rigby Cooke for resisting Ambridge’s claim on Break Fast’s own instructions in the Ambridge Proceeding.

In essence, in the current proceeding Break Fast contended that Rigby Cooke had been caught in a conflict of duties in acting for Break Fast, who was alleged to be a trustee, at the same time as acting for the Voukidis Defendants against whom no such allegation had been made in the Ambridge Proceeding. Break Fast claimed that Rigby Cooke breached its fiduciary duty of loyalty to Break Fast by not advising it to adopt a passive role and not to pay any fees towards the defence of the claim, beyond providing discovery, in the Ambridge Proceeding. Further, in receiving fees from Break Fast allegedly known to have been sourced from alleged trust assets, in the face of allegedly mounting evidence that demonstrated that Break Fast was in fact a trustee as had been claimed by Ambridge, Break Fast also contended in the current proceeding that Rigby Cooke had knowingly received trust monies which Break Fast had paid to Rigby Cooke in breach of trust.

Although a more detailed chronology of events will be given below, it is pertinent to mention at this point that the Ambridge Proceeding did not ultimately continue beyond the declarations made by Vickery J in determining the preliminary issue. For that reason, no orders were ever made for the taking of accounts between the joint venture partners, or as to any relief other than costs, because all relevant partners became bankrupt, insolvent and/or were deregistered. The Ambridge Proceeding was finally dismissed on 6 October 2020.

Upon the pleadings and submissions, the following issues arise for determination:

(a) Was there a conflict, or a ‘real and sensible possibility’[5] of conflict, of duties in Rigby Cooke acting for Break Fast and the Voukidis Defendants in the Ambridge Proceeding?
[5]Some authorities contain the phrase ‘real and sensible risk’ of conflict; I do not consider there to be any difference in meaning or content between the use of ‘possibility’ or ‘risk’ in this context.

(b) If so, did Break Fast consent or acquiesce to Rigby Cooke acting in the circumstances?

(c) Did Rigby Cooke have sufficient knowledge of the trust alleged in the Ambridge Proceeding to become liable for knowing receipt of trust funds?

(d) If Rigby Cooke breached its fiduciary duty, or is liable for knowing receipt, is Break Fast entitled to equitable compensation for payments made to Rigby Cooke and for its liability to pay costs pursuant to the costs order made against Break Fast in the Ambridge Proceeding?

(e) If Rigby Cooke is liable to pay equitable compensation, what is the proper quantum of that compensation?

(f) Do any of the following defences otherwise disentitle Break Fast from relief:

(i) unclean hands;

(ii) laches or statutory limitations periods by analogy;

(iii) contributory negligence and Section 26 of the Wrongs Act 1958 (Vic), or mitigation;

(iv) advocate’s immunity;

(v) estoppel and a counter claim; or

(vi) is Break Fast otherwise prevented from obtaining any relief?

Background

In his judgment on the preliminary question in the Ambridge Proceeding, Vickery J made a substantial number of findings in respect of contested facts relating to the nature of the business structure and the participants in the acquisition and development of the Property. Some of his Honour’s findings were made after dismissing attempted explanations given by Voukidis (and others called to give evidence for the defendants in that proceeding) for documents which, on their face, supported Ambridge’s case. His Honour made adverse findings as to the credit of Voukidis and some other witnesses called for the defendants.

For the purpose of this proceeding, Rigby Cooke accepted the facts as found by his Honour in the Ambridge Proceeding as constituting the true state of affairs between Ambridge and the Break Fast Defendants in their dealings with one another before Rigby Cooke was retained.[6] Having said that, of course, Rigby Cooke is not fixed with all that knowledge until the publication of the Vickery J Judgment in that proceeding. Until that point, the facts were contested, and one of the questions in this case is about the legal and factual character of the ‘knowledge’ which Rigby Cooke did possess, particularly about the prospect of Break Fast being found to be a trustee, along the journey of acting for the Break Fast Defendants in the Ambridge Proceeding.
[6]Transcript 197 L12 to 198 L14.

With that introduction, I turn to outline the key events (as found) which occurred between around November 1999, when the Property was purchased, and late 2004 when Rigby Cooke was retained by the Break Fast Defendants to act in the brewing dispute between Ambridge and those defendants. After that, I will set out some of the non-controversial, key developments over the course of the Ambridge Proceeding. In particular, I will introduce some of the events which the parties to the current proceeding have identified as being significant to the determination of what Rigby Cooke ‘knew’ concerning the prospect of Break Fast being found to be a trustee in the Ambridge Proceeding. It is also necessary to say something about what happened to the Ambridge Proceeding after the Vickery J Judgment.

The Property joint venture: 1999 – 2004
Purchase of the Property
Identification of a potential property and pre-auction work

In November 1999, Ambridge undertook work in relation to selecting and purchasing a property which could be refurbished and sold for a profit. In November 1999, Ambridge identified the Property as a suitable investment and undertook some preliminary work.[7] Prior to the auction on 24 November 1999, the following relevant events occurred:
[7]Vickery J Judgment [207]–[211].

(a) Ambridge engaged a firm of architects and property consultants (‘AXIA’), which prepared a pre-purchase report ‘for Ambridge’ that Stanley, in his capacity as CEO of Ambridge, emailed to Baker and Voukidis;[8]
[8]Vickery J Judgment [209] and [210]; Ex A 2076.

(b) Ambridge engaged a firm of solicitors (‘Meerkin & Apel’) to review the auction contract. Meerkin & Apel prepared a letter of advice addressed to ‘Mr Mark Stanley, Ambridge Investments Pty Ltd’ that Stanley, in his capacity as CEO of Ambridge, sent to Voukidis.[9] Justice Vickery noted that at this point, not only was Voukidis likely aware of Ambridge’s involvement, he had in fact made use of the materials provided by Ambridge as ‘preliminary work for the enterprise’;[10]
[9]Vickery J Judgment [211].
[10]Vickery J Judgment [212].

(c) Voukidis, on behalf of himself and on Baker’s behalf, instructed Garry Ganis (‘Ganis’), a director of Powerlan Technologies Ltd (in which Baker had a substantial interest), to attend the auction and, if successful, to sign a cheque for the deposit and to report back to Voukidis and Baker;[11]
[11]Vickery J Judgment [213], [216], [220].

(d) on 23 November 1999, Stanley, in his capacity as CEO of Ambridge, sent a fax on Ambridge letterhead to Taylor setting out a concluded agreement that Ambridge would receive a fee of $500,000 for managing the Property transaction and that this fee would be ‘invested as a percentage of equity in [sic] transaction’.[12] Vickery J held that this arrangement was agreed to between Baker, Voukidis and Stanley and that this was supported by the fact that Ambridge would have been incurring commissioning fees for AXIA’s report and for Meerkin & Apel’s advice for which Ambridge would likely have wanted to have an agreement in place on reimbursement from the joint venturers;[13]
[12]Ex A 1631.
[13]Vickery J Judgment [227]–[230].

(e) Break Fast was incorporated on 23 November 1999, with its directors being listed as Voukidis (also company secretary), Baker and Stanley and its four shares being held beneficially by Voukidis (one share), Baker (two shares) and Stanley (one share).[14] The following day, John Esquivel (‘Esquivel’), an accountant of Mason Voukidis Chartered Accountants, whose duties included incorporating companies on behalf of its clients, wrote to Stanley advising him of the incorporation of Break Fast, its directors and shareholders;[15] and

(f) while notices of beneficial ownership dated 23 November 1999 filled in by Baker and Voukidis stating that they held shares in Break Fast for the benefit of their respective companies had been filed in the Break Fast company register, Justice Vickery held that those notices had been created later and backdated to the November 1999 date.[16]

Auction

[14]Vickery J Judgment [232].

[15]Vickery J Judgment [233].

[16]Vickery J Judgment [319] and [328]; Ex A 1633.

On 24 November 1999, Ganis, Taylor, Stanley, and Ambridge’s general manager, Graeme Jacobs (‘Jacobs’), attended the auction, at which the Property was acquired for $6,000,000.[17]
[17]Vickery J Judgment [208] and [216].

Key documents and events in 2000

The purchase of the Property was settled on 29 February 2000.[18] The purchase was financed by a loan with National Australia Bank Limited (‘NAB’ and the ‘NAB Loan’).[19]

Taylor’s work on behalf of Ambridge advancing the joint venture

[18]Vickery J Judgment [239].

[19]Vickery J Judgment [338].

In 2000, Taylor, on behalf of Ambridge, undertook the following work to advance the joint venture:

(a) prior to settlement, Ambridge purchased café furniture for the continued use by the café situated on the Property. Taylor’s company, Headland paid the purchase price of $10,000 on behalf of Ambridge;[20]
[20]Vickery J Judgment [241].

(b) AXIA was appointed as architects to undertake the refurbishment of the Property. Upon $25,000 becoming due for payment to AXIA by Break Fast, Ambridge and Headland each paid AXIA $12,134.75, which was treated as further capital contributions by Ambridge to the joint venture;[21]
[21]Vickery J Judgment [242].

(c) every two to three weeks, Taylor, on behalf of Ambridge, attended consultants’ and project co-ordination meetings organised by AXIA regarding the refurbishment. Jacobs, and occasionally Stanley also, attended, and following the meetings, Stanley would routinely fax, on Ambridge letterhead, AXIA’s minutes of those meetings to Voukidis;[22] and

(d) throughout the year, Taylor spent around 15 hours of unremunerated work per week liaising with AXIA.[23]

Break Fast’s accounts

[22]Vickery J Judgment [243]; eg Ex A 2153.

[23]Vickery J Judgment [243].

Jacobs, as general manager of Ambridge, was responsible for the preparation of Break Fast’s financial statements from 2000 to late 2002, which were based on and included the following:

(a) in March and April 2000, Voukidis and Jacobs came to an agreement that Jacobs, in his capacity as general manager of Ambridge, would prepare the accounts for Break Fast and would liaise with Voukidis;[24]
[24]Vickery J Judgment [245].

(b) from March 2000, Jacobs created a computer program to produce monthly financial management data of Break Fast’s accounts;[25] and
[25]Vickery J Judgment [244].

(c) Jacobs prepared quarterly accounts for Break Fast, with the first accounts being produced in the first and second quarters of 2000.[26] Justice Vickery noted:

the form of the balance sheets were [sic] consistent with a partnership by way of a joint venture of the kind alleged by the plaintiffs [Ambridge]. The accounts were inconsistent with the structure of company ownership as alleged by the Defendants, with shares held by the contributors in Break Fast held reflecting their interests in the venture.[27]

[26]Vickery J Judgment [246].

[27]Vickery J Judgment [247].

A number of the year 2000 balance sheets/profit and loss statements, as prepared by Jacobs, were considered by Vickery J in the Ambridge Proceeding. Bearing in mind that any accounting entry which acknowledged Ambridge as having an equity or partnership interest in the joint venture supported Ambridge’s case, and was inconsistent with the Break Fast Defendants’ case, relevant features of and observations about those records were as follows:

(a) February 2000: the February 2000 balance sheet named ‘T Baker’, ‘C Voukidis’ and ‘Ambridge Investments Pty Ltd’ under the heading ‘Owners Equity’;[28]
[28]Vickery J Judgment [248].

(b) May 2000: under the heading ‘Partners’ Equity’ the balance sheet of May 2000 named ‘Baker & Voukidis’ (personally, instead of their corporate nominees) and ‘Ambridge Investments Pty Ltd’ (instead of Stanley personally) with Ambridge’s capital contribution as $500,000.[29] Jacobs, on Ambridge letterhead, faxed the May 2000 balance sheet to Voukidis on 13 July 2000, in relation to which Jacobs and Voukidis had a phone call on 14 July 2000. Justice Vickery pointed out that Voukidis had written in handwriting on the fax referring to the ‘joint venture details’ and setting out ‘Tod 10%, Ambridge 25%, CV 25% and TB 40%’ and that Jacobs’ contemporaneous note of that conversation recorded ‘JV Parties: Tod McGrouther 10% 300K; Ambridge 25% 500K; Chris V 25%; Theo Baker 40%’.[30] Vickery J did not accept Voukidis’ explanation that he had taken those notes in the event that they ‘went down the path of a joint venture’.[31] His Honour further did not accept Voukidis’ statement in cross-examination that although he had not written back to Jacobs to correct any error in the balance sheet, he did ‘not need to because I spoke to him about it.’[32] Instead, Vickery J held that Voukidis had accepted the preparation of the Break Fast accounts as in the May 2000 statement, including that Ambridge held a 25% interest and thereby admitted Ambridge was a joint venture partner with a 25% interest;[33]
[29]Vickery J Judgment [249] and [250].
[30]Vickery J Judgment [250] and [251]; Ex A 1724 and Ex A 1728.
[31]Vickery J Judgment [252].
[32]Vickery J Judgment [253].
[33]Vickery J Judgment [254] and [255].

(c) June 2000: Break Fast’s balance sheet in June 2000 largely mirrored the account of ownership structure that had been conveyed in the previous balance sheets, with the addition of a 10% interest of McGrouther. It again referred to ‘Partners’ Equity’ under which Ambridge, Voukidis, Baker and McGrouther were listed.[34] Jacobs provided the balance sheet to Baker via email, though in cross examination Baker denied having received it, which Vickery J did not accept;[35] and

(d) end June 2000: the profit and loss statement for Break Fast prepared in late 2001 for the year ended June 2000 showed a net loss which was distributed across the ‘partners’. Under reference to ‘partnership funds’ and ‘partner funds’, both, the profit and loss statement and the end June 2000 balance sheet respectively, listed Ambridge and Baker, McGrouther and Voukidis’ corporate entities C&O Voukidis, IMF and Career Path.[36] On the basis of that balance sheet, profit and loss statement and general ledger for the year ending 30 June 2000, in a teleconference between Baker, Voukidis, Stanley and Jacobs on 15 August 2000, Baker and Voukidis stated that those accounts were correct and that they could be submitted to NAB.[37] Jacobs emailed this balance sheet ‘for Break Fast as manager of the [Property] joint venture’ to NAB on 18 August 2000.[38]

Draft joint venture agreement

[34]Vickery J Judgment [257] and [258].

[35]Vickery J Judgment [258].

[36]Vickery J Judgment [259] and [260].

[37]Vickery J Judgment [336] and [337].

[38]Vickery J Judgment [338]; Ex A 1760.

Throughout the course of 2000, draft joint venture agreements were being prepared and discussed in the following terms:

(a) in March 2000, Ambridge engaged Howard Obst (‘Obst’) of Tress Cox & Maddox to prepare joint venture agreements on behalf of Break Fast for the Property joint venture. Stanley and Jacobs gave Obst instructions to prepare a joint venture agreement in respect of the Property joint venture and a separate joint venture agreement between Headland and Ambridge. Obst prepared the first draft of a joint venture agreement for the Property joint venture by 3 February 2000, which listed Break Fast as ‘joint venture manager’ holding the Property on behalf of the joint venturers.[39] This draft agreement was sent to Jacobs of Ambridge and Taylor of Headland;[40]
[39]Ex A 2140.
[40]Vickery J Judgment [262]–[264].

(b) a second draft was sent to Voukidis and forwarded to Stanley of Ambridge on 4 February 2000. It explicitly described Ambridge as one of the ‘Joint Venturers’ and set out Ambridge’s ‘Participating Interest’ as 25% with an allocation of a $500,000 ‘Acquisition Fee’ to be applied as its capital contribution;[41]
[41]Vickery J Judgment [265]; Ex A 1648.

(c) by reference to a conversation that Jacobs and Voukidis had had regarding the draft joint venture agreement, Jacobs sent a facsimile letter on Ambridge letterhead to Taylor on 16 March 2000, stating that ‘Chris [Voukidis] is largely in agreement with the operative provisions of the deed [joint venture agreement]’ but that Voukidis required the role and responsibilities of Ambridge in the selection, development and management of the Property to be more ‘fleshed out’ and documented.[42] Vickery J found to be unlikely Voukidis’ claims that he had objected to the structure depicted in the second draft agreement as a joint venture instead of by way of a shareholding in Break Fast, and to some of its operative terms.[43] His Honour also held that it was within Voukidis’ authority to approve or disapprove the structure on Baker’s behalf.[44] Further, there was no evidence that Voukidis had given instructions to Obst to draw up a shareholders agreement in line with the Break Fast Defendants’ contentions of the structure;[45]
[42]Vickery J Judgment [269]; Ex A 1677.
[43]Vickery J Judgment [267]-[270] and [274].
[44]Vickery J Judgment [280] and [281].
[45]Vickery J Judgment [275].

(d) a third, marked up, draft joint venture agreement was prepared by 22 March 2000 which Obst sent to Jacobs;[46]
[46]Vickery J Judgment [271]; Ex A 1686.

(e) separately, by 6 April 2000, Stanley’s company Ambridge and Taylor’s company Headland had executed a written joint venture agreement in respect of Ambridge’s interest in the Property joint venture. Each ‘participating interest’ in Ambridge’s 25% interest in the Property was recorded at 50%. Ambridge was appointed as ‘venture manager’ holding the assets in its name as nominee for the beneficial owners, namely itself and Headland;[47] and

(f) following McGrouther’s acceptance of an oral offer and his payment of a sum of $300,000 by cheque payable to Break Fast on 9 June 2000 in exchange for a 10% interest in the Property, the draft joint venture agreement underwent further amendments.[48] However, Vickery J held that it had not been until 12 February 2001 that McGrouther advised the other joint venturers that his interest in the joint venture would be held by IMF.[49] In a fax from Jacobs to Voukidis on 13 July 2000 and a telephone conversation between Jacobs and Voukidis on 14 July 2000, of which Jacobs took notes (above at paragraph 24(b)), the breakdown in ownership was set out as: Ambridge 25%; Voukidis 25%; Baker 40%; and McGrouther 10%.[50] McGrouther delegated management of the investment to Baker and Voukidis, who acted on McGrouther’s (and later IMF’s) behalf from then on.[51]

Notices of beneficial ownership

[47]Vickery J Judgment [284].

[48]Vickery J Judgment [289] and [330].

[49]Vickery J Judgment [300].

[50]Vickery J Judgment [332]; Ex A 1724.

[51]Vickery J Judgment [313].

As mentioned at paragraph 19(f), notices of beneficial ownership (backdated to 23 November 1999) each signed by Baker (and Voukidis) had been filed in the Break Fast company register. Justice Vickery held that such a notice was a ‘document of significance’ because it purported to demonstrate that Baker (and Voukidis) held shares in Break Fast on behalf of other entities, as listed in the schedule to the notice.[52] The schedule of beneficial owners to Baker’s notice listed Baker’s company Career Path as holding an 80% interest in Baker’s two shares (equivalent to a 40% interest in the Property), with McGrouther’s company IMF holding the remaining 20% (equivalent to 10% of the Property). The schedule to Voukidis’ notice purportedly stated that Voukidis held his share in Break Fast on behalf of his company, C&O Voukidis.[53] No notice of beneficial ownership was filed in respect of Stanley’s share in Break Fast.[54] Vickery J held that these notices would have suggested to an onlooker that it was indeed through the beneficial ownership of the shares in Break Fast that the parties had an interest in the Property, but ultimately, he held that they had been created well after 23 November 1999 and backdated.[55]

Career Path’s FY2000 tax return

[52]Vickery J Judgment [315]; Ex A 1633.

[53]Vickery J Judgment [316].

[54]Vickery J Judgment [317].

[55]Vickery J Judgment [319], [328] and [329].

Baker signed Career Path’s tax return schedule for the year ending 30 June 2000, which claimed a loss in a joint venture akin to the amount of loss recorded in the Break Fast accounts as having been sustained by Career Path. In the trial of the Ambridge Proceeding, Baker admitted that ‘it was not open for Career Path to have claimed a loss on a joint venture if Career Path’s investment in the Wellington Parade Property was by way of a shareholding in Break Fast only’.[56]

IMF’s financial reports for 2000 – 2003

[56]Vickery J Judgment [391]-[395]; Ex A 1791.

The 2000 – 2003 financial reports for IMF, McGrouther’s company, listed under the heading ‘Current Assets’ the item ‘Break Fast Investments $300,000’ on the balance sheet for each of those years. Separately, the balance sheets had a category for ‘Shares in Unlisted Companies’ that did not refer to Break Fast. Vickery J concluded that IMF’s accounts were drawn up in relation to the Property to allow for a distinction between the Property investment and investments in shares of unlisted companies, and that such distinction was designed to accommodate investment structures like incorporated or unincorporated joint ventures.[57]
[57]Vickery J Judgment [311], eg 2001 financial statement: Ex A 2035.

Significant documents and events in 2001
Corporate nominees

On 8 February 2001, Voukidis emailed Baker and McGrouther, and on 12 February 2001 forwarded the same email to Jacobs, to request the ‘firm details of which entity or individual(s) you would like to hold your interest in the Wellington Parade joint venture’.[58] On or around that date, Jacobs was informed of the nominated companies which were to beneficially hold the interests of all of the joint venturers, namely: C&O Voukidis (holding Voukidis’ interest), Career Path (holding Baker’s interest), IMF (holding McGrouther’s interest) and Ambridge.[59]

Refinancing

[58]Vickery J Judgment [341]; Ex A 816.

[59]Vickery J Judgment [343].

In late 2000 or early 2001, Break Fast made an application to Colonial First State Investments Limited (‘Colonial’) to refinance its NAB Loan to enable the refurbishment of the Property. On 6 February 2001, Break Fast received a letter of offer from Ashe Morgan Winthrop, the property investment broker, for an advance of some $9,345,000 secured by a mortgage over the Property.[60]
[60]Vickery J Judgment [345]-[346].

In 2001, Mr Fink, a credit analyst working at Ashe Morgan Winthrop, received documents from Jacobs by facsimile including a letter on 13 September 2001 from Jacobs, and a draft balance sheet and profit and loss statements for Break Fast for the year ended June 2001. The letter, which was signed by Jacobs, referred to the management accounts being for ‘the above named joint venture’ and the draft balance sheet refers to the relevant ‘Partners’ Equity’.[61]
[61]Vickery J Judgment [353]; Ex A 770.

Break Fast had initially discovered these documents in the Ambridge Proceeding in 2005. In September 2008, Break Fast discovered more documents in the Ambridge Proceeding which included draft management accounts regarding the Property, a balance sheet for Break Fast for the year ended June 2001 and a fax letter dated 13 September 2001 from Jacobs to Fink.[62] The September 2001 fax letter discovered in 2008 was almost identical to the one discovered in 2005 and was marked as having been sent from the same machine. However, it differed in that it referred to the ‘above named company’ instead of ‘joint venture’. Also, the draft balance sheet discovered in 2008 referred to ‘Shareholders’ Equity’ rather than ’Partners’ Equity’, and reference to Ambridge had been replaced with ‘Mark Stanley’.[63] In stating that ‘the implausibility of this scenario is patent. One is driven to the conclusion that the second discovered documents are tainted with something much more lowly – the malodorous aroma of eraser and inkpot,’[64] Vickery J accepted that the 2005 discovered versions of the documents were those that had in fact been sent to Fink, and rejected the 2008 discovered versions as untruthful alterations.[65]

Accounts and tax return

[62]Ex B 11440.

[63]Vickery J Judgment [356].

[64]Vickery J Judgment [358].

[65]Vickery J Judgment [359] and [370].

A number of relevant events and communications occurred in relation to Break Fast’s accounts in 2001:

(a) an email chain from July 2001 shows correspondence with a firm of accountants, Mason Carter, in relation to preparing accounts and tax returns for Break Fast for the financial year ended June 2000. In an email from Voukidis to Mason Carter (copying Jacobs and Stanley) on 10 July 2001, Voukidis sought clarification that the ‘accounts have been prepared on the basis that Break Fast Investments Pty Ltd acts as manager of a joint venture and does not prepare accounts as an operating company.’[66] In a reply email on the same date, Jacobs (copying Mason Carter) stated that the accounts ‘are being prepared on the basis of an unincorporated JV with BFI as manager.’[67] Even though Voukidis and Mason Carter had been informed of the basis on which the accounts were prepared, Voukidis provided no counter instructions to Mason Carter that the accounts should be prepared on the basis of Break Fast being the operating company;[68]
[66]Vickery J Judgment [375]; Ex A 1788.
[67]Vickery J Judgment [376]; Ex A 1788.
[68]Vickery J Judgment [378] and [379].

(b) Mason Carter ended up not preparing the FY2000 tax return for Break Fast. Instead, Stannards Accountants and Advisers (‘Stannards’), on instructions of Ambridge, carried out the accounting work for Break Fast between 1999 and 2003. Ambridge instructed Stannards to prepare financial statements and tax returns for Break Fast for FY2000, which were completed by 9 October 2001. The tax return was prepared and lodged as a partnership income tax return and declared that Break Fast was the manager of the joint venture/partnership which included Ambridge as a partner;[69]

(c) the balance sheet for the year ended 30 June 2001 referred to ‘Partners’ Equity’ and the participating partners now C&O Voukidis (instead of Voukidis) and Career Path (instead of Baker), Ambridge and McGrouther;[70] and

(d) profit and loss statements were prepared for July 2001 and August 2001, as well as a balance sheet for July 2001 which continued to contain references to ‘Partner’s Equity’.[71]

[69]Vickery J Judgment [385]-[387]; Ex A 1873.

[70]Vickery J Judgment [404].

[71]Vickery J Judgment [408], [412] and [413]; Ex A 770.

Significant documents and events in 2002 and 2003
Admission by Voukidis

Around July 2002, Voukidis, as director of C&O Voukidis, which was the trustee of the Voukidis Family Trust, prepared accounting records of the Voukidis Family Trust. These records listed an interest in the Property (rather than as an interest in a share issued by a company) over the asset value of $1,250,000. Vickery J considered this to constitute an admission against Voukidis and C&O Voukidis that the interest in the Property was held directly by C&O Voukidis as opposed to by holding shares in Break Fast.[72]

Draft joint venture agreement

[72]Vickery J Judgment [414]-[418]; Ex A 2073.

On 8 October 2002, Ambridge sent to Baker a copy of the joint venture agreement signed by Stanley ostensibly on behalf of Break Fast and on behalf of Ambridge. The agreement was materially in the same form as the third draft but referred to Voukidis’, Baker’s and McGrouther’s corporate nominees (C&O Voukidis, Career Path and IMF respectively) and Ambridge as the ‘Joint Venturers’, Break Fast as the ‘Venture Manager’ and that the venture manager would ‘hold the [P]roperty on behalf of the joint venturers as nominee’. The agreement was not executed by Baker because the relationship between Baker and Stanley had broken down at that stage (rather than because of a failure to reflect the operative provisions of the agreement from mid-July 2000).[73] No further attempts were made to formalise the relationship between the parties through any written document.[74]

Stanley’s dishonest management of Break Fast

[73]Vickery J Judgment [419]–[422]; Ex A 1907.

[74]Vickery J Judgment [423].

Through his company Ambridge, Stanley was appointed by Baker and Voukidis to administer the Property joint venture, including managing Break Fast’s finances, use of day to day funds and preparing the accounts. Throughout the course of 2002, the following events cast doubts on Stanley’s management of Break Fast’s funds:

(a) Stanley was using Break Fast’s funds for his own purposes and delayed providing a full statement of Break Fast accounts to Baker and Voukidis on their request;[75]
[75]Vickery J Judgment [425]–[429].

(b) by December 2002, Ambridge owed Baker a sum of $1.167 million;[76]

(c) Voukidis alleged in 2002 that Ambridge’s capital account was overdrawn by $581,000 which Stanley denied;[77] and

(d) by December 2002, Baker and Voukidis discovered that Stanley had borrowed monies for his own use under a loan agreement and had mortgaged both a property referred to as ‘St Leonard’s’ in New South Wales and Stanley’s share in Break Fast under what was referred to as the ‘Tauber Loan Agreement.’[78]

[76]Vickery J Judgment [430].

[77]Vickery J Judgment [431].

[78]Vickery J Judgment [432] and [569]–[572].

By December 2002, Voukidis requested Stanley to resign as director of Break Fast and Taylor supported this.[79]

Sale of the Property

[79]Vickery J Judgment [433]-[435].

In December 2002, Meerkin & Apel was engaged to act on behalf of Break Fast in a proposed sale of the Property.[80] On 3 December 2002, Voukidis sent an email to Baker and Stanley with a draft minute concerning the sale of the Property including a resolution that ‘the company [Break Fast] in its capacity as Manager of the Break Fast Joint Venture proceed with the sale of the [Property].’[81] Baker purportedly wrote to Stanley by email on 10 December 2002 about the draft minute requesting that Stanley ‘delete the words “…in its capacity as Manager of the Break Fast Joint Venture…” because as you are aware, we have not yet resolved to implement any such structure’. Stanley purportedly responded, ‘I will make the amendment before forwarding.’[82]
[80]Vickery J Judgment [446].
[81]Ex A 1918.
[82]Ex A 2245.

There were a number of reasons leading Vickery J to conclude that those email responses were not authentic: namely, no digital record of that email was available, the response by Baker stood in contrast to the presence of his and Voukidis’ signatures on the minutes following the statement ‘signed as a true and correct record’, and Voukidis faxed a copy of the executed resolution (without the purportedly requested changes) to Meerkin & Apel and Baker received a copy of the fax. Neither Baker nor Voukidis indicated to Meerkin & Apel at any time that the minute signed by Baker, Voukidis and Stanley was incorrect.[83]

Taylor’s directorship

[83]Vickery J Judgment [441]–[463]; Ex A 1922.

In December 2002 meetings took place between Taylor and Voukidis in which Taylor’s directorship of Break Fast and Break Fast’s corporate structure were discussed. Justice Vickery held that Voukidis ‘made constant reference to the “joint venture” concerning the Property’ in these discussions. His Honour accepted that Taylor informed Voukidis that Ambridge held Headland’s (Taylor’s company) interest in the Property on trust and that this interest was unaffected by Stanley’s actions.[84]
[84]Vickery J Judgment [466] and [467].

On 12 December 2002, at a directors’ meeting of Break Fast, Stanley and Voukidis appointed Taylor as director of Break Fast, as nominee of Ambridge in place of Stanley, to which Taylor consented. Stanley then resigned as a director of Break Fast.[85] The relevant notice was lodged with the Australian Securities & Investments Commission (‘ASIC’) and a copy was provided to Voukidis. This contradicts Voukidis’ and Baker’s later claim that Taylor has never been appointed as director of Break Fast.[86]

Accounts

[85]Vickery J Judgment [436], [468].

[86]Vickery J Judgment [436], [468]–[474].

After 10 December 2002, Break Fast’s accounts continued to be prepared on the basis of an unincorporated joint venture, including when Voukidis personally assumed responsibility for the preparation of the Break Fast accounts.[87] Some of Break Fast’s (draft) accounts in 2002 and 2003 contained references to Break Fast as ‘manager of the Wellington Parade Joint Venture’ and the ‘Joint Venture Capital Accounts’.[88]
[87]Vickery J Judgment [453]–[456].
[88]Vickery J Judgment [457] and [458]; eg June 2002 and March 2003: Ex A 1986.

Key events in 2004 including the caveat proceeding
Defendants’ change of position in May 2004

In what Justice Vickery described as ‘the first genuine turning point in the position of the Defendants’, on 26 May 2004, Baker and Voukidis wrote a letter to Taylor in which they stated that ‘neither the ASIC records not [sic] the records of the Company record Ambridge investments [sic] Pty Ltd as a shareholder of the Company.’[89]

Deed of acknowledgment

[89]Vickery J Judgment [477]-[478].

Baker, Voukidis and Stanley signed a purported deed of acknowledgement dated 8 July 2004 stating that Break Fast was ‘the legal and beneficial owner of the [P]roperty’,[90] thereby acknowledging the structure of the joint venture that the Break Fast Defendants in the Ambridge Proceeding were asserting. Justice Vickery dismissed the authenticity of the deed, referring to the deed being ‘inconsistent with 4½ years of prior conduct on behalf of the parties to the Wellington Parade Joint Venture’ and ‘with the financial accounts prepared for Break Fast’ and with ‘the draft joint venture agreements’ and with the parties’ conduct in the administration of the Property joint venture.[91]

The caveat proceeding

[90]Ex A 2313.

[91]Vickery J Judgment [480]–[486].

On 17 August 2004, a liquidator was appointed to Ambridge. The following day, Taylor’s company H20 appointed a receiver to Ambridge pursuant to a charge that Ambridge had assigned to H20.[92]
[92]Vickery J Judgment [94]; Ex A 693.

On 17 November 2004, the receiver of Ambridge lodged a caveat over the Property, claiming Ambridge’s interest in it as a party to the joint venture.[93]
[93]Ex A 11039.

On 9 December 2004, Break Fast filed an originating motion in this Court to remove Ambridge’s caveat over the Property (‘the Caveat Proceeding’). Rigby Cooke and Herskope were retained by Break Fast.[94]
[94]Ex A 3238.

Initial instructions were conveyed by Voukidis to Michael Markowitz (‘Markowitz’) of Rigby Cooke on 1 December 2004. A file note taken by Markowitz stated that the corporate structure was ’nothing more than company shareholding’.[95] Markowitz sent a formal retainer to Voukidis on 2 December 2004.[96]
[95]Ex A 8880.
[96]Ex A 4278.

In his evidence in the current proceeding, Markowitz stated that Voukidis had been ‘very impressive’, ‘very well presented’ and ‘very articulate’.[97]
[97]Transcript 308 L22–L25.

The following day, Markowitz, on behalf of Break Fast, sent a letter to the receiver of Ambridge denying the existence of a joint venture, and stating that this denial was ’borne out by the accounts of the Company for each year since incorporation.’[98] Ambridge’s lawyers, TressCox Lawyers (‘TressCox’) responded to this letter seeking clarification of whether Rigby Cooke acted for Voukidis and Baker as well as Break Fast. TressCox contended that the joint venture agreement document, which was in Ambridge’s possession, proved the existence of a joint venture, as did the ’various copy accounts and draft accounts of Break Fast Investments’.[99]
[98]Ex A 556, 557.
[99]Ex A 561, 561.

On 16 December 2004, the receiver of Ambridge filed an affidavit in the Caveat Proceeding.[100] This would have brought to Rigby Cooke’s attention a number of key documents mentioned above, notably:
[100]Ex A 10958.

(a) a fax dated 12 April 2000 from Jacobs on Ambridge letterhead that referred to the ‘joint venture’ and expenditure for AXIA which was to be paid by Ambridge;[101]
[101]Ex A 11064.

(b) a fax dated 13 September 2001 from Jacobs on Ambridge letterhead to Ashe Morgan Winthrop attaching the ‘management accounts for the above named joint venture for the year ended 30 June 2001’ with those accounts referring to C&O Voukidis, Ambridge, McGrouther and Career Path under the heading ‘Partners’ Equity’;[102]
[102]Ex A 11068.

(c) a fax dated 23 August 2002 from Jacobs on Ambridge letterhead to Voukidis attaching Break Fast’s draft financials for the year ended 30 June 2002 with those accounts referring to C&O Voukidis, Ambridge, McGrouther and Career Path under the heading ‘Partners’ Equity’;[103]
[103]Ex A 11081.

(d) a fax dated 6 February 2003 from Esquivel to Jacobs attaching some of Break Fast account transactions which show Break Fast ‘as manager for Wellington parade [sic] Joint Venture’;[104]
[104]Ex A 11098.

(e) a fax dated 1 May 2003 from Voukidis to Taylor attaching ‘copies of draft accounts for Break Fast’ with those accounts stating that they were for Break Fast ‘as manager of the Wellington Pde, East Melbourne Joint Venture’ and referring to Ambridge, Career Path, C&O Voukidis and IMF under the heading of ‘Joint Venture Capital Accounts’;[105]
[105]Ex A 11101.

(f) a fax dated 8 October 2002 from Stanley on Ambridge letterhead to Powerlan Technologies Ltd attaching the joint venture agreement version that had been signed by Stanley;[106]

(g) Ambridge’s financial statements prepared by Stannards referring to ‘Equity in Joint Venture’ listing ‘Wellington Parade Joint Venture’ and ‘P’ship (Break Fast Inv)’;[107] and

(h) an email dated 21 July 2003 from Voukidis to Stanley copying (amongst others) Baker, Taylor and Jacobs, which implied that Ambridge was part of the ownership structure of the Property.[108]

[106]Ex A 11087.

[107]Ex A 10986.

[108]Ex A 11111.

On 20 December 2004, Justice Gillard of this Court made an order in the Caveat Proceeding that the caveat over the Property be removed upon an undertaking by Break Fast and its directors not to sell, dispose of or encumber the Property without giving Ambridge 30 days’ written notice.[109]
[109]Ex A 9252.

The Ambridge Proceeding: 2004 to 2010
Significant documents and events in 2005
Commencement of the Ambridge Proceeding

On 31 January 2005, Ambridge, funded by H2O, commenced the Ambridge Proceeding in this Court against the following eight defendants: Baker, Voukidis, Career Path, IMF, C&O Voukidis, Break Fast, Oxley and Stanley.[110] Rigby Cooke acted for the first to seventh defendants (that is, the Break Fast Defendants), but not for the eighth defendant Stanley.
[110]Ex A 92.

In the context of an application for security for costs, Ambridge’s receiver swore an affidavit on 24 February 2005,[111] which contained many of the documents referred to in his 16 December 2004 affidavit in the Caveat Proceeding (referred to above at paragraph 51), and additionally exhibited (amongst other documents):
[111]Ex A 693.

(a) an email dated 3 December 2002 from Voukidis to Baker and Stanley attaching the draft minute relating to the sale of the Property which stated that ‘it was resolved that [Break Fast] in its capacity as Manager of the Break Fast Joint Venture proceed with the sale of the [Property]’;[112]

[112]Ex A 693, 759.

(b) a fax dated 10 December 2002 from Voukidis to Meerkin & Apel attaching the minute referred to above signed by Voukidis, Stanley and Baker;[113]

(c) an email dated 23 August 2003 from Voukidis to Stanley which referred to an earlier fax by Stanley ‘regarding the Ambridge Investments Pty Ltd Capital Account in the Break Fast Investments Joint Venture’;[114] and

(d) a letter dated 31 July 2002 from Stanley on Ambridge letterhead to Taylor referring to previous ‘discussions regarding the financial structure of the Wellington Parade Joint Venture’ and acknowledging Taylor’s ‘request for an account of the conduct of the joint venture to date and the relationship between the joint venturers’.[115]

[113]Ex A 693, 761.

[114]Ex A 693, 765.

[115]Ex A 693, 781.

In early September 2005, Mary Nemeth (‘Nemeth’), who had recently joined Rigby Cooke as a partner, took over the conduct of the Ambridge Proceeding from Markowitz.

Application to restrain Break Fast

On 15 November 2005, Ambridge applied for an injunction to restrain Break Fast from paying the fees of the Break Fast Defendants in the Ambridge Proceeding.[116] It was common ground that, if paid by Break Fast, any legal fees would necessarily be paid from the Property assets. This application was heard before Justice Whelan on 25 November 2005 and the part of the summons applying to restrain Break Fast from paying the legal fees for the Break Fast Defendants was dismissed.[117] At the hearing of the summons, Whelan J stated that:

If it transpires that [Break Fast] is a trustee then it might have difficulty justifying to the beneficiaries the costs it’s spent in trying to prove it wasn’t one, but until I decide that, how can I stop the company that wants to contend that it is the owner, from running the case that it is that?[118]

Documents, file notes and correspondence

[116]Ex A 7661.

[117]Ex A 7661; 7704, 7708.

[118]Ex A 7704, 7708 and 7709.

Over the course of 2005, the following relevant correspondence, file notes and documents were prepared for the Ambridge Proceeding:

(a) around September 2005: Nemeth recorded that there were ‘Documents requiring explanation on our part’ and that there was the ‘deed of [acknowledgment] à Stanley à not a JV’;[119]
[119]Ex A 9133 and 9134.

(b) 14 September 2005: in a conversation between Markowitz and Nemeth, Nemeth recorded that Stanley was a ‘notorious conman – director of Break Fast – stole $2m à ASIC à bankrupt in other proceedings’;[120]
[120]Ex A 9130; Transcript 403 L18–L21.

(c) 25 October 2005: Nemeth prepared a file note of a meeting with Herskope in which she recorded ‘Stanley stole money from Baker’ and noted that this was ‘relevant to why the [joint venture] never went ahead’.[121] In oral evidence in the current proceeding, Nemeth stated that at that time she had seen a draft joint venture agreement that had been signed by somebody (she could not recall by whom), but she recalled it had not been signed by all parties;[122]
[121]Ex A 7653.
[122]Transcript 413 L27.

(d) 27 October 2005: Nemeth emailed Herskope stating that she had ‘finished reviewing the discovery of both parties for relevant documents’ and she had started a draft chronology.[123] The chronology was finalised in December 2005. Amongst other things, it referred to:[124]
[123]Ex A 9136.
[124]Ex A 8813.

(vii) the notices of beneficial ownership by Voukidis and Baker introduced at paragraph 19(f) and 26 and said ‘Note the absence of such a document for the shares held by Mark Stanley’;

(viii) the deed of acknowledgement introduced at paragraph 44 noting that Stanley held his share in the Property ‘legally and beneficially for himself’;

(ix) balance sheets, general ledger details, profit and loss statements and financial statements which included references to ‘Partner Equity’ and Ambridge; and

(x) the draft joint venture agreements;

(e) 28 October 2005: Nemeth prepared a file note after a meeting attended by Voukidis and Philip Sheezel of Rigby Cooke in which Nemeth recorded:

best case – no joint venture à you win
worst case à there was a joint venture
alternative defence
Stanley stole money from joint venture & that needs to be deducted from the equity in the joint venture – which leaves nothing.[125]
[125]Ex A 7654.

In evidence in the current proceeding, Nemeth explained that she had been instructed that Stanley was a ‘con-man’ and was going to be Ambridge’s witness;[126]
[126]Transcript 416 L27–417 L6.

(f) 18 November 2005: just prior to the hearing of Ambridge‘s application before Whelan J, Nemeth emailed Herskope stating that she had not found any authority supporting Ambridge’s assertion that the principle that the costs of a dispute between shareholders should not be borne by the company to which the dispute relates, applies to an alleged joint venture;[127]
[127]Ex A 7695.

(g) 22 November 2005: Nemeth recorded in a file note of a conversation with David Collins (‘Collins’) (Break Fast’s senior counsel at the time, leading Herskope) that they had ‘discussed the merits of the case & fact that there are risks’ and that Collins ‘said he has not been shown any documents & is concerned regarding the state of documents regarding the existence of a joint venture’;[128]

(h) 30 November 2005: Nemeth emailed Voukidis suggesting that Break Fast should offer inspection of Break Fast’s ‘books’ including registers, financial records and other records of information and stated that ‘we need to start scoring some points in this case if we are going to successfully defend it’. Voukidis’ queried in that context ‘what is this “IF” stuff??’;[129] and

(i) 1 December 2005: Nemeth prepared a file note of a conversation with Voukidis regarding the prospects recording that she ‘thought there was a lot to suggest that any JV was between [Ambridge] and [Headland]’ and that ‘then [the judge] had to deal with the issue of the mortgage by Stanley of his one share’.[130]

[128]Ex A 7699.

[129]Ex A 9186.

[130]Ex A 7777.

Significant documents and events in 2006
Documents, file notes and correspondence

Bearing in mind that the case was listed for trial on 28 February 2006 (but, as will be explained, the trial did not proceed on that date), the following correspondence and file notes were prepared in 2006,:

(a) 14 February 2006: Nemeth prepared a file note of a conversation with Voukidis, following a conference he had had with Collins the previous day in which Voukidis had been strongly questioned. Nemeth recorded that she made these statements to Voukidis:[131]
[131]Ex A 7784; Transcript 436-7.

(xi) ‘in isolation [the documents] were difficult but put in context, provided explanations could be provided which were accepted by the Judge then the case could be defended’;

(xii) she ‘had always been told by [Herskope] that there were explanations for the documents and that these explanations were plausible’; and

(xiii) ‘the problem was that [Collin’s cross-examination] of [Voukidis] meant that he took the view that they could not be explained to the satisfaction of the Judge’;

(b) 17 February 2006: Collins emailed Voukidis (copying, amongst others, Herskope and Nemeth) a joint memorandum of advice prepared by Collins and Herskope, which set out the prospect of the defence succeeding in the Ambridge Proceeding: in substance, counsel considered the outcome was ‘uncertain and largely unpredictable’ because the success of the defence turned on the impression obtained by the trial judge of witnesses when cross-examined and, more particularly, whether Voukidis’ explanation of documents which appeared to be consistent with there being an unincorporated joint venture was accepted;[132]
[132]Ex A 9192.

(c) 23 February 2006: Nemeth wrote a file note recording that ‘both [Collins] and I believe that there is a 50% / 50% chance of success & if we are going to win we are going to have to do so (sic) hard work both now and during trial’ and that their clients ‘need to deal with the allegations made by responding statement & in [cross-examination]’;[133] and

(d) 1 March 2006: after the vacation of the trial date, Nemeth prepared a file note of a meeting with Herskope, Collins, Voukidis and Baker recording that ‘risk in the case is could lose it à could lose it on JV or on estoppel’ and noted that an offer to settle had been withdrawn by her clients.[134]

Amendments to pleadings

[133]Ex A 7794.

[134]Ex A 7873; Transcript 450 L24–451 L3.

On the first day of the listed trial date, 28 February 2006, Justice Dodds-Streeton granted Ambridge’s application for leave to amend Ambridge’s statement of claim.[135] Doing so came at the cost of the trial having to be vacated. The proceeding did not come back on for trial until October 2009.
[135]Ex A 7817.

The amended statement of claim was filed on 29 March 2006 (‘ASOC’). A more detailed description of amendments to Ambridge’s statement of claim is provided later in these reasons. Among other things, the new pleading amended the alleged breaches. It also made reference to the May 2000 Balance sheet which Voukidis had annotated with the handwritten words ‘Ambridge 25%’, and the 16 March 2000 fax from Taylor to Jacobs stating that ‘Chris [Voukidis] is largely in agreement with the operative provisions of the deed [joint venture agreement]’.[136] A defence to that statement of claim was filed on 1 May 2006.[137]
[136]Ex A 133.
[137]Ex A 147.

A further amended statement of claim was filed on 4 August 2006 (‘FASOC’).[138] On 1 November 2006, Ambridge filed a second further amended statement of claim (‘2^nd FASOC’), which introduced an alternative trust claim that Break Fast had acquired the Property as bare trustee for Voukidis, Baker and Stanley (or their corporate nominees).[139]
[138]Ex A 165.
[139]Ex A 188.

Collins provided a memorandum of advice on 1 December 2006, which contained a summary of the flaws in Ambridge’s 2^nd FASOC indicating that consideration was being given to a summary dismissal application. However, counsel also acknowledged that:

The facts of this case, including the preparation of accounts and financial statements on the basis that a joint venture did exist, and various items of correspondence consistent with a joint venture having been entered into, make it clear that the plaintiff [Ambridge] does have an arguable case. In my opinion there is no realistic prospect of the plaintiff’s [Ambridge’s] claim being summarily dismissed. Accordingly, I can see no utility in pursuing applications to strike out the SFASOC or obtain further particulars for that purpose.[140]
[140]Ex A 7922.

Significant documents and events in 2007 and 2008
Increase of Break Fast’s loan facility

In light of the undertaking given on 20 December 2004, Rigby Cooke, on Break Fast’s instructions, gave notice to TressCox on 23 March 2007 of Break Fast’s intention to further encumber the Property to increase its loan facility with Colonial.

TressCox filed a summons on behalf of Ambridge dated 13 April 2007, together with a sworn affidavit by the receiver of Ambridge, seeking orders including that Break Fast be restrained from increasing its loan facility with Colonial or creating any further encumbrance over the Property, without Ambridge’s prior consent.[141]
[141]Ex A 7980.

On 26 April 2007, Williams J ordered by consent that Break Fast be permitted to increase its loan facility, secured against the Property, by an amount of $819,379.52 and to make payments set out in a schedule. The schedule listed some specific items of legal fees, and other specific expenses, but otherwise the summons was adjourned to be heard on 3 May 2007.

On 27 April 2007, TressCox sent an email to Rigby Cooke (then forwarded by Rigby Cooke to Voukidis and Baker) seeking to prevent a further drawdown of $890,000 by Break Fast, over and above the amount permitted by the 26 April 2007 order. The further drawdown was partially intended to fund the legal costs of the Break Fast Defendants in the Ambridge Proceeding.[142]
[142]Ex A 8144.

On 3 May 2007, Williams J made further orders, also by consent (‘the 3 May 2007 Order’). The order permitted the increase of the loan facility with Colonial, secured against the Property, by an amount of $890,620.48. Her Honour ordered $340,000 of that amount to be paid into a trust account only to be withdrawn ‘for legal fees and disbursements incurred by [Break Fast] in defending [the Ambridge Proceeding]’.[143] Nemeth provided a copy of this order to Voukidis and Baker.[144] The 3 May 2007 Order was preceded by a letter from TressCox dated 30 April 2007[145] and discussions between counsel. In the letter of 30 April, TressCox offered, on behalf of Ambridge, that Break Fast be permitted to drawdown $100,000 into Rigby Cooke’s trust account to fund the legal costs of Break Fast in the Ambridge Proceeding. Additionally, TressCox continued by stating that any ‘future expenses, including legal expenses, should be able to be funded out of Break Fast’s cash flow’. Whilst the permitted drawdown amount was, evidently, increased by agreement to $340,000 by the time the order was made, Rigby Cooke and the Break Fast Defendants thereafter assumed that Ambridge accepted that Break Fast could use business income (rental) to pay for its legal costs of the proceeding.

Credibility of Voukidis and Baker

[143]Ex A 8165; Vickery J Judgment [140].

[144]Ex A 8165.

[145]Ex A 8148.

On 1 August 2007, in contravention of the 3 May 2007 Order, Voukidis used the sum of $340,000 that was to be used for legal fees in the Ambridge Proceeding only, to pay for security for costs in a separate proceeding to which Voukidis and Baker were parties. As described below, Voukidis finally admitted to his contravention of the 3 May 2007 Order in two affidavits that he swore on 24 August 2009.[146]
[146]Ex A 1428, [18]; Ex A 1423; Vickery J Judgment [141].

Correspondence and file notes of conversations between Nemeth, Herskope, Voukidis and Baker demonstrate that Nemeth persisted in seeking some proof from Voukidis of his compliance with the 3 May 2007 Order. They also showed that Nemeth explicitly raised the possibility that there had been a contravention of the orders made on 26 April 2007 and 3 May 2007. They also demonstrated Rigby Cooke’s concerns about the credibility of Voukidis and Baker, but also of Stanley and Jacobs, at trial. For example:

(a) 26 November 2007: in an email chain between Nemeth, Voukidis and Herskope, Nemeth raised that she and Herskope were concerned that TressCox ‘will seek to bring a contempt of court application against you and / or seek to draw adverse inferences in relation to your credit at trial’ if documents confirming compliance with the orders were not provided;[147]
[147]Ex A 8223.

(b) 28 April 2008: Nemeth and Baker had a conversation in which Nemeth ‘explained that credit of [Baker and Voukidis] in particular [Voukidis] was a problem’;[148]
[148]Ex A 8279.

(c) 5 May 2008: Nemeth recorded in a file note of a conversation with Herskope in which Herskope had told Nemeth about a meeting with Voukidis in which Herskope had told Voukidis to settle the Ambridge Proceeding and that ’he is going to loose [sic] the case’;[149]
[149]Ex A 8285.

(d) 20 May 2008: Nemeth and Herskope discussed, amongst other things, that Jacobs’ credit was an issue because he had been convicted of a dishonesty offence;[150]
[150]Transcript 499 L10–L 13; Ex A 8296.

(e) 11 August 2008: email chain between Nemeth and Voukidis stating that the documents provided did not prove that the drawdown had been in compliance with the 3 May 2007 Order;[151]
[151]Ex A 8368.

(f) 21 August 2008: Nemeth explained to Voukidis and Baker that she was certain there was non-compliance with the 3 May 2007 Order, that any delay in relation to discovery orders concerning the payment ‘was causing credit issues and the longer it took to provide documents the more damage it was causing’ and that a contempt application was ‘likely’ to occur;[152]

(g) 28 August 2008: Nemeth emailed Collins to discuss that a bank statement she had received from the client appeared to prove that the 3 May 2007 Order had not been complied with;[153] and

(h) 5 November 2008: Nemeth sent an email to Voukidis and Baker pointing out that Ambridge would argue at trial that documents, such as the fax from Jacobs to Ashe Morgan Winthrop (referred to above at paragraph 32), had been created by the Break Fast Defendants for the purpose of the Ambridge Proceeding given that two different versions existed.[154]

[152]Ex A 8386.

[153]Ex A 8397.

[154]Ex A 8450.

In the midst of the events listed in the previous paragraph, Herskope prepared a memorandum of advice dated 13 March 2008 in relation to the implications of a possible breach of the orders of 26 April 2007 and 3 May 2007, setting out that the material provided at the time did not appear to evidence compliance with the 3 May 2007 Order. Herskope further pointed out that a contempt application for failing to comply with the orders might render Break Fast or its directors liable to penalties for contempt and, even if such an application was not made, it ‘leaves Mr Voukidis in particular vulnerable to a significant attack on his credit at trial.’[155] In a later memorandum dated 26 May 2008, Herskope stated that he ‘apprehended’ that discovery of particular categories of documents would result in TressCox becoming aware of ‘the failure to comply with those orders.’[156]

Amendment of pleadings

[155]Ex A 8254.

[156]Ex A 8297.

On 22 February 2008, Ambridge filed a third further amended statement of claim (‘3^rd FASOC’) which included a claim requiring the taking of accounts and adjustment of interests as between the parties considering any transaction that had occurred since acquisition of the Property.

Significant documents and events from 2009 onwards
Voukidis’ admission to breach of the 3 May 2007 Order

On 24 April 2009, TressCox filed a summons for discovery of documents, including for documents relating to Break Fast’s compliance with the 3 May 2007 Order.[157] Ambridge then issued subpoenas, including to NAB, to obtain originals of the Break Fast bank statements. In May 2009, Rigby Cooke retained new counsel on the instructions of its clients.[158]
[157]Ex A 8484.
[158]Ex A 8535.

On 24 August 2009, Voukidis swore two affidavits in which he admitted to having failed to comply with the 3 May 2007 Order, and to having altered the relevant NAB statements for the purpose of discovery.[159] Vickery J in the Ambridge Proceeding later held that Voukidis’ conduct had been in breach of the 3 May 2007 Order and the conduct had been ‘wilful, contumelious and dishonest’.[160] Vickery J further held that evidence by Voukidis was ‘central’ to the Break Fast Defendant’s case, but that Voukidis was an ‘unreliable witness’ and his Honour would not accept Voukidis’ evidence on contentious matters except if supported by cogent independent evidence.[161]

Funding the Ambridge Proceeding

[159]Ex A 1428 and 1423.

[160]Vickery J Judgment [144].

[161]Vickery J Judgment [145] and [146].

Break Fast had continued to fund the litigation until about October 2009, when it essentially ran out of rental income and lost the ability to take out further loans. In October 2009, Voukidis and Baker corresponded by emails in which Baker asked Voukidis to ‘put back into Break Fast, for the payment of the legal fees, just some of the money which you used for unrelated Break Fast matters’ to which Voukidis responded that he had no ‘excess funds’ to fund the Ambridge Proceeding but expressed confidence that ‘winning [the Ambridge Proceeding] is a very likely outcome.’[162] From around this point Baker and Voukidis funded the litigation themselves.[163]

As stated in Orr v Ford,[340] it is necessary to first identify ‘the substantive nature of the claim to which laches is said to constitute a bar’.[341] In this case, Rigby Cooke is seeking to use it as defence to the conflict and knowing receipt claims. From the substantive nature of the claims and the grounds advanced for the defence of laches, if laches is at all applicable, it would be the second strand of laches (as set out in Amaca v CSR, Orr v Ford, Lindsay Petroleum Co v Hurd[342] (‘Lindsay Petroleum’)). That is, the strand characterised by ‘a period of delay coupled with a change of circumstance that makes it unjust to allow the remedy’, noting that the delay requires an element of unreasonableness to it. On the basis that this is a ‘change of circumstance’ argument, I would adopt the view expressed in Meagher, Gummow and Lehane’s Equity Doctrines and Remedies[343] that knowledge of the wrong is not an element of the defence.
[340](1989) 167 CLR 316.
[341]Orr v Ford (above n 340) 342.
[342](1874) LR 5 PC 221.
[343]Above n 321.

It follows that to make out the defence, Rigby Cooke needs to establish that:
(a)there was unreasonable delay on the part of Break Fast in the commencement and prosecution of the proceeding; and
(b)in light of the nature and consequences of the delay, there was a change of circumstances which makes it ‘practically unjust’ to grant the relief sought.
As may be seen, there is a range of factors that tend both ways on each of the two matters just identified. On the issue of ‘delay’, one logically asks: delay from when? In the context of a defence which considers whether it is ‘practically unjust’ to grant the relief sought, it does not seem just to calculate delay from a point in time before Rigby Cooke ceased acting for Break Fast and until there was a change of control of Break Fast. That is because, the substantive nature of the claim to which laches is said to constitute a bar, is that Break Fast was precluded from obtaining the type of legal advice which may have enabled it to commence this proceeding. Moreover, it is not practical to expect Break Fast to take action against Rigby Cooke while Voukidis and Baker were in control of the company.
Thus, taking 2011 as the more realistic point in time to mark any commencement of delay, the commencement of the proceeding in May 2013 did not involve such a delay as to be characterised as unreasonable. In making that assessment, I take into account the dimension of this case and the steps that probably had to be taken in order to launch it. That said, apparently there was a delay in serving the writ, and then a considerable delay in bringing the matter to trial. Apart from the delay in service, it is more difficult to discern why the matter took so long to come to trial — but whatever the causes, it cannot be denied that the upshot was that the trial in 2021 concerned matters that took place between 10 and 15 years earlier.
Turning to the change of circumstances and the consequences of the delay, again there are some factors tending both ways. Although finely balanced, in all the circumstances, I do not find that those consequences, together with the period of delay, make it practically unjust for equitable compensation to be granted if Break Fast (contrary to my previous findings) was otherwise entitled to that relief. Rigby Cooke’s witnesses, Markowitz and Nemeth, were still available and gave evidence. Overall, the evidence was mostly documentary and to the extent that witnesses were unable to recall matters from memory, there were detailed file notes and correspondence that effectively told the story. Against that background, any lapses of actual memory were generally inconsequential. It did not appear to me that there was any obvious gap in the documentary record, due to the effluxion of time, that prejudiced Rigby Cooke’s ability to defend itself. In short, there was no ‘unconscionable prejudice’[344] caused to Rigby Cooke by the delay.
[344]Crawley v Short (above n 336) [163].

Whether, at the end of the day, the defence of laches should prevail is a matter of degree and depends on the circumstances of the individual case.[345] In my judgment, in this case, the laches defence should not be upheld.
[345]Orr v Ford (above n 340) 346-7 (Deane J).

Statutory limitation of action by analogy

Rigby Cooke submitted that, if Break Fast otherwise had a valid claim of breach of fiduciary duty or knowing receipt against Rigby Cooke, such causes of action had accrued more than six years prior to the commencement of the current proceeding and would be statute barred by way of analogous application of s 5(1) of the Limitations of Actions Act.

The relevant principle, emanating from Knox v Gye,[346] is set out by Emerton J in CandibonPty Ltd v Minister for Planning[347] (‘Candibon’), distilling a passage from Dr Spry’s Equitable Remedies[348] which, in turn, has received judicial approval in Cia de Seguros Imperio v Heath (REBX) Ltd & Ors.[349] Her Honour in Candibon held:

The Court may decide that the material equitable right is so similar to legal rights to which a limitation period is applicable that a limitation period should be applied to the equitable right also. If there is a sufficiently close similarity between the exclusive equitable right in question and legal rights to which the statutory provision applies, a court of equity will ordinarily act upon it by analogy, but it will so act only if there is nothing in the particular circumstances of the case that renders it unjust to do so. What is regarded by courts of equity as a sufficiently close similarity for this purpose involves a question of degree, and reference must be made to the relevant authorities. The basis of these principles is that, in the absence of special circumstances rendering this position unjust, the relevant equitable rules should accord with comparable legal rules.[350]

[346][1872] LR 5 HL 656, 674-5.

[347][2011] VSC 415, [367] and [368].

[348]I C F Spry, The Principles of Equitable Remedies: Specific Performance, Injunctions, Rectification and Equitable Damages (LBC Information Services, 8th ed, 2010) 419-20.

[349][2001] 1 WLR 112, 120.

[350]Candibon (above n 347) [368].

To establish the analogous application of the six year limitation period provided in s 5(1) of the Limitation of Actions Act, Rigby Cooke would have to show that:

(a) the conflict claim and the knowing receipt claim were sufficiently similar causes of action to a claim at law, such as a breach of retainer or negligence claim;

(b) it would not be unjust to apply the statutory time limit by analogy; and

(c) the claims accrued at least six years prior to filing of the writ.

Turning to the first of those three elements, Rigby Cooke argued that Break Fast’s claims for equitable compensation for breach of fiduciary duty and knowing receipt of trust property were sufficiently similar to claims that could have been brought at common law. The common law claims it relied upon were causes of action for damages for breach of retainer and negligence. Rigby Cooke argued that those actions are sufficiently analogous to the equitable claims that Break Fast brought in this proceeding so as to warrant the application of the statutory six year limitation.

Rigby Cooke pointed out that in Break Fast’s second further amended statement of claim (‘Break Fast’s second FASOC’), Break Fast had pleaded alternative claims for breach of retainer and negligence, claiming essentially the same sum of money by way of damages as it sought in Break Fast’s third FASOC by way of equitable compensation.

Break Fast argued that the common law claims which Rigby Cooke had identified could not reasonably be considered ‘sufficiently similar’ to Break Fast’s claims for breach of fiduciary duty and knowing receipt. It argued that the common law claims would not have led to relief by way of account profits, as is available as a form of relief for its claims in the equitable jurisdiction. Break Fast also argued that the Court should not have regard to its previous pleadings for the purpose of considering whether there may be a sufficiently similar claim available at common law.

Taking the last point first, I see no reason why I should not have regard to Break Fast’s previously pleaded, but abandoned, cause of action. Even without any previous form of pleading, I could formulate myself, for the purpose of analysis, a hypothetical form of pleading to test the proposition whether there might be a sufficiently similar common law cause of action. Seeing the way that Break Fast previously formulated such a claim is no more than a shortcut to me doing so.

Turning to the alternative causes of action at law, in previously pleading a claim in negligence, Break Fast had relied on the solicitor-client relationship to establish a duty to exercise reasonable care and to inform the directors of any dishonest conduct in which a director of Break Fast might be engaged in connection with the Ambridge Proceeding.[351] In relation to a breach of retainer, Break Fast previously pleaded that Rigby Cooke had failed to advise Break Fast that Break Fast would be in breach of trust duties by using the Property assets to make payments (if it was held a trustee), failed to advise Break Fast that it should not use its assets to pay the legal fees, continued to act in those circumstances, and did not advise Break Fast to take a passive role in defending the Ambridge Proceeding. Furthermore, the loss that Break Fast claimed to have suffered was the amount of payments made to Rigby Cooke less discovery costs, but including the adverse costs liability.[352]
[351]Break Fast’s second FASOC [12] and [13].
[352]Break Fast’s second FASOC [22]-[25].

Clearly, there are similarities between the equitable causes of action upon which Break Fast has relied, and those common law causes of action, especially between the previously pleaded breach of retainer claim and the current claim for breach of fiduciary duty. Earlier in these reasons, I observed that certain elements of the breach of fiduciary duty case might have given rise to a claim in negligence or breach of retainer.[353] I also expressed the view that, for not having realised between 2005 and 2009 that the case against the Break Fast Defendants would succeed, at its highest only a finding of negligence could be made against Rigby Cooke.[354]
[353]Above at [200].
[354]Above at [312].

Notwithstanding some similarities, there are also some importance differences between the equitable claims and the alternative common law claims.

As I have been at pains to elaborate, the touchstone of the breach of fiduciary duty claim in this case is the establishment of the propensity for two concurrently owed duties to disable Rigby Cooke from properly fulfilling its duty owed to Break Fast. That propensity or possibility is not established by merely proving a duty on the part of Rigby Cooke to advise Break Fast that it had no interest (beyond discovery) to play an active role in the Ambridge Proceeding, or that Break Fast should not devote potential trust assets to pay the defence costs in the proceeding. A duty to give that advice was only one part of the collection of elements for Break Fast’s breach of fiduciary duty case.

Furthermore, with respect to the knowing receipt case, I also emphasised the important difference between a mere negligent failure to enquire into facts, as a form of requisite knowledge, and the more culpable degree of knowledge which the equitable cause of action required.[355]
[355]Above at [281] and [282(b)].

I have also noted the potentially wider recovery that a successful plaintiff may achieve by way of equitable compensation compared to damages because equity does not apply common law principles of remoteness,[356] and does not speculate against the plaintiff once a causal link is established.[357] These principles potentially enlarge the scope of loss which Break Fast could recover as equitable compensation for breach of fiduciary duty compared to what it might recover as damages for a successful claim in negligence or breach of retainer.
[356]Above at [247] and [249(c)].
[357]Above at [249(a)].

Finally, in my view, in terms of its conceptual nature, proofs and the type of remedy that it may have yielded, the knowing receipt claim is even more markedly different from the common law causes of action which Break Fast might have advanced.

Not having concluded that the conflicts claim or the knowing receipt claim was sufficiently similar to a claim at law, it is not necessary that I should consider whether it would be unjust to apply the statutory time limit by analogy.

In conclusion, I would not have applied the limit under section 5 of the Limitations of Actions Act by analogy to either of the two equitable claims had Break Fast succeeded on them.

Contributory negligence and failure to mitigate

Rigby Cooke asserted[358] the application of section 26 of the Wrongs Act1958 (Vic) to reduce its liability to pay equitable compensation for breach of fiduciary duty or knowing receipt of trust funds. In Pilmer v The Duke Group Ltd,[359] the High Court referred to the ‘severe conceptual difficulties’[360] in applying contributory negligence to diminish awards of equitable compensation for breach of fiduciary duty.[361] Equally (or even more so), in my view, would there be conceptual difficulties in applying contributory negligence to reduce equitable compensation for knowing receipt.
[358]Rigby Cooke’s defence [93].
[359](2001) 207 CLR 165.
[360]Ibid [86].
[361]See also Rahme v Benjamin & Khoury Pty Ltd (2019) NSWLR 550, 574 [127].

It follows that the defence of contributory negligence is not available to Rigby Cooke in this case. Neither do I consider that there is any duty on a plaintiff alleging breach of fiduciary duty in knowing receipt to mitigate their loss, and I would not have accepted that defence either.[362]
[362]Rigby Cooke’s defence [94].

Advocate’s immunity

Rigby Cooke pleaded[363] that it is immune from suit on the principle of advocate’s immunity insofar as the work it did out of court led to a decision affecting the conduct of the Ambridge Proceeding or was intimately connected with the conduct of that proceeding in court.
[363]Rigby Cooke’s defence [95].

The principles are well established.[364]
[364]Giannarelli v Wraith (1988) 165 CLR 543, 560; D’Orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1, [34], [85]-[87]; Attwells v Jackson Lalic Lawyers Pty Limited (2016) 259 CLR 1, [2] and [3].

If accepting Rigby Cooke’s liability for having breached a duty by acting concurrently for Break Fast and the Voukidis Defendants, or for knowingly receiving misapplied trust funds, there is simply no relevant connection that would engage the immunity between its wrongdoing, on the one hand, and, on the other, either the work it did out of court affecting the conduct of the case in court or work that it did which was intimately connected with the conduct of the proceeding in court. A connection for this purpose is not established merely by a (wrongful) decision to act for a party to the litigation and then conducting their case in court accordingly.

Estoppel and counterclaim

Rigby Cooke alleged in its defence[365] that Break Fast is estopped from claiming the relief sought in the current proceeding. Rigby Cooke contended that it would be unconscionable to permit Break Fast to make its claims because:
[365]Rigby Cooke’s defence [98]-[101].

(a) Break Fast had made representations that Break Fast would pay its legal fees for the conduct of its defence;

(b) Break Fast thereby had induced Rigby Cooke to act to its detriment by providing legal services and engaging counsel on Break Fast’s behalf; and

(c) Rigby Cooke had done so in reliance upon Break Fast’s representations.

Rigby Cooke also asserted a counterclaim for its fees based on the contract of retainer for its services, the provision of those services and the invoices that it had rendered.[366]
[366]Rigby Cooke’s defence [103]-[108].

I reject both the defence of estoppel and the counterclaim for fees. I agree with Break Fast’s submission that if, contrary to my findings, Break Fast succeeded in its claims for breach of fiduciary duty or knowing receipt, it is difficult to follow how the Court’s order could be circumvented by Rigby Cooke claiming back improperly earned fees through an estoppel or by way of contract. Any breach of fiduciary duty would be disentitling conduct and likewise a breach of the contract by which the debt is said to have arisen. Moreover, it would not be unconscionable for Break Fast to resile from the alleged implied representation which is said to support the pleaded estoppel if, in fact, Rigby Cooke’s continuance to act constituted a breach of fiduciary duty or its receipt of the fees constituted knowing receipt of misapplied trust funds.

Other Matters

Before concluding, I wish to briefly return to the argument raised by Rigby Cooke mentioned at paragraph 213 above. Rigby Cooke argued that Break Fast’s claim that Rigby Cooke was liable for having knowingly received misapplied trust funds was the only cause of action available to Break Fast. For reasons that Rigby Cooke endeavoured to explain, the breach of fiduciary duty claim was, it argued, embodied within the Barnes v Addy claim and could not be separately maintained. It did not seem to me that this argument was as fully developed as it could have been. Break Fast paid it little attention. In the end I was not satisfied I was given enough assistance to be able to address it and I have chosen not to do so.

Conclusion

I conclude my findings above as follows:

Breach of fiduciary duty claim

(a) Break Fast failed on its claim that Rigby Cooke breached a fiduciary duty;

(b) alternatively, if Rigby Cooke did breach its fiduciary duty by acting in a conflict of duties, Break Fast may or may not have given fully informed consent to it doing so depending upon which of the two hypotheses for the conflict identified at paragraphs 228 and 229 is adopted;

(c) further, if Rigby Cooke did breach its fiduciary duty, its breach did not cause Break Fast to suffer the loss for which it claimed equitable compensation;

(d) if Break Fast was entitled to equitable compensation for a breach of fiduciary duty, I would award $1,637,439.36 less the discovery costs (to be taxed), plus the adverse costs liability (also to be taxed), plus interest on those amounts;

Knowing receipt claim

(e) Break Fast failed on its claim that Rigby Cooke knowingly received misapplied trust assets;

(f) alternatively, if Rigby Cooke knowingly received misapplied trust assets, Rigby Cooke caused Break Fast to suffer loss so that Break Fast would be entitled to equitable compensation for such loss;

(g) if Break Fast was entitled to equitable compensation for Rigby Cooke’s knowing receipt of misapplied trust assets, I would award $1,637,439.36 less the discovery costs (to be taxed), plus interest on that amount; and

Defences

(h) if Rigby Cooke was liable on either of the two bases alleged, I would have upheld its defence of unclean hands for both, but I would not have upheld its defences of laches, statutory limitation of action by analogy, contributory negligence or failure to mitigate loss, advocate’s immunity or estoppel nor would I have accepted Rigby Cooke’s counterclaim.

For the foregoing reasons there will be judgment for the defendant, Rigby Cooke, on the claim and its counterclaim will be dismissed.

[2021] VSC 398

2 July 2021; revised 13 July 2021