Diamond Hill Mining Pty Ltd v Huang Jim Mining Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT BENDIGO

COMMERCIAL AND EQUITY DIVISION

COMMERCIAL COURT

LIST C

No. 5656 of 2010

DIAMOND HILL MINING PTY LTD (ACN 072 849 220)

Plaintiff

HUANG JIN MINING PTY LTD (ACN 005 367 457)

DOUGLASS WAKELY CAHILL

WESLEY BERNARD CAHILL

PETER ROBERT LONG

TULLY LONG

Firstnamed Defendant

Secondnamed Defendant

Thirdnamed Defendant

Fourthnamed Defendant

Fifthnamed Defendant

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JUDGE:	CROFT J
WHERE HELD:	Bendigo
DATE OF HEARING:	11-14 April 2011
DATE OF JUDGMENT:	24 June 2011
CASE MAY BE CITED AS:	Diamond Hill Mining Pty Ltd v Huang Jin Mining Pty Ltd & Ors
MEDIUM NEUTRAL CITATION:	[2011] VSC 288

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DIRECTORS – Duties – Breach of Duties – Statutory duties under the Corporations Act 2001 ss 180, 181, 182 – Duties at general law – Parker v Tucker (2010) 77 ACSR 525.

FIDUCIARY – Directors – Breach of trust – Knowing receipt of trust property – First limb of Barnes v Addy (1874) 9 Ch App 244 – Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 189 – Receipt of trust property as volunteers – Heperu Pty Ltd v Belle (2009) 76 NSWLR 230

MISLEADING OR DECEPTIVE CONDUCT – Statements made by director at board meeting were misleading – Director was acting as agent of other defendants – Trade Practices Act 1974 (Cth) s 52; Fair Trading Act 1999 (Vic) s 9.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr R. Peters	Cornwall Stodart
For the Defendants	Mr N. Dragojlovic	Cahills Solicitors

TABLE OF CONTENTS

Introduction......................................................................................................................................... 2

Mining licences................................................................................................................................... 2

Parcels of land..................................................................................................................................... 4

Corporate structure, shareholdings and directorships................................................................ 5

Plaintiff’s position.............................................................................................................................. 8

Defendants’ position....................................................................................................................... 10

Factual matters.................................................................................................................................. 11

Application of legal and equitable principles............................................................................ 44

Summary and conclusions............................................................................................................. 60

HIS HONOUR:

Introduction

The plaintiff, Diamond Hill Mining Pty Ltd (“Diamond Hill”), is a company which is engaged in gold mining and gold prospecting. The corporate structure of which Diamond Hill is a part has changed in recent years, as is explained in detail below. This has not, however, affected the present proceedings and the claims made against Mr Douglass Cahill (“Mr Douglass Cahill”) as a defendant. Mr Douglass Cahill was formerly a director of Diamond Hill.

The present proceeding arises out of the transfer of a mining licence (“MIN 5471”) to Huang Jin Mining Pty Ltd (“Huang Jin”), the first defendant, and the transfer of two parcels of land to the then shareholders of Huang Jin; namely, Mr Douglass Cahill, Mr Wesley Bernard Cahill, Mr Peter Robert Long and Mr Tully Long (the second, third, fourth and fifth defendants, respectively) (also referred to as “the transferees”).

Mining licences

MIN 5471 is a mining licence granted under s 25 of the Mineral Resources (Sustainable Development) Act 1990, which permitted both surface and sub-surface mining on the land the subject of the licence.

MIN 5471 was a licence granted to Diamond Hill for a term of five years from the date of registration of the licence, which was 11 April 2007. The land the subject of MIN 5471 had been the subject of a previous licence of the same type, MIN 5369. Both these licences are referred to at times as “the Wedderburn tenement” or “the Wedderburn licences”, in various documents and by individuals involved in or associated with these proceedings.

Diamond Hill became the registered licensee of mining licence MIN 5369 on 20 November 2003. That licence expired on 19 November 2005. As licences of this type are not able to be extended, by ad hoc agreement or the exercise of some right in the nature of an option to renew, it was necessary for a fresh licence application to be made. Consequently, a “Mining Licence Application” dated 14 November 2006 was submitted by Diamond Hill, together with various supporting documents. Importantly in the present context, these included:

(a)Copy of a bank statement of an account kept by Greater Bendigo Gold Mines Ltd at a Bendigo branch of the ANZ Bank. The statement is for the period 1 August to 1 September 2005 and shows a closing credit balance of $200,609.96. A letter dated 20 November 2006, addressed generally and signed by Mr Douglass Cahill as Managing Director of Greater Bendigo Gold Mines Ltd states (omitting formal parts):
“I hereby advise that Greater Bendigo Gold Mines Ltd has agreed to finance the licences in the name of Diamond Hill Mining Pty Ltd.
Greater Bendigo Gold Mines Ltd has also agreed to provide the personnel to assist in undertaking the work on these licences.”
In other words, Greater Bendigo Gold Mines Ltd, of which Diamond Hill was a wholly owned subsidiary (as stated in the letter dated 14 November 2006, with which the Application was submitted), was assuring the Department of Primary Industries, then the Department responsible for issuing mining licences, that it would “stand behind” Diamond Hill and provide relevant resources, financial and otherwise, to enable it to meet its licence obligations.
(b)Copy valuation of equipment – a company inventory – of Greater Bendigo Gold Mines Ltd, prepared by Curnow Dyett, Bendigo valuers. The date of this valuation is 17 October 2006 and it is noted specifically that instructions were given by “Greater Bendigo Gold Mines Ltd, Douglass Cahill, Managing Director”.
(c)A “Proposed Work Plan” which records, on the corner page, authorship in “John Cahill BSc Geology”, a date of 13 November 2006 and that it was prepared for Diamond Hill. The Work Plan begins with a general description of geological information, in the following terms:
“The area of the Mining Licence is located at Woolshed Flat, approximately 10Km north, north east of Wedderburn in Central Victoria. The Area covered by the application is known as the Allensvale Reef.
High grade gold was mined in this area from shallow depths in the 1800s from quartz associated with a west dipping fault zone. In the 1960’s a shaft was sunk to a depth of 25m and at 22m a west crosscut intersected a high-grade quartz vein returning 90g/t. Water eventually closed this operation.
With a deeper shaft 250m to the south (Cameron’s Shaft-30m deep) having working a larger quartz body, it would appear that a boudinage quartz structure exists along a north south fault line and that minimal below water table exportation has been undertaken. Gold grades recovered have been in excess of 2Oz to the tonne. This lease has been applied for to test the assumption that continuations to the ore body exist at depth.
Green Triangle Resources undertook an exploration programme in the late 1990s focussing predominantly on the alluvial potential of the area. Additionally, a grab sampling program was undertaken from the hard rock shaft collars and grades as high as 90 g/t were returned. This confirms the pedigree of the earlier mining history.”

Various location plans follow, together with general plan showing historic workings and proposed “RC Frill Collars & Costean Sites”, a Schematic Cross Section of the Allensvale Reef and a longitudinal section of this Reef. This material prefaced the written description of the “Work Plan” itself, which set out in some detail the exploration program to be carried out prior to the mining program. Finally, details of a rehabilitation plan and environmental monitoring plan were provided.
This Application was successful and the new licence granted as a result was MIN 5471. It is not necessary for present purposes to consider further the extent to which success was expected in the exploitation of this licence. Nevertheless, it is clear from the Application and supporting documentation that this would require the application of resources, plant and equipment and money, and it was apparently thought at the time that there were at least some real prospects of success.
Parcels of land

The land in question comprises two parcels, both situated in Woolshed Flat Road, Woolshed Flat, Victoria (a short distance north of Wedderburn; hence the reference to the Wedderburn tenement). The first parcel is the whole of the land comprised in Certificate of Title volume 5107, folio 397 (Block 397) and the second, the whole of the land in Certificate of Title volume 6443, folio 583 (Block 583) (“the land”). Diamond Hill became the registered proprietor of the land on 4 March 2002. The mining licences, MIN 5369 and MIN 5471, applied to an area of land which was not entirely contiguous with the land (Blocks 397 and 583). The evidence at trial was that the land the subject of mining licences of this type was not necessarily held in freehold title by the licensee. Indeed, with respect to Diamond Hill, this was said to be an unusual position.

Corporate structure, shareholdings and directorships

The corporate structure in which Diamond Hill found itself varied from the date of its incorporation, on 13 February 1996, as did its shareholding and directorships. Mr Douglass Cahill became a director of Diamond Hill on 13 February 1996 and resigned on 24 June 2008.

Huang Jin was incorporated nearly twenty years prior to Diamond Hill, on 8 August 1977. At all material times, Mr Douglass Cahill has been a director of this company. The third defendant, Mr Wesley Cahill, was appointed as a director on 9 August 2007 and remains a director. Mr Peter Long and Mr Tully Long were directors from 15 January 2008 to 13 October 2008. Of the one hundred issued shares in this company, the second, third, fourth and fifth defendants hold twenty-two shares each and the remaining twelve shares are held by Mr Terrence Frerk.

Another company that figures in the corporate picture is GBGM Wilson Hill Pty Ltd. This company was incorporated on 8 August 1989 as Lylehold Pty Ltd. Mr Douglass Cahill was appointed a director on 15 September 1989. On 4 June 1990, the company became a public company, known as Lylehold Limited, and the next day changed its name to Greater Bendigo Gold Mines Ltd.

On 27 February 2003, Pure New Zealand Limited, a New Zealand publicly listed company, entered into Heads of Agreement with Mr Douglass Cahill and others to acquire all their shares in Greater Bendigo Gold Mines Ltd. The recitals to this Heads of Agreement referred, among other things, to Greater Bendigo Gold Mines Ltd holding mining and exploration licences over mineral tenements prospective for gold in central Victoria. It was also recited that this company held agreements to acquire various unnamed private companies holding mineral tenements at Kamarooka, Diamond Hill and Maryborough in central Victoria, all of which were then prospective for gold. On 30 June 2003, the second, third, fourth and fifth defendants sold their shares in Diamond Hill to Greater Bendigo Gold Mines Ltd as a precondition of the sale of the shares in the latter company to Pure New Zealand Limited. The final share sale agreement, of which the Heads of Agreement was the precursor, was entered into on 30 June 2003. On 3 May 2004, Mr Douglass Cahill and the other shareholders in Greater Bendigo Gold Mines Ltd transferred their shares to Pure New Zealand Limited in accordance with the final share sale agreement. The result was that, as at 3 May 2004, the corporate structure was three-tiered – with Pure New Zealand Limited the parent company of Greater Bendigo Gold Mines Ltd and the latter the parent of Diamond Hill.

This did not remain the position. The corporate structure changed again as a result of Heads of Agreement dated 17 December 2004 between Mr Douglass Cahill and others in relation to the restructuring and “enhancement” of the operation of Pure New Zealand Limited and Greater Bendigo Gold Mines Ltd.

By an agreement dated 21 December 2005 between Pure New Zealand Limited and Far Pacific Resources Pty Ltd, it was agreed that the latter would purchase all the assets of the former. The consideration for the sale was the sum of $NZ500,000 and the transfer of not less than 48.2% of the shares in Far Pacific Resources Pty Ltd to Pure New Zealand Limited. Far Pacific Resources Pty Ltd, a proprietary company registered in Victoria which is part of the New Zealand based FAR Group of companies. This group is controlled by Mr Ian Wilson Smith’s family trust company. Following this agreement, Smith became a director of Diamond Hill, on 18 May 2006, and a new company, called Greater Bendigo Gold Mines Holdings Ltd, was incorporated on 30 May 2006. On the same day, Mr Douglass Cahill, Mr Smith, Mr Kevin Nichol and Mr Peter Bruce Marriott became directors of the new Greater Bendigo company. On 16 June 2006, the first Greater Bendigo Gold Mines Ltd became GBGM Wilson Hill Ltd and the new company changed its name to Greater Bendigo Gold Mines Ltd.

On 30 June 2006, the new company, Greater Bendigo Gold Mines Ltd, acquired all the shares in the company which was formerly of the same name, GBGM Wilson Hill Ltd, and shares in companies which were subsidiaries of GBGM Wilson Hill Ltd were transferred to Greater Bendigo Gold Mines Ltd. Consequently, companies such as Diamond Hill became a subsidiary of Greater Bendigo Gold Mines Ltd. Thus, the corporate structure moved from being a three-tiered to a two-tiered structure – with Greater Bendigo Gold Mines Ltd being the parent of both GBGM Wilson Hill Ltd and Diamond Hill.

This corporate structure has remained the same at all relevant times since it was established, but there have been some changes involving particular individuals. Thus, on 6 September 2006, Mr David Buchan became the company secretary of Greater Bendigo Gold Mines Ltd, GBGM Wilson Hill Ltd and Diamond Hill. On 19 June 2007, Mr John Cahill replaced Mr Douglass Cahill as managing director of Greater Bendigo Gold Mines Ltd and Mr Douglass Cahill became “Executive Director – Special Projects”. Mr Kevin Nichol resigned as a director of Greater Bendigo Gold Mines Ltd on 30 June 2007 and on 9 August of that year, the third defendant (Mr Wesley Cahill) became a director of Huang Jin, followed a little over six months later by the fourth defendant (Mr Peter Long) and the fifth defendant (Mr Tully Long), who, on 15 January 2008, also became directors of that company.

In mid-2008, there were further changes. Mr John Cahill became a director of Diamond Hill and Mr Douglass Cahill ceased to be a director, both events occurring on 24 June 2008. As a result of a general meeting of Greater Bendigo Gold Mines Ltd, Mr Douglass Cahill was removed as a director of the subsidiaries of that company. Mr Douglass Cahill ceased to be an employee on 31 July 2008 and, on 26 May 2009, resigned as Executive Director – hence as a director – of that company.

Victorian Gold Mines NL was incorporated on 3 September 2009. Mr Kevin Nichol, Mr Peter Avery and Mr Douglass Cahill became directors of the company on incorporation. Other directors were appointed subsequently. According to an ASIC search of this company, Mr Douglass Cahill ceased to be a director on 1 April 2010.

Victorian Gold Mines NL agreed, on 21 October 2009, to acquire mining licence MIN 5471 from Huang Jin for valuable consideration. Subsequently, it issued two prospectuses. The first, issued on 23 October 2009, was replaced by a second one, issued on 3 November 2009, which listed this mining licence MIN 5471 as an asset of Victorian Gold Mines NL. This company was listed on the Australian Stock Exchange on 15 December 2009.

Plaintiff’s position

The claims of Diamond Hill concern mining licence MIN 5471 and the land, and are made against Mr Douglass Cahill, Huang Jin (the first defendant) as transferee of this mining licence, and the third, fourth and fifth defendants (Mr Wesley Cahill, Mr Peter Long and Mr Tully Long, respectively) as transferees of the land.

The claims against Mr Douglass Cahill were founded on fiduciary duties which Diamond Hill submitted were owed to it by Mr Douglass Cahill in his capacity as one of its directors, a capacity which he enjoyed between 13 February 1996 and 24 June 2008. These duties were claimed to be:[1]
[1]Amended Statement of Claim (11 April 2011), paragraph 10.

“(a)not to obtain benefit from his position for himself or someone else; and
(b)not to be in a position whereby his duty to Diamond Hill conflicted with his own interests or those of his relatives or mining associates (‘fiduciary duties’)”.

Further, it was claimed that Mr Douglass Cahill was, while a director of Diamond Hill, obliged by:[2]
“(a)s 180 of the Corporations Act 2001 (Cth) (‘the Act’) to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would exercise if he or she were managing director or a director of Diamond Hill (‘the s 180 duty’);
(b)s 181 of the Act to exercise his powers and discharge his duties in good faith in the best interests of Diamond Hill (‘the s 181 duty’); and
(c)s 182 of the Act not to improperly use his position to gain an advantage for himself or someone else (‘the s 182 duty’)”.

[2]Amended Statement of Claim (11 April 2011), paragraph 11.

Diamond Hill claimed, with respect to the transfer of mining licence MIN 5471 to Huang Jin, that Mr Douglass Cahill was in breach of his fiduciary duties and also his statutory obligations under ss 180, 181 and 182 of the Act. In the alternative, it was claimed that Mr Douglass Cahill had engaged in misleading conduct contrary to s 9 of the Fair Trading Act 1999.

Diamond Hill claimed, with respect to the transfers of the land to the transferees, that Mr Douglass Cahill was in breach of his fiduciary duties and also his statutory obligations under ss 180, 181 and 182 of the Act. In the alternative, it was claimed that Mr Douglass Cahill had engaged in misleading conduct contrary to s 9 of the Fair Trading Act 1999.

Diamond Hill also made a claim against Huang Jin on the basis that in all the circumstances in which it became registered as the licensee of mining licence MIN 5471 (particularly in the circumstance that it gave no consideration to Diamond Hill for that transfer) it held that mining licence as constructive trustee for Diamond Hill. Further, it was submitted that Huang Jin is liable to Diamond Hill to account for the profits it has made, and continues to make, as a result of the subsequent sale of mining licence MIN 5471 to Victorian Gold Mines NL. In the alternative, it was claimed that Huang Jin had engaged in misleading conduct contrary to section 52 of the Trade Practices Act 1974 (Cth).

Diamond Hill also claimed that the transferees were constructive trustees of the land as a result of its transfer to them in circumstances where Mr Douglass Cahill, as a director of Diamond Hill, was in breach of his fiduciary duties. On this basis, Diamond Hill claimed a caveatable interest in the land which it sought to protect with the lodgement of a caveat on 30 August 2010 (entered in the Register Book as No. AH 462192B) (“the caveat”). Diamond Hill seeks both a declaration that it has a caveatable interest in the land and that the caveat is valid together with an order that the transferees transfer the land to Diamond Hill. In the alternative, on the same factual basis, Diamond Hill claims that the transferees engaged in misleading conduct contrary to s 9 of the Fair Trading Act 1999 and that this misleading conduct caused Diamond Hill loss and damage. On this alternative basis, Diamond Hill claims that the transferees are liable under the Fair Trading Act to transfer the land to it or, alternatively, pay damages in a sum equivalent to the value of the land as at January 2008, being when the transferees became the registered proprietors of the land.

It was agreed between the parties prior to the trial of this matter that, what might be termed, liability and quantum issues should be heard separately. I accepted this position on the basis of their agreement and because it would avoid the parties being compelled to incur costs in relation to proofs and argument in relation to quantum issues in the event that it was not necessary that they be pursued.

Defendants’ position

The position of the defendants was, critically with respect to all of the claims of Diamond Hill, that Mr Douglass Cahill obtained the fully informed consent of the Board of Diamond Hill to the transfer of mining licence MIN 5471 to Huang Jin and also to the transfer of the land to the transferees. In relation to the issue of informed consent, the defendants relied upon the decision of the House of Lords in Boardman v Phipps.[3]
[3][1967] 2 AC 46; and see below, paragraph 103.

The defendants accepted that they bore the burden of demonstrating that the transfer of mining licence MIN 5471 and the land was undertaken with the informed consent of Diamond Hill. It was submitted that what is required for fully informed consent is a question of fact in all the circumstances of each case and that there is no precise formula which will determine, in all cases, if fully informed consent has been given.[4] At this point, it is convenient to note that the plaintiff, on the other hand, claims that even if Diamond Hill, through its Board, had given consent to these transfers, it was not on an informed basis and, in particular, that there could be no informed consent to the transfer of the land as the Board, other than Mr Douglass Cahill, was not aware that Diamond Hill owned the land.
[4]Relying, for this proposition, on Maguire v Smakaronis (1997) 188 CLR 449.

Factual matters

The grant of mining licence MIN 5471 to Diamond Hill on 11 April 2007 was the result of an application for a fresh licence at the expiration of mining licence MIN 5369; for the same licensed area as that which was the subject of the licence then previously held by Diamond Hill. As has been noted previously, the application for mining licence MIN 5471 was made under cover of a letter dated 14 November 2006 on the letterhead of Elletson Mining Consultants Pty Ltd signed by Peter F. Elletson, expressly as “Authorised Agent, Diamond Hill Mining Pty Ltd”. A written authority signed by Mr Douglass Cahill and dated 7 November 2006 authorising Mr Peter Elletson to act on behalf of Diamond Hill in any dealings with the Department of Primary Industries was also in evidence. Consequently, on the basis of these documents, there is no indication that the mining licence MIN 5471 was owned other than legally and beneficially by Diamond Hill.

The documentary evidence to which reference has already been made and the other evidence given at trial in relation to the financial support or backing, and the provision of tangible support in terms of equipment, by Greater Bendigo Gold Mines Ltd is also indicative and supportive of this position. Additionally, the evidence was that Mr Peter Elletson, who was apparently acting on behalf of Diamond Hill, was paid for his professional services in this capacity by the company, Diamond Hill.

Further, there was evidence that the Department of Primary Industries had, in late 2006, formed an adverse view of Mr Douglass Cahill in terms of compliance with the Mineral Resources (Sustainable Development) Act 1990 and also with the conditions of mining licences. This appears from the contents of a letter dated 3 November 2006 from Dr Richard Aldous, Executive Director, Minerals and Petroleum of the Department of Primary Industries to Mr Douglass Cahill as a director of GBGM Fiddlers Creek Pty Ltd with respect to the application for transfer of mining licences MIN 4023 and MIN 4548 to GBGM Fiddlers Creek Pty Ltd. Concern was expressed in that letter with respect to the requirements of sub-s 33(3) of that Act, which required the applicant transferee to satisfy the Minister that the applicant is a fit and proper person to hold the licence; intends to comply with the Act; has an appropriate program of work; and is likely to be able to finance the proposed work and rehabilitation of the land. The letter continued:

“There are a number of matters that have concerned me and as a consequence, I am presently not satisfied of some of the matters in section 33(3). Those concerns are expressed below and I am now giving you the opportunity to respond to those concerns and provide whatever additional information you have to assist me in making my final decision.
1.There have been lengthy delays in paying rent beyond the statutory requirements of the MRSDA on a number of licences held by companies of which you are a director and/or hold shares directly or indirectly through the parent company Greater Bendigo Gold Mine Ltd ACN 119 956 624 (for example GBGM Wilson Hill Ltd MIN 4273, Diamond Hill Mining Pty Ltd MIN 4622) and yourself personally (MIN 4872). Given you have control and management of these licences, this past performance does not presently satisfy me that the applicant intends to comply with the MRSDA in future.
2.Companies of which you are a director and/or own shares, have not complied in a substantial way with the expenditure requirements of the licences referred to in the attached graphs. I am therefore not presently satisfied there is a genuine intention to do the work required of the licences. However, I need not be so satisfied if I am satisfied that minerals have been identified in the land covered by the licence and that additional time is necessary to assess the economic viability of mining those minerals or it is not at present economically viable to mine those minerals but it may become so in the future.
3.I am presently not satisfied of the applicant’s ability to finance the works and rehabilitate the land. You have provided details of money held in the bank account of the parent company without any guarantee from the parent company that it will meet the obligations of the applicant transferee under the proposed licences. Please provide details of how the applicant is likely to be able to finance the proposed work and rehabilitation of the land and substantiate these details.”

Mr Smith, as Executive Chairman of Greater Bendigo Gold Mines Ltd, replied to Dr Aldous, by letter dated 8 November 2006. As indicated in Mr Smith’s evidence, and is implicit, if not actually stated, in that letter, Mr Smith sought to reassure Dr Aldous and the Department of Primary Industries that Greater Bendigo Gold Mines Ltd and the Greater Bendigo Gold Mines Group had then taken control of Diamond Hill and other subsidiaries and the concerns that had been expressed in the 3 November 2006 letter were no longer relevant as Mr Douglass Cahill was no longer in control. Further, Mr Smith sought to emphasise this point in his letter with the following assurance:

“To ensure we deal with DPI matters in a professional and consistent manner GBGM has contracted an out of house tenement manager in Mr Peter Elletson, and he and David Buchan (our full time in house company secretary) are now in charge of managing all routine matters with DPI. They are instructed through a tenement management committee comprising the Managing Director, the Head of Geology, the Tenement Manager and the Company Secretary. I am available for involvement at any time, and especially in respect of important matters such as the matters the subject of this letter.”

As Mr Ian Smith said in this letter that he had not yet met Dr Aldous, it seems that the letter preceded a meeting at the offices of the Department of Primary Industries in Melbourne. According to Mr Marriott, he attended this meeting, which took place in the latter part of 2006, with Dr Aldous, together with Mr Ian Smith, Mr John Cahill and Mr Douglass Cahill. Dr Aldous said, according to his uncontradicted evidence of Mr Marriott,[5] that the Department would not support an “extension” of any of the current licences or applications for new licences by the Greater Bendigo Gold Mines Ltd group if Mr Douglass Cahill had any significant management role in the new company.

[5]Mr Douglass Cahill gave evidence during cross examination that Dr Aldous said words to that effect (Transcript 238.23-.25)

Mr Smith’s evidence was that upon taking up a 20% interest in Pure New Zealand Ltd, he set out to review and assess its assets, including those of GBGM Wilson Hill Pty Ltd, which held various exploration and mining tenements, together with plant and machinery, all of which were owned directly or through various subsidiary companies, including Diamond Hill.

In mid-2005, Mr Smith visited Bendigo to inspect the assets of GBGM Wilson Hill Pty Ltd and, in the course of so doing, met Mr Douglass Cahill for the first time. As Mr Smith said, and as is common ground, the records of GBGM Wilson Hill Pty Ltd were held at Mr Douglass Cahill’s law firm, Cahills, and under his control. Mr Smith returned to Bendigo in the latter part of 2005 on a number of occasions and was accompanied by a New Zealand lawyer resident in Australia, Mr John (Jock) Faneslow, now deceased. Mr Faneslow was appointed company secretary of GBGM Wilson Hill Pty Ltd on 22 June 2005.

Although denied by Mr Douglass Cahill, Mr Smith’s evidence was that he observed that the records of this company were both incomplete and in a very disorganised state. He said that there was no semblance of a filing system and accounts and corporate tenement records were “all over the place”. He said that Mr Faneslow commenced working through the records to try and put them into some kind of order, but that as a result of Mr Faneslow’s health, the size of the task and the disorganised state of the record keeping, he made little progress. Mr Smith also said that he met with Mr Douglass Cahill at the offices of the company’s accountants, Richmond Sinnott Delahunty, in Bendigo on more than one occasion to discuss the preparation of financial statements for GBGM Wilson Hill Pty Ltd. Mr Smith said that the purpose of these meetings was to “sort out and finalise” the accounts of the company, which were in “a very poor state”. He said that he needed the financial statements of GBGM Wilson Hill Pty Ltd to be completed so that Pure New Zealand Limited could finalise and file its annual accounts for 2005.

During 2005, Mr Smith set out to restructure Pure New Zealand Limited. In the course of this process, he formed the view that GBGM Wilson Hill Pty Ltd would be an attractive investment and so, in December 2005, a company controlled by his family trust purchased from Pure New Zealand Limited a controlling interest in GBGM Wilson Hill Pty Ltd through the company, Far Pacific Resources Pty Ltd.

Consequently, in late 2005 and in the first part of 2006, Mr Smith set about “growing” GBGM Wilson Hill Pty Ltd in preparation for a public float. This process involved purchasing two large projects, including one at Inglewood, which “grew” the company sufficiently to warrant a public float. During the preparation for this public float, Mr Smith said that he had meetings with Mr Douglass Cahill, Mr John Cahill (Douglass Cahill’s cousin), Mr James Douglass (another of Cahill’s relatives), New Zealand lawyers, Mr Peter Marriott and Mr Lisle McErlane, and the external accountants of GBGM Wilson Hill Pty Ltd, Ms Susie Winspear and, occasionally, Mr Philip Delahunty. Mr Smith said that in the course of those meetings, operational and accounting issues were discussed and, later, matters in relation to the proposed float. Mr Smith said that he did not discuss with Mr Douglass Cahill or anyone else the acquisition of Diamond Hill or mining assets from Diamond Hill, as there was no reason to do so. He said that by the time he had acquired an interest in Pure New Zealand Ltd, in early 2005, that company already owned GBGM Wilson Hill Pty Ltd and its wholly owned subsidiaries, which included Diamond Hill. Consequently, the mining tenements owned by Diamond Hill and GBGM Wilson Hill Pty Ltd were “effectively” owned by Pure New Zealand Limited.

May 2006 – First discussions about Wedderburn tenement

The evidence of Mr Smith and was that in the second half of 2005 or the first half of 2006 he was in the boardroom of Mr Douglass Cahill’s offices where a workroom had been set up to sift through the records of GBGM Wilson Hill Pty Ltd. Mr Smith said that at some point in the day Mr Marriott had informed him that a mining tenement that was not in their list of tenements had been found and that Mr Douglass Cahill had said that it was his tenement. Mr Smith said that he then asked Mr Peter Marriott to get Mr Douglass Cahill and come back into the room. Mr Smith’s evidence was that he asked Mr Douglass Cahill about the tenement and that the response was “along the line that it was his tenement, that it had got tied up in the Pure acquisition process, an error, and that it wasn’t supposed to be there.”[6] Mr Smith continued:[7]

“I'd asked if it was a large or a small tenement. I'm not sure … whether Peter or Doug answered that question, but one or other said that was a small tenement. I asked Doug whether he knew of any particular value or gold on the tenement and he, Doug, replied no. I asked if there was any particular prospectivity and he, Doug, replied no, and I asked if there was any known development and he, Doug, replied no.
…
I then said that we would leave that tenement off our list of tenements and would proceed ahead without it.”

[6]Transcript, 102.8-.10.

[7]Transcript 103.6-.17.

Mr Smith’s evidence was that Mr Douglass Cahill did not mention to him that the land on which the tenement was held was registered in the name of Diamond Hill. His evidence was that this was not mentioned either at the meetings at which the Wedderburn tenement was initially discussed or at any time subsequently.

Mr Peter Marriott’s evidence is that these events at Mr Douglass Cahill’s offices took place during his first trip to Bendigo in May 2006, before the float of Greater Bendigo Gold Mines Ltd. Mr Douglass Cahill did not contradict this timeline.[8] Mr Marriott gave evidence that he met with Mr Ian Smith, Mr Lisle McErlane, Douglass Cahill and John Cahill at Cahills Solicitors offices to go through the records of GBGM Wilson Hill Pty Ltd. Mr Marriott’s evidence was that the records were filed in piles, some in folders, in no particular order. Consistent with Mr Ian Smith’s evidence, Mr Marriott said in evidence that he found the Wedderburn tenement amongst the papers and that he asked Mr Douglass Cahill about the tenement. Mr Douglass Cahill’s response, according to Mr Marriott, was that the Wedderburn tenement was “not to be included in the tenements to be transferred to GBGM”.[9] Mr Marriott’s evidence is that he subsequently told Mr Ian Smith about the tenement and that his response was that he would need to take it up with Mr Douglass Cahill.
[8]Transcript 234.19-.23.
[9]Transcript 154.9-.10.

Board meeting of Greater Bendigo Gold Mines Ltd – 26 June 2007

Mr Smith said that as part of the float preparation process for GBGM Wilson Hill Pty Ltd in mid-2006, he carried out a “corporate rollover”, which involved taking a shelf company, which became Greater Bendigo Gold Mines Ltd, and “rolling it over the top” of the existing corporate structure. As indicated previously, he said that on 30 June 2006, this new company known as Greater Bendigo Gold Mines Ltd acquired all of the shares in the company which had been GBGM Wilson Hill Pty Ltd and thus became the ultimate holding company of Diamond Hill, GBGM Fiddlers Creek Pty Ltd, GBGM Inglewood Pty Ltd, then Maryborough Gold Pty Ltd (now Industrial Sands and Gravels Pty Ltd), Kralcopic Pty Ltd and GBGM Operations Ltd. The Greater Bendigo Gold Mines Ltd prospectus was published on 24 November 2006 and did not include the Wedderburn tenement as an asset of that company. Mr Smith added that at this stage, unbeknown to him, that mining licence, the Wedderburn tenement that had been discussed, had expired in any event.

Reference has already been made to the process of applying for a new mining licence, MIN 5471, in place of mining licence, MIN 5369, which had been described as the Wedderburn tenement or Wedderburn licence. Accordingly, the critical event which followed the discussions between Messrs Marriott, Smith and Douglass Cahill in the latter’s firm boardroom in relation to the Wedderburn tenement was the board meeting of Greater Bendigo Gold Mines Ltd held on 26 June 2007. This board meeting was held at the company’s then premises at 129 Queen Street, Bendigo, and was attended by Messrs Smith, Marriott, Hoare, Douglass Cahill, John Cahill and Buchan, the latter as company secretary. The meeting was also attended by Mr Kevin Nichol, who attended by telephone. Mr Smith’s evidence was:[10]
[10]Transcript 103.30-105.17

“Doug came in the door somewhat agitated and said, "I want my tenement signed over to me right now."
…
I was surprised and unprepared and said words to Doug to the effect of is this, "The tenement we discussed some years ago?" to which Doug replied, "Yes. This is the Wedderburn tenement that got tied up in the float process and I want it returned to me now." I was aware the rest of the board had no knowledge
…
I said to Doug was this the tenement we discussed several years ago, and he replied yes it was, it had been tied up in the float process. I then said for the board's information that I had discussed previously with Doug that this was a small tenement and I asked Doug this is the one which doesn't have any known gold or value, to which Doug responded, "That's correct." "Which doesn't have any particular prospectivity and which doesn't have any known development?" To which Doug replied to the board, "Yes, that was correct." I then advised the board that I had already made a call previously
…   I stated to the board that I'd already considered the matter several years before and had left it out of the company's records, and therefore if the tenement was still there this would be returned to Doug.
…
There was a general concurrence
…
The matter proceeded, so from that I'm really trying to say that people accepted that we should simply proceed as I had recommended. Now if you're after the exact words I couldn't - I couldn't actually give you the exact words, and what I then said was that having - that David should do what he needs to do to transfer it. I asked David to write a paper and that Doug as should have happened should prepare a paper for the board as to what this was all about and why it actually had occurred. I repeat there had been no warning of - of the matter arising.”

Mr Smith’s evidence was that he did not become aware of the land until preparing for the present litigation.

Mr Marriott’s evidence of the 26 June 2007 board meeting was:

“[The Wedderburn tenement] was raised again the following year, I think it was in June, at the board meeting in June 2007, when Doug said, advised the board, that the
…
The board meeting would have been, well, it would be referred to in the minutes as to who was there, but I was there, and Ian Smith was there and Doug was there. John was there, John Cahill, I'm not sure whether any other directors were present. David Buchan would have been there as the company secretary. If there was another board member present at that time, I'm not sure.
…
Doug said the Wedderburn tenement was put into the company's tenement schedule by mistake, and that he wanted it transferred back. Those were his words.
…
Well, Doug said that he was under some pressure from his partners in the Wedderburn tenement that he was talking about who
…   Doug said, "I'm under pressure from the Longs, from my partners the Longs, to have this tenement restored, and it has no value anyway, just transfer it back to me.

… Well, I said in response to this that, "It's not that simple, Doug, you can't transfer it. If this is a company asset, you're a director of the company, this is a related party transaction, we simply can't sign a piece of paper returning it to you. We have to understand if a mistake has occurred how that mistake arose", there needs to be a report, there needs to be a documentary paper trail explaining how this happened and what action the directors will take to rectify it". response - that was what I said to the meeting - in response to that Mr Smith on behalf of the meeting requested that Doug prepare a report with some information about the tenement, and - and how it came to be in the company's hands, and why it should be transferred back.
… There wasn't any further discussion at the meeting but after the meeting I did - Ian Smith asked me in my, sort of, capacity as - as said to be providing some legal advice for the board from time to time, what was the situation, and I said that if there was - if there had been a genuine mistake, if this was the same tenement and there had been - well, say that if there'd been a genuine mistake, then I was of the view that the company would suffer no loss by transferring the tenement to Mr Cahill, back to Mr Cahill because - and therefore it would not fall into a related party scenario, but we didn't have the report at that time, we're still awaiting that.”

In cross-examination Mr Marriott gave evidence that the board had not reached a concluded view on the transfer of the tenement to Mr Douglass Cahill in the absence of a proper paper trail. In Mr Mariott’s view the paper trail was not a mere formality. Like Mr Smith, Mr Marriott said that Mr Douglass Cahill did not mention any land at this board meeting. Mr Marriott did not indicate that the land had been mentioned on any previous occasion.

Mr Smith said that at the time of the Board meeting on 26 June 2007, he did not know that the Wedderburn tenement, mining licence, MIN 5369, had expired and that mining licence, MIN 5471, had been applied for by Diamond Hill, with the financial support of Greater Bendigo Gold Mines Ltd. Neither, he said, did he know that this was a different mining tenement, mining licence, to that which Mr Douglass Cahill alluded to as the Wedderburn tenement in either 2005 or early 2006; which was in fact, mining licence, MIN 5369. Mr Smith said that Mr Douglass Cahill did not mention that Diamond Hill had applied for and been granted the new tenement, MIN 5471. He did not think more of the transfer of the tenement at the time and assumed that Mr Douglass Cahill had attended to the transfer of the tenement “back to himself”.

Mr Marriott, on the other hand, referred in his evidence to a subsequent Board meeting on 24 July 2007 when further discussions between Mr Douglass Cahill and the Board took place. Mr Marriott said that Mr Douglass Cahill again said that Diamond Hill had “ended up” with the Wedderburn mining licence by omission or accident, and that he again asked for approval of the transfer. Mr Marriott said that he recalled that nothing further was presented to the Board and says that he regarded the matter as still unresolved. Mr Marriott said that he recalled that Mr Douglass Cahill became agitated, but took nothing from that, as he said this was his common state. Mr Marriott said that at the time of the July 2007 Board meeting, he believed that Mr Douglass Cahill and Mr Huey Long were the proper owners of the Wedderburn tenement, but only because of what Mr Douglass Cahill had earlier explained to him and Mr Smith in 2006. There was no suggestion that this belief was based on any other matters or investigation by Mr Marriott or Mr Smith or anyone else. Mr Marriott also said that at this time he had no idea that the “old licence had expired and that a new licence had been obtained in the name of Diamond Hill”.[11] He continued:[12]

“I agreed with the general discussion at the Board meetings that if the tenement had become included in GBGM’s assets by mistake, then that error should be corrected and the tenement restored to its true owner. On that basis, I was in general agreement that the transfer be approved. I do not recall the Board making a formal resolution that the licence be transferred to Doug and his associates. However, the decision was made that the transfer should occur and it was left in Doug’s hands to arrange.”

[11]Witness statement, Peter Bruce Marriott (12 April 2011), paragraph 20.

[12]Witness statement, Peter Bruce Marriott (12 April 2011), paragraph 20.

In early 2008, it appears that Mr Smith had become concerned that Mr Douglass Cahill had misled the Board. Mr Marriott said that he and Mr Smith met a café near to the Greater Bendigo Gold Mines Ltd office in early 2008 and that Mr Smith said, or used words to the effect of, “I think Doug may have misled the Board in relation to the Wedderburn tenement, because the licence in which Doug had claimed an interest had expired and the licence that he arranged a transfer of was a new licence issued to a GBGM subsidiary”. Mr Marriott said that he responded to Mr Smith to the effect that, if that were the case, then the licence was company property which Mr Douglass Cahill must return immediately. The process by which Mr Smith reached this position is set out in his witness statement. It is convenient to refer to this material, which was neither departed from in his examination-in-chief, nor challenged in cross-examination:[13]

“45. In or around March or April 2008, I became aware that the Wedderburn tenement that Doug had referred to in the June 2007 directors’ meeting did not belong to him and was not the MIN 5369 to which he referred in 2005/early 2006. I cannot now recall the context in which this matter was revealed to me, but I think it started with general discontent expressed from our management that the Board had given away a licence to Doug which they had put significant effort in to having granted to GBGM and which they thought had potentially significant prospects. Also Bendigo is a small town and information about the gold mining industry filters throughout it very quickly. I recall hearing that Terry Freryk, who once worked within GBGM’s Inglewood operation, was employed by Doug to excavate a mine shaft at Wedderburn. I was curious upon hearing of the excavation works and so went out to have a look at the mine. I saw a mine with substantial development very quickly, apparently being a previous shaft dug back out. I was very surprised given what Doug had told me earlier. It was obvious to me that Doug, contrary to his assertions in 2005/early 2006, had knowledge of previous development on the Wedderburn tenement, knew of a prospective reef on the tenement and felt it was sufficiently prospective to immediately re-establish access to that known reef. I discussed this with John Cahill and made enquiries with other people in the industry, and discovered that there had been a shaft which had been filled many years ago, but was reasonably easy to re-establish and that Doug and his partners had immediately set out to re-excavate the old shaft. I also learned that Peter Tully was a descendant of persons who had previously worked the mine and that he and Doug felt there were strong prospects of a big gold deposit there.
46. Upon making further enquiries, I discovered that the mining licence for the Wedderburn area that had been transferred to Doug was MIN 5471, the new tenement that Diamond Hill had applied for and been granted in its own right in 2007 – not MIN 5369 which Doug had referred to as the Wedderburn tenement in 2005 or early 2006 and thereafter. Doug had transferred MIN 5471 to the First Defendant (Huang Jin), a company in which the Cahills and the Longs are shareholders. Attachment 11 is a copy of a current and historical ASIC search of Huang Jin (CB 95-101).
47. I realised that Doug had mislead [sic] me and the Board both by saying in 2007 that the Wedderburn tenement belonged to him and in 2005 or early 2006 and 2007 that it had no value.”

[13]Witness statement, Ian Wilson Smith (11 April 2011), paragraphs 45 to 47.

Further board meetings of Greater Bendigo Gold Mines Ltd – 29 April 2008 and 27 May 2008

Mr Smith raised the matter with Mr Douglass Cahill at the Greater Bendigo Gold Mines Ltd’s Board meeting on 29 April 2008. A transcript of the relevant part of that meeting was prepared by Mr David Buchan, the company secretary, and attached to the minutes of that meeting. Mr Marriott’s evidence was that he took time to listen to the recording of the meeting, compared it with the transcript and confirmed that the transcript was an accurate record. Consistently with Mr Smith’s evidence and the transcript of the meeting, Mr Marriott said that from the outset, Mr Douglass Cahill appeared to be very agitated and angry, and said that the mining licence was intended for him, rather than Diamond Hill. Mr Smith said that he said to Mr Douglass Cahill that he had misled the Board by falsely claiming that the Wedderburn tenement transferred was his and that it was the same tenement discussed in 2005 or early 2006, that the tenement was of little value and that he knew of no development or prospectivity on the land the subject of that licence. Mr Smith said that he said to Mr Douglass Cahill that his actions were “a gross breach of his duties as a director, a breach of his duties as an employee and of his duties as a solicitor to the company”.[14] Mr Smith said that Mr Douglass Cahill responded by saying that he had done nothing wrong and that the Board had agreed to the transfer. Mr Marriott said that he had a discussion with Mr Douglass Cahill during a brief adjournment of the 28 April 2008 Board meeting and said, or used words to the effect of, “Directors cannot be seen to end up with property owned by the company”. He said that he added, “A compromise might be reached if you return the licence on the basis that the company would then enter into a joint venture with you and the Longs to effectively allow you to mine it, and if you agree to this I will try to persuade the Board”. Mr Marriott said that he certainly said that the “bottom line” was that the tenement passing out of the company’s ownership was wrong and that it had to be returned to the company. He said that Mr Douglass Cahill responded by saying that he would think about it. However, Mr Marriott said that when Mr Douglass Cahill rejoined the meeting, he said, or words to the effect, that “The Wedderburn licence is ours, there’s no reason we should transfer it back”.
[14]Witness statement, Ian Wilson Smith (11 April 2011), paragraph 48.

The matter was again raised at the Greater Bendigo Gold Mines Ltd Board meeting of 27 May 2008. Mr Marriott said that there was heated discussion between Mr Smith and Mr Douglass Cahill, and that Mr Smith said that the company had been led to believe that the tenement being transferred to Mr Douglass Cahill and others was the original licence held by those parties prior to the float, but it was now clear that that was wrong. Mr Marriott said that Mr Smith told Mr Douglass Cahill that he had deliberately deceived the Board. Mr Marriott said that Mr Douglass Cahill then became angry and that it appeared to him, for a while, that there might be a scuffle. He said that he tried to make peace by suggesting that there might be a solution provided that regard was had by Mr Douglass Cahill to his duty as a director. Mr Marriott sought to confirm the accuracy of his account of this meeting, adding that after the meeting, he listened to a recording of the meeting and prepared a transcript of the proceedings insofar as it was relevant to the discussion of the Wedderburn licence.

Shortly after the 27 May 2008 Board meeting, Mr Smith asked Mr Marriott, and also Mr Buchan, to investigate the history of the Wedderburn tenement and for Mr Buchan to prepare a report. In the course of preparing his report, Mr Buchan told Mr Marriott that there were transfers of the land relating to the Wedderburn tenement. Mr Buchan said that Mr Douglass Cahill had asked him to sign the transfers of each parcel which comprised the land to transfer it to the transferees, the third, fourth and fifthnamed defendants, and Mr Douglass Cahill, the second defendant. Mr Marriott said that this came as a surprise as at no stage prior to seeing the transfers of land was he aware that Diamond Hill had owned the land to which the mining licence, the Wedderburn tenement, MIN 5471, applied. Mr Douglass Cahill had not sought Board approval, nor had Board approval been given for the transfer of the land. Mr Marriott also said that he had not agreed to the transfer of any land to Mr Douglass Cahill or any other person and, further, that he would certainly not agree to the transfer of the land without proper consideration being provided before it. In conclusion, in his written evidence, Mr Marriott said:[15]

“The reason I approved the transfer of the Wedderburn licence was because Doug said it belonged to him and his partners. I also recall that he said that the tenement was worth very little, but to my mind that was of no relevance. If the tenement had been worth only ten cents, it should not have been transferred out of the company’s (consolidated) balance sheet because Doug and his partners had never had ownership of it. If I had known this at the time, I would not have agreed to any transfer even if payment had been offered. In my view any such transactions with directors ought to be approved by the shareholders. To do otherwise would have been a breach of my obligations as a director.”

Mr Smith’s concluding written evidence was in similar terms:[16]
“Had Doug told me in 2007 any of the correct facts, such as that Diamond Hill owned MIN5471 in its own right, that Diamond Hill had obtained MIN5471 by its own application supported by GBGM’s assets in late 2006 resulting in it being granted in April 2007 and that the tenement had value and that he was aware of a prospective reef within it, I would not have voted in favour of MIN5471 being transferred to Doug. It would be improper for a board of a public listed company to transfer a newly granted tenement to a Director for no consideration. The transfer only occurred as Doug represented in 2007 that the Wedderburn tenement was a former tenement (MIN 5369) that was left in Diamond Hill in error in 2004 during the sale of Wilson Hill to Pure NZ, but was agreed by Pure NZ in 2004 to be his.”

[15]Witness statement, Peter Bruce Marriott (12 April 2011), paragraph 30.

[16]Witness statement, Ian Wilson Smith (11 April 2011), paragraph 56.

Concluding this discussion of the evidence, principally from the plaintiff’s point of view in relation to the mining licences, particularly the current Wedderburn tenement or mining licence, MIN 5471, it is useful to set out part of the Replacement Prospectus for the proposed listing of Victoria Goldmines NL on the Australian Stock Exchange; a document which was published on 23 October 2009. Reference is made in the Prospectus to mining licence, MIN 5471, in the following terms:

“Wedderburn Agreement
By agreement dated 21 October 2009 the Company has agreed to acquire from Huang Jin Mining Pty Ltd, exploration licence 5188 (Vic) (EL 5188), a 90% beneficial and legal interest in exploration licence 5116 (Vic) (EL 5116) and mining licence 5471 (Vic (MIN 5471); and certain plant and equipment.
Huang Jin Mining Pty Ltd will retain a 10% beneficial and legal interest in EL 5116 and MIN 5471.
It is a condition precedent to completion that the Company’s securities are quoted on the official list of the ASX. Completion of the agreement will be effected upon quotation.
The consideration payable by the Company to Huang Jin Mining Pty Ltd for the transfer of plant, equipment and the tenements (including the interests in EL 5116 and MIN 5471) is:
·the issue and allotment of 700,000 ordinary fully paid shares in the Company at a value of 20 cents per share (Share Consideration); and
·$350,000 (plus GST) (Cash Consideration).

The Cash Consideration represents the current value of the plant and equipment being acquired together with a partial reimbursement of expenditure incurred by Huang Jin Mining Pty Ltd in developing the tenements. If for any reason, the ASX considers payment of the Cash Consideration does not represent a legitimate reimbursement of expenditure, the Company will issue Huang Jin Mining Pty Ltd 1,750,000 fully paid up Shares instead of paying the Cash Consideration.
The Share Consideration will be issued, and $100,000 of the Cash Consideration (less the deposit) will be paid to Huang Jin Mining Pty Ltd upon quotation of the Company’s Shares on the official list of the ASX.
The Company must, following quotation and at its own cost, undertake certain works to commission plant, equipment and land associated with the tenements to the point of trial mining (Trial Mining Works). The balance cash consideration of $250,000 (plus GST) is payable to Huang Jin Mining Pty Ltd upon completion of the Trial Mining Works.
Upon completion being effected, the Company and Hung Jin Mining Pty Ltd are deemed to have entered into an unincorporated joint venture agreement in the form annexed to the agreement (JV Agreement) to govern the ongoing development, management and operation of EL 5116 and MIN 5471 (JV Tenements).”

Moving now to the execution of the transfers of the mining licence, MIN 5471, and the land and Mr Buchan’s “revelation” to Mr Smith and Mr Marriott in this respect, I turn to consider Mr Buchan’s evidence as to how this came about, apparently without the knowledge or approval of the Board, certainly not of Mr Smith or Mr Marriott. Mr Buchan said that in or about July or August 2007, Mr Douglass Cahill came to his office and handed him an application to transfer mining licence MIN 5471 from Diamond Hill to Huang Jin. Mr Buchan said that Mr Douglass Cahill said to him, or used words to the effect of, “Sign this transfer, it’s the Wedderburn tenement that the Board agreed is mine”. Mr Buchan’s evidence was that nobody else was present. There was some evidence by Mr Douglass Cahill that Mr John Cahill was present, but Mr Buchan rejected this. Mr Buchan said that he inserted the date in the transfer of the mining licence and signed underneath Mr Douglass Cahill’s signature, as company secretary for Diamond Hill. Later, in 2007, Mr Buchan’s evidence being that it was late in 2007, he said that Mr Douglass Cahill came to his office again and asked him to sign two transfers for two parcels of the land. He said that Mr Douglass Cahill said to him, or words to the effect, “Sign these”. Mr Buchan said that he did not recall the land being discussed at the Board meeting, but assumed that as the Board had agreed to the transfer of the Wedderburn tenement, the mining licence, that the agreement also included the two blocks of land. Accordingly, he signed the two transfers. He said that Mr John Cahill was not present at this meeting in late 2007.

Mr Buchan’s evidence was that when he signed the transfers of land, he placed a bar code on them, as he did with every Greater Bendigo Gold Mines Ltd document that he signed in order to assist in the organisation and filing of the company’s documents. He said that he recognised Mr Douglass Cahill’s signature as a director for Diamond Hill, but did not recognise the signature of the person appearing as a witness. Further, Mr Buchan said that he inspected a copy of the transfer of Block 397 which he was informed had been lodged for registration at the Land Titles Office. He said that the transfer contains handwritten amendments which were not present on the transfer when he signed the original and that the transfer does not have a Greater Bendigo Gold Mines Ltd bar code on it. The handwritten amendments were the addition of the words “& V. 6443 F. 583” to the volume and folio reference – presumably a reference to Block 583; and the crossing out of “to rectify an error”, under the Consideration heading, and replacing it with “Entitled in Equity”. Mr Buchan’s evidence was that the handwriting of the amendments appeared to be that of Mr Douglass Cahill. Mr Buchan’s evidence was that he had not seen the amended transfer until being shown a copy by the solicitors acting for Diamond Hill.

Some controversy also arose in relation to a copy letter from Mr Douglass Cahill to Mr Buchan as company secretary of Greater Bendigo Gold Mines Ltd dated 25 June 2007. This copy letter was relied upon by Mr Douglass Cahill in support of the position put by the defendants that the transfer of the mining licence and the land was with the consent of Diamond Hill. As to this, Mr Buchan’s written evidence was as follows:[17]

“21. On about 25 May 2009, Doug resigned as director of GBGM. Some time after his departure, I was looking through an archive box containing files from Doug’s old office. I discovered a letter from Doug addressed to me as company secretary of GBGM Operations dated 25 June 2007. Attachment 12 is a copy of that letter with my handwritten note on it. The letter states that MIN5471 ‘is properly better to be worked independently of Greater Bendigo Gold Mines Ltd’. The letter also states that ‘Diamond Hill is approximately 45 hectares based largely on private land owned by the Company’.
22. I do not recall receiving Doug’s letter. It is dated the day before the directors meeting held 26 June 2007 at which the issue of the Wedderburn tenement was raised. If I had received the letter, I would have included it in the board papers which were circulated prior to the meeting. The practice for recording correspondence received by GBGM and its subsidiaries was to apply a unique (sequentially numbered) bar code to the original letter, save a scanned copy of the letter to a hard drive, and then file the original letter in a cabinet in my office in the order in which the correspondence was bar coded. The original letter I discovered in the archive box was not bar coded. I searched the company’s records and could find no record of the letter having been received.”

The note made on the letter by Mr Buchan said “Found in Doug Cahill’s filing on 21 May 2008. Original never received. Checked corporate filing. Checked tenement filing.” Mr Buchan was not challenged on this issue.

[17]Witness statement, David Christopher Buchan (18 March 2011), paragraphs 21 and 22.

The only evidence relied upon by the defendants was the witness statement of Mr Douglass Cahill,[18] his oral evidence and some documentary evidence at trial.
[18]Witness statement, Douglass Wakely Cahill (12 April 2011).

Mr Douglass Cahill gave evidence that he commenced discussions with Mr Smith, in approximately 2005, in relation to the possible acquisition by him or interests associated with him of certain mining assets in companies with which Mr Douglass Cahill had an association. Mr Douglass Cahill said that, in approximately late 2005 or early 2006, though he cannot now recall the precise date, he attended a meeting at the offices of Richmond Sinnott & Delahunty, accountants at which Mr Smith, Mr John Cahill, Mr James Douglass and Mr Philip Delahunty were present. During the course of that meeting, the current and future status of various corporate entities and mining assets were discussed. However, Mr Douglass Cahill said that he cannot now recall the precise nature of those discussions. It appears to be uncontroversial on the evidence that the corporate restructuring to which reference has been made followed on from that meeting, whether as a result of those discussions or not is not clear. In relation to the Wedderburn tenement Mr Douglass Cahill gave evidence that he said to Mr Smith that the Wedderburn tenement was not part of the deal and that Mr Smith replied with words to the effect of “Okay, fine”.

Mr Cahill’s evidence was that on 14 November 2006, Mr Peter Elletson lodged an application for a mining licence on behalf of Diamond Hill in relation to the same area previously covered by a mining licence, MIN 5369. This was, of course, the application which led to the grant of mining licence, MIN 5471. Mr Douglass Cahill said that he could not explain why this application was made in the name of Diamond Hill in light of an agreement which he alleged to have been made with the original Diamond Hill shareholders that as part of the transfer of shares and the restructuring process, Diamond Hill would retain ownership of mining licences, MIN 4622 and MIN 4872, but that the land, together with mining licence, MIN 5369, would be retained by Mr Douglass Cahill personally and would not be acquired by the new “parent” corporate entity. Mr Douglass Cahill said that he assumed that this was done “by reason of oversight or error, on the part of myself or someone else”.[19] However, Mr Douglass Cahill noted in his evidence that on 24 November 2006, Greater Bendigo Gold Mines Ltd lodged a prospectus with ASIC. He also noted that at that time, he was a substantial shareholder, as well as the managing director of that company and that Diamond Hill was a wholly owned subsidiary of that company. Mr Douglass Cahill said that the Greater Bendigo Gold Mines Ltd prospectus did not contain any reference to mining licence, MIN 5369 (or any related application) or to the land. In relation to the contents of the prospectus, he said:[20]

“All of the directors of GBGM, including Mr Smith, Mr Peter Marriott, Mr Kevin Nichol and Mr David Buchan (company secretary), were involved in the preparation and authorisation of the GBGM prospectus. At no time did any of these people raise any concern or query with me or (as far as I am aware) anyone else regarding the absence of MIN 5369 (or any related application), Block 583 or Block 397 [the land] in the GBGM prospectus.”

Continuing, Mr Douglass Cahill said:[21]
“During the period of late 2006 and early 2007, the management and oversight of the operations of GBGM was a considerable task, particularly in light of the capital raising being undertaken under the GBGM prospectus. I was an executive director of GBGM during this time. In light of these facts, I had not given particular attention to the fact that Diamond Hill had remained the registered owner of MIN 5471, Block 583 and Block 397 [the land]. Furthermore, in light of my position and the general affairs of GBGM and its subsidiaries, I did not consider it to be the most pressing issue at the time.”

[19]Witness statement, Douglass Wakely Cahill (12 April 2011), paragraph 7.

[20]Witness statement, Douglass Wakely Cahill (12 April 2011), paragraph 8.

[21]Witness statement, Douglass Wakely Cahill (12 April 2011), paragraph 10.

Mr Douglass Cahill gave evidence of a further conversation about the Wedderburn tenement at a board meeting. His evidence was that this meeting took place about mid-December, by which it appears he meant mid-December 2006. Mr Douglass Cahill said that he told Mr Smith in the presence of the board that he “wanted the Wedderburn tenement transferred back to our team”. Mr Douglass Cahill could not recall the board’s response.

In relation to the transfer of MIN 5471 Mr Douglass Cahill said that he attended the office of Mr Buchan in the presence of Mr John Cahill, on or about 30 July 2007, and presented a transfer of the mining licence, MIN 5471, to Huang Jin from Diamond Hill to Mr Buchan for execution. He said that Mr Buchan executed the transfer on behalf of Diamond Hill and affixed the company seal. Further, Mr Douglass Cahill said that neither Mr John Cahill or Mr Buchan asked any questions or raised issues in relation to the document. Mr Douglass Cahill said he subsequently completed the transfer of the mining licence, MIN 5471, on behalf of Huang Jin as transferee and instructed Mr Elletson to lodge the transfer with the Department of Primary Industries. Mr Douglass Cahill said that on or about 12 December 2007, he again attended the office of Mr Buchan, where Mr John Cahill was also present. At this time, he says that he presented the transfers of the Blocks 583 and 397, which constituted the land, for execution on behalf of Diamond Hill. He said that Mr John Cahill and Mr Buchan executed the transfer and affixed the company seal. Again, he said that neither Mr John Cahill nor Mr Buchan asked any questions or raised any issues in relation to that document – in examination in chief Mr Douglass Cahill’s evidence was that nothing was said in response to his request for the transfers to be signed.

The evidence of Mr Douglass Cahill was relied upon by the defendants as providing evidence which demonstrated that the transfer of the mining licence, MIN 5471, and the land was undertaken with the fully informed consent of Diamond Hill. Consequently, the question arises whether Mr Douglass Cahill’s evidence should be accepted with respect to critical matters in this proceeding in preference to the evidence provided by the witnesses relied upon by the plaintiff.

I accept that Mr Smith was, as submitted by the plaintiff, an impressive witness whose evidence should be accepted. In relation to the critical conversations with Mr Douglass Cahill in 2005/2006 and at the 26 June 2007 Board meeting, there are a number of matters and indications supporting this position. Although Mr Smith was unsure about the timing of the 2005/2006 conversation, it does follow from the evidence of Mr Marriott that the conversation probably occurred in or about May 2006, before Diamond Hill became a subsidiary of Greater Bendigo Gold Mines Ltd and six months before the prospectus for that company was launched. Mr Smith gave evidence-in-chief in relation to the conversation, particularly in relation to its components, such as “prospectivity”. In contrast, Mr Douglass Cahill’s evidence-in-chief was that “The Wedderburn tenement was not included in the deal”, to which Mr Smith supposedly replied, “Okay, fine”.[22] In cross-examination, Mr Smith’s version of the conversation was put to Mr Douglass Cahill, who either agreed with Smith’s version or did not recall Mr Smith saying things, though it was accepted that he “may have”.[23] In light of Mr Smith’s carefully considered evidence and responsiveness, in marked contrast to that of Mr Douglass Cahill, I am of the opinion that Mr Smith’s evidence as to the 2005/2006 conversation should be accepted. As the plaintiff points out, an important conclusion flowing from this is that Mr Douglass Cahill said that the Wedderburn tenement was his, and that Mr Smith said he would leave the tenement off the list. There was no evidence that Mr Smith did say that the tenement would be transferred to Mr Douglass Cahill.
[22]See transcript, p 102.07-103.19.
[23]See transcript, pp 236.31, 237.03, 237.21, 237.24, 237.28, 237.31 and 238.04.

Moving now to the 26 June 2007 Board meeting, about which Mr Smith gave detailed evidence-in-chief. In contrast to this position, Mr Douglass Cahill’s evidence of discussion at board meetings was very limited.[24] Evidence of this 26 June 2007 meeting was put to Mr Douglass Cahill and he either agreed with Mr Smith’s version to a large extent or said that he could not remember. It was submitted that where there is disagreement, Mr Smith’s evidence should be preferred, having regard to the unsatisfactory state and nature of Mr Douglass Cahill’s evidence, which is discussed below. For the reasons which follow, I accept this proposition.
[24]See above, paragraph 57; and see transcript, p 219 and 222.19 - .23.

The evidence of Mr Smith in relation to the Board’s discussions of the transfer of mining licence, MIN 5471, on 29 April 2008 are supported by the transcript of that meeting, the accuracy of which was also testified to by Mr Marriott. On this basis, it is clear that Mr Smith’s evidence in this respect was no recent invention. The transcript of the 29 April 2008 board meeting also supports Mr Smith’s evidence that Mr Douglass Cahill told the Board on 26 June 2007 that the mining tenement was the same as that discussed in 2005 and 2006, the mining tenement that he was then claiming was his. By 26 June 2007, this was clearly not the position, as the new mining tenement, mining licence, MIN 5471, had been applied for as MIN 5379, which was clearly the tenement discussed in 2005/2006, had lapsed. As is also clear from the transcript of the 29 April 2008 board meeting, Mr Douglass Cahill sought to treat the mining tenement, MIN 5471, as the same as MIN 5379, saying, “All it had was a different number on it. That’s what you signed over”.[25]
[25]See transcript of the 29 April 2008 Board meeting, at Court Book, p 276.

Further, the explanation given by Mr Smith for relying on Mr Douglass Cahill’s statements or assurances with respect to the mining tenement were, in my view, compelling. Mr Douglass Cahill is clearly a solicitor of standing in the Bendigo community. He is the senior partner in a long-established law firm and a person who had been closely involved with Diamond Hill and the companies associated with it, including holding the office of Managing Director of Greater Bendigo Gold Mines Ltd until 19 June 2007 and thereafter its Executive Director – Special Projects. Mr Smith’s reliance upon Mr Douglass Cahill’s assurances is clear from the transcript of the 29 April 2008 Board meeting,[26] quite apart from Mr Smith’s own evidence in this respect. Further, Mr Smith’s denials of knowledge of Diamond Hill’s ownership of the land on 26 June 2007, that the ownership of the land was never discussed by or disclosed by Mr Douglass Cahill at the Board meeting on that day and his evidence that he would not have agreed to transfer the land should, in my view, be accepted. Mr Douglass Cahill gave no evidence to the contrary with any specificity. To the extent that evidence was given by Mr Douglass Cahill in this respect, it was along the lines of many of his responses which were or to the effect that the “Board already knew” or “I cannot recall”.
[26]See Court Book, 273 – 280.

Finally, there was some suggestion on the part of Mr Douglass Cahill that Mr Smith raised the issue in relation to mining licence, MIN 5471, in 2008 because of a cash shortage or personal animosity towards Mr Douglass Cahill.[27] In my view, no weight should be given to either assertion as the evidence was that Greater Bendigo Mines Ltd had sufficient finance to conduct its operations[28] and that the evidence indicated that the matter which had prompted Mr Smith to raise the matter was his discovery, after visiting Wedderburn in early 2008, that he had been misled.[29]
[27]See transcript, 146-7.
[28]See transcript, 144-5.
[29]See witness statement of Ian Wilson Smith (11 April 2011), paragraphs 45 – 47 set out above at paragraph 46 (evidence which was not challenged).

The evidence of Mr John Cahill, the Managing Director of Greater Bendigo Gold Mines Ltd and Diamond Hill, does, in my view, support the evidence of Mr Smith. He did, it was submitted by Diamond Hill, give clear and responsive answers to all questions, and although an employee of Greater Bendigo Gold Mines Ltd and a director of Diamond Hill, his answers were corroborated by other witnesses in relation to important conversations.

In his evidence-in-chief, Mr John Cahill said that Mr Douglass Cahill had told him, in approximately 2002, that “Longy and I have bought the land”,[30] referring to the land at Wedderburn. Under cross-examination, he again said that he “was under the belief that Peter Long and Doug Cahill owned the land jointly”.[31] In his evidence-in-chief, he said that the Wedderburn tenement was discussed at a Board meeting in July 2007. However, in cross-examination, when he was taken to the Board minutes, he confirmed that the 26 June 2007 Board meeting was the first occasion on which the Wedderburn tenement had been raised by Mr Douglass Cahill.[32] His evidence was that at the meeting, Mr Douglass Cahill said something like, “I want that tenement transferred” (again referring to Wedderburn)[33] and that then Mr Smith asked Mr Douglass Cahill if he thought that there was any value in the mining tenement and what value was in it for him, to which, he said, Mr Douglass Cahill replied, “It has sentimental value for … Peter Long’s father”.[34] His evidence was that Mr Smith then asked him whether there was any value in it for Diamond Hill, to which John Cahill said he replied, “Unless we’re going to spend money on it, I don’t think there is any value”.[35] Consequently, he said, it was resolved that Mr Douglass Cahill transferred the Wedderburn tenement to himself.[36] In relation to the signing of the transfer application for the Wedderburn tenement in mid 2007, I accept the submissions of Diamond Hill that the evidence of Mr John Cahill, that he was not present for the signing of that transfer, should be accepted on the basis that, in all the circumstances, it is more probable than not that this was something that he would have recalled.
[30]See witness statement of John Cahill dated 12 April 2011, paragraph 7.
[31]Transcript, 200.05 - .07.
[32]See transcript, 188.08.
[33]See transcript, 103.21.
[34]See transcript, 184.01 - .03.
[35]See transcript, 184.08 - .12.
[36]See transcript, 188.14 - .16.

In relation to the transfer of the land, I accept the evidence of Mr John Cahill that he had no knowledge of the land being owned by Diamond Hill until the transfers were discovered in the company files and brought to his attention by Mr Marriott. The initial evidence by Mr Douglass Cahill was that Mr John Cahill was present in the room when the land transfers were signed, but he then conceded that he may not have been in the room. In any event, Mr John Cahill was not challenged on his evidence and I am of the opinion that it should be preferred for these particular reasons and also for the reasons indicated with respect to the veracity of the evidence of Mr Douglass Cahill.

I accept Diamond Hill’s submission that Mr Buchan should be believed and his evidence accepted. He did, as submitted, give dispassionate evidence and gave direct answers to questions. He has not been an employee of the Greater Bendigo Gold Mines Ltd group for almost two years, and when he did not know something, he did not hesitate to say so. Mr Buchan was company secretary and did not participate at Greater Bendigo Gold Mines Ltd Board meetings. They were recorded and many matters were outside his sphere of responsibility. In any event, he prepared Board notes from the tape recordings of those meetings. When he prepared minutes of these meetings, he was the person who inserted the “MIN” details in relation to mining licences, which were commonly referred to by location at these meetings. It is clear from his evidence that he thought that the Board had authorised him to execute the transfer of mining licence, MIN 5471, and the two transfers of the Blocks that made up the land as a result of the matters recorded in the 26 June 2007 Board meeting minutes. In my view, it was clear from his evidence that he believed that the authorisation for the transfer of mining licence, MIN 5471, extended to authorisation to transfer the land. His evidence was that when the two land transfers were signed, Mr John Cahill was not present, and that when signing the transfer of mining licence, MIN 5471, and the two land transfers, Mr Douglass Cahill simply said that he should “sign these”. This evidence was not challenged and, in any event, Mr Douglass Cahill gave similar evidence. Mr Buchan’s evidence was also that he did not make any of the amendments to the land transfer as ultimately lodged. Nor, he said, did he receive the letter from Mr Douglass Cahill dated 25 June 2007 to which reference has been made[37] until he found a document which was apparently such a letter – on the law firm, Cahills’, letterhead, unsigned and marked “copy” - in Mr Douglass Cahill’s filing on 21 May 2008. His evidence was that he endorsed that copy letter with the note, “Found in Doug Cahill’s filing on 21 May 2008. Original never received. Check corporate filing. Checked tenement filing”.[38] Mr Buchan’s evidence in this respect was not challenged.
[37]See above, paragraph 53; and see the contents of this “copy” letter discussed further below, paragraphs 82.
[38]See the copy letter with this note at Court Book, 243.

…
[4801] This is not an easy area of the law and, in many respects, it remains in a state of flux. A case in which, for example, a director steals money from a company and pays it across to a third party, who receives it with the requisite notice, would raise few problems. The money remains property of the company and is trust property in the hands of the director. But if the misfeasance by the director in dealing with company property under her or his control is no more than a breach of fiduciary duty, the conceptual basis under which that property comes to be regarded as trust property is more difficult to discern.
[4802] One way of looking at it is to say that company property with which a director deals in breach of fiduciary duty is property to which a fiduciary obligation attaches (which is the language used in Farah Constructions [166]). If the third party receives it with the requisite knowledge the conscience of the third party is sufficiently affected to justify the intervention of equity. The previous sentence is a paraphrase of Re Montagu’s Settlement, at 285. In those circumstances, equity might be disposed to treat property received under those circumstances either as a species analogous to trust property or as property coming within a broadened understanding of the concept referred to by Lord Selborne. The justification for broadening the concept lies in the more recent authorities that have extended the principle to include some classes of non-trustee fiduciaries. Under this view, it is not necessary to rely on the doctrine of the constructive trust in order to characterise the property transferred away in breach of a fiduciary duty as trust property. This is not to say that, in such cases, the constructive trust is irrelevant. The intervention of the court will still be necessary to seal and fashion the remedy.”

It was not pleaded that Mr Douglass Cahill was the directing mind and will of Huang Jin, in the way that Tucker was, as sole director, in Parker v Tucker.[83] Nevertheless, this is not decisive in terms of the treatment of the issue in the authorities to which reference was made in that case. In my view, the evidence does establish that, to the extent that Mr Douglass Cahill was acting with respect to the transfer of the mining licence, MIN 5471, he was “acting as the company and his mind which directs his acts is the mind of the company”. Consequently, it follows, in my opinion, that Huang Jin, the company, is to be taken as having full knowledge that the mining licence, MIN 5471, was transferred to it by Mr Douglass Cahill in breach of fiduciary duty, both at general law and under the statutory provisions to which reference has been made. As indicated in its submissions, Diamond Hill did not seek to establish a constructive trust in respect of the mining licence, MIN 5471, against Huang Jin because that company disposed of that licence to Victoria Gold Mines NL. Consequently, with respect to the mining licence, it seeks equitable relief by way of equitable compensation against Huang Jin. In relation to the transfers of the land to the transferees, it does, however, seek equitable relief against them by way of a constructive trust as the land is still held by the transferees.
[83](2010) 77 ACSR 525.

Even if a claim of knowing receipt could not have been established the plaintiffs also make a claim based on Huang Jin and the transferees receiving the licence and the land, respectively, as volunteers. It was common ground that Huang Jin and the transferees did not provide any consideration for the transfers of the mining licence and the land to them, respectively. This was admitted on the pleadings. In these circumstances, the plaintiff relied upon the decision of the High Court in Black v S Freedman & Co[84] as applied by the New South Wales Court of Appeal in Heperu Pty Ltd v Belle.[85] Thus, Allsop P said:[86]
[84](1910) 12 CLR 105.
[85](2009) 76 NSWLR 230 at 260-1 (Allsop P, with whom Campbell JA and Handley AJA agreed).
[86](2009) 76 NSWLR 230 at 260-1.

“[130] In Black v S Freedman, a husband handed stolen money to his wife who received it as a volunteer. From the terms of the description of the claim against the wife in the judgment of Griffith CJ at 12 CLR 106 and his description of the evidence and the issues at 106–109, it is clear that the claim against the wife was based on tracing and the identification of what was in her bank account to have come from the stolen money. It is in this context that the following statements of Griffith CJ were made at 109:
‘But it has been laid down in cases decided long ago that if the alienee is a volunteer the estate may be followed into his hands whether he had notice of the trust or not … I think that where a man pays a large sum of money to his wife, and no more appears, the inference is that it is a present. Therefore the doctrine of equity is applicable. The money is identified; it came into her hands as a volunteer, and she is liable to repay it. It was pointed out by Sir George Jessel, in a well known case, that a man may at a certain stage be innocent, but that, if he knows that he has got the advantage of a fraud to which he was no party and says he will keep it, then he becomes himself a party to the fraud and is liable to the jurisdiction of the Court of Equity. In the present case the wife says she holds this money for her separate use and claims it for herself, knowing now, at any rate, the circumstances under which it came to be given to her.’

[131] The reference there to liability to repay was in relation to an extant bank account. It was the restoration of an identified fund that was the subject of attention. These statements of Griffith CJ do not support a personal remedy against an innocent recipient (beyond a personal obligation to restore an identified fund or asset) in addition to any proprietary remedy against the identified asset, unless, with knowledge of the character of the ‘advantage’ from the stolen asset, the recipient seeks to retain the advantage. It was in this sense that Griffith CJ spoke of becoming a party to the fraud (in effect an accessory after the fact). That may give rise to accessory liability in equity, but it is not the same as saying that a volunteer who receives the traceable property of the wronged party comes under a personal obligation to account in money terms for property received as well as a claim to restore the property itself. Barton J agreed with Griffith CJ at 110
[132] O’Connor J, at 110–111, agreed with Griffith CJ and then expressed himself somewhat differently, though to the same substantive effect. He said that where money is stolen it is trust money in the hands of the thief and can be followed into the hands of another person. The proprietary character of the remedy can be seen in the last sentence of his reasons at 111:
‘In all the circumstances, I am of opinion that there was a prima facie case, that she was a volunteer, and that this money retains its character as trust money and she cannot be allowed to keep it.’”

Allsop P continued and, on a review of further authorities, observed that the wife in Black v S Freedman & Co, having received the money as a volunteer, would also have been liable on a claim for money had and received. Thus, referring to the speech of Lord Templeman in Lipkin Gorman v Karpnale Ltd,[87] Allsop P said:[88]

“Lord Templeman (at 565-566) referred to Black v S Freedman & Co and said (at 566):
‘Although the decision in this case went on the grounds of trust, the reasoning applies equally to a claim for money had and received.’”

Huang Jin and the transferees of the land gave no consideration for the mining licence or the land, respectively. As discussed above, the plaintiff does not seek the mining licence back from Huang Jin, but rather equitable compensation, as Huang Jin disposed of that licence to Victoria Gold Mines NL. The transferees, as volunteers, are liable to restore the property to Diamond Hill. Like the wife in Black v S Freedman & Co, the transferees are informed of the case against them and the circumstances in which they have received the property, but still seeking to retain the advantage. On this basis, Diamond Hill seeks a declaration that it has a caveatable interest over the land and an order that the transferees transfer the land to Diamond Hill.

[87][1991] 2 AC 548 (HL).

[88]Heperu Pty Ltd v Belle (2009) 76 NSWLR 230 at 265.

The same result would, in my view, also be reached if regard is had to the broader circumstances surrounding the transfer of the land which attract the application of restitutionary principles on the basis of mistake on the part of the transferor, Diamond Hill, which led to the execution of the transfers.[89] There is no evidence of any relevant prejudice to the transferees which would prevent the application of these principles. In any event, even if any prejudice could be identified, beyond that flowing from the requirement of return of the land by restitution, any such claimed prejudice would need to be considered in the context of the circumstances of the transfers and the position of the transferees as volunteers.
[89]See above, paragraphs 37, 41, 43, 49, and 51-52; see David Securities Pty Ltd & ors v Commonwealth Bank of Australia (1992) 175 CLR 353; and see Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516.

Finally, in terms of Diamond Hill’s claim, I turn to the issue of misleading and deceptive conduct. These claims were cast in terms of a breach of s 52 of the Trade Practices Act 1974 by the company, Huang Jin, and s 9 of the Fair Trading Act 1999 by the natural persons, the transferees.. It is clear from the authorities that a person may contravene the misleading or deceptive conduct provisions of this legislation whether or not the person intends to do so and whether or not the person acts honestly in so doing.[90] In order to determine whether conduct is misleading or deceptive, the particular conduct must be viewed against the background, circumstances and context in which that conduct occurred;[91] and the Court needs to know what was known by the recipient. In relation to the latter, French CJ, in Campbell v Back Office Investments Pty Ltd,[92] referred with approval to the joint judgment of the majority of the High Court in Butcher v Lachlan Elder Realty Pty Ltd,[93] as follows:

“The plaintiff must establish a causal link between the impugned conduct and the loss that is claimed. That depends on analysing the conduct of the defendant in relation to that plaintiff alone. So here, it is necessary to consider the character of the particular conduct of the particular agent in relation to the particular purchasers, bearing in mind what matters of fact each knew about the other as a result of the nature of their dealings and the conversations between them, or which each may be taken to have known.”

It is clear that a failure to make reasonable enquiries by the “recipient” of the impugned conduct does not automatically defeat a misleading conduct claim.[94]

[90]See Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 197 (Gibbs CJ).

[91]See Campbell v Back Office Investments Pty Ltd (2009) 238 CLR 304 at 319 (French CJ).

[92](2009) 238 CLR 304 at 319, [27].

[93](2004) 218 CLR 592 at 604-5, [37] (Gleeson CJ, Hayne and Heydon JJ).

[94]See Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 , [91] (Heydon, Crennan and Bell JJ); and see Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at 604, [37] (Gleeson CJ, Hayne and Heydon JJ); and see below, paragraph 104.

The defendants accepted that they must demonstrate that the transfer of the mining licence, MIN 5471, and the land was undertaken with the informed consent of Diamond Hill, both on the authority of Maguire v Smakaronis[95] and also on the basis of Boardman v Phipps.[96] On this basis, it was argued that Mr Douglass Cahill had obtained the consent of the Board as a result of the discussions and deliberations at the 26 June 2007 Board meeting and that Mr Douglass Cahill had made disclosures to the Board to the extent that was appropriate and sufficient in the circumstances. On this respect, particular reference was made to the decision of the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd[97] to the effect that the sufficiency of the disclosure can depend on the sophistication and intelligence of the persons to whom disclosure must be made.
[95](1997) 188 CLR 449.
[96][1967] 2 AC 46 (HL).
[97](2007) 230 CLR 189 at 138–9, [107] (Gleeson CJ, Gummow, Kellam and Heydon and Crennan JJ).

In the present circumstances, I accept that it is quite clear that the members of the Board, including the company secretary, Mr Buchan, are sophisticated and intelligent businessmen and that, consequently, sufficient disclosure to individuals such as these may not involve reference to more fundamental or basic matters, which may be required in the case of disclosure to individuals who did not fall into this category. Nevertheless, on the basis of my findings on the evidence, I am of the opinion that there was no disclosure or no sufficient disclosure in a relevant sense even on this basis, with reference to the mining licences, MIN 5369 or MIN 5471, or in general terms as the “Wedderburn tenement”. Further, in all the circumstances and for the reasons indicated, on the basis of my view on the effect of the evidence, it cannot be a matter of criticism of the Board or its members, or the company secretary, that they were unaware of the fact that the freehold title to the Wedderburn tenement was owned by Diamond Hill. In my view, it is absurd to say that the attitude of the Chairman of the Board of Diamond Hill was at best nonchalant in relation to the Wedderburn tenement.[98] Similarly, it is not, in my view, fair criticism, nor of relevance in any event, for the defendants to be submitting and suggesting that there was any obligation on the Board to investigate matters with respect to the mining licence, the original licence or the later licence, or with respect to the possible ownership of the freehold title to the land, for all the reasons already examined in detail. So, even assuming the Board did consent to the transfer of the mining licence or the transfers of the land, which, for reasons indicated, I doubt, there is no basis on the defendants’ submissions or otherwise, for the reasons indicated, for concluding that any such consent was fully informed.
[98]See outline of submissions for the defendants (14 April 2001), p 2 (paragraph 7(d)) referring to the cross-examination of Mr Smith at transcript, p 107.

Diamond Hill claim against Mr Douglass Cahill that he engaged in misleading conduct in representing to Diamond Hill that mining licence, MIN 5471, was owned by him and not that company. The representation was alleged to have been constituted by statements made by Mr Douglass Cahill on 26 June 2007, to Mr Smith and to the Board of Directors of Greater Bendigo Gold Mines Ltd.[99] The plaintiffs also claims that if it gave consent to the transfer of land, the consent was given in reliance on the same representation.
[99]See amended statement of claim (11 April 2011), paragraphs 28 and 67A.

The response of the defendants to this claim that the plaintiff based on misleading conduct is that in the circumstances in which the representations allegedly relied upon were made, they were not misleading. It was submitted by the defendants that no conduct can mislead unless the representee labours under some erroneous assumption.[100] Where the misleading conduct is alleged to have arisen as a result of spoken words, it was submitted that special care needs to be taken before determining, on the relevant standard of proof, that the words convey a misleading impression.[101] In this context, and on the basis that the representations allegedly relied upon by the plaintiff were contained in conversations in the Board meeting on 26 June 2007, it was submitted by the defendants that it was clear that in the context in which Mr Douglass Cahill stated that the mining licence and associated land at the Wedderburn tenement was not Diamond Hill’s property, that he was referring to the fact that he and others maintained an equitable claim in these assets, notwithstanding that Diamond Hill was registered as the legal owner. It was submitted that there is otherwise no logical explanation for such a statement – it being asked, rhetorically, if Diamond Hill was not the registered legal owner, how could it transfer the assets to Mr Douglass Cahill? Further, it was submitted that where an applicants claims to have been misled by a failure to make full and true disclosure, the applicant bears the onus of proving how what was not said was likely to mislead.[102]
[100]See Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 200.
[101]See Watson v Foxman (2000) 49 NSWLR 315 at 318-9.
[102]Relying in this respect on Frazer v NRMA Holdings Ltd (1995) 55 FCR 452; 127 ALR 543 at 555-6 (Black CJ, von Doussa and CooperJ).

The misleading conduct claims raised in the plaintiff’s pleadings, to which reference has been made, are cast in the alternative to the other claims made. This is logically appropriate because if the position is that the Board was not misled by Mr Douglass Cahill’s representations and never authorised the transfer of the mining licence, MIN 5471, or the transfers of the land which, for the reasons indicated previously, I am inclined to accept as the position, then there is no reliance on such conduct and the claims on this basis do not arise. However, to the extent that the Board did give consent, it was not, as indicated previously, in my view, informed consent in accordance with the requirements in this respect established by the authorities and, consequently, cannot be relied upon by Mr Douglass Cahill as sanctioning conduct which would otherwise be a breach of his fiduciary duties or statutory obligations.

However, to the extent that the Board’s consent was granted, conditionally or otherwise, I am of the opinion that the evidence does establish that this was a consequence of misleading conduct on the part of Mr Douglass Cahill. The evidence indicates that he asserted without equivocation that he, and not Diamond Hill, owned the Wedderburn tenement, whether that meant or was a reference to the earlier mining licence, MIN 5369, or the later granted mining licence for this tenement, MIN 5471. The assertions were raised by Mr Cahill in meetings with Mr Smith and Mr Marriott prior to the 26 June 2007 Board meeting and at that meeting. As indicated previously, Mr Douglass Cahill is a senior and respected solicitor of long standing in Bendigo and a person who had long involvement with Diamond Hill and associated companies, in a very senior role or roles. In all the circumstances, I am of the opinion that it was reasonable for Diamond Hill, Greater Bendigo Gold Mines Ltd and the directors to rely upon Mr Douglass Cahill’s representations of ownership and that the evidence led by the plaintiff establishes this position and the misleading nature of such a representation. In relation to the latter, although the defendants submitted that it was not part of their case and the plaintiff did not press the point, Mr Douglass Cahill never sought to provide the type of information that the authorities indicate as a prerequisite to informed consent. Not even in the present proceedings did Mr Douglass Cahill seek to lead evidence which established legal or beneficial ownership in the Wedderburn tenement, with respect to either mining licence, MIN 5369, or mining licence, MIN 5471, or in the land. Reference has been made previously to my discussion of these issues with the defendants’ counsel in the course of his closing submissions.[103]
[103]See above, paragraph 83.

The next point that arose in relation to the plaintiff’s claims, based on the, so-called, ownership representation made by Mr Douglass Cahill, that Huang Jin engaged in misleading conduct under s 52 of the Trade Practices Act 1974[104] and that the transferees (the second, third, fourth and fifth defendants) engaged in misleading conduct in breach of s 9 of the Fair Trading Act 1999[105] it was claimed that, in addition to the defendants’ previous submissions in relation to the lack of any relevant misleading conduct, the ownership representation was not made on behalf of these third parties. It was submitted that, in order to establish that Mr Douglass Cahill made the ownership representation on behalf of Huang Jin, the plaintiff must prove that the ownership representation was made by Mr Douglass Cahill within the scope of the actual or apparent authority conferred on him by Huang Jin[106] or at the direction, or with the consent or agreement of Huang Jin.[107] It was submitted that there is no evidence to suggest that any of the members of the Board of Diamond Hill, other than Mr Douglass Cahill, were aware of the existence of Huang Jin, let alone that there was any discussion regarding Huang Jin, at any time prior to August 2007, which was the time of the transfer of mining licence, MIN 5471, and well after the ownership representation. The plaintiff submitted in response that it is irrelevant whether the board were aware of Huang Jin, but what is important is whether Mr Douglass Cahill was acting for Huang Jin in respect of the transfer. It was admitted on the pleadings that Mr Douglass Cahill was a director of Huang Jin, and I accept the further proposition advanced by the plaintiff to the effect that it is implausible to suppose that anything he was doing that would result in Huang Jin ultimately receiving a mining licence was not done by him on behalf of that company. This results in the operation of the deeming provisions of s 84(2) of the Trade Practices Act. The result of the application of these provisions is that Mr Douglass Cahill’s conduct on behalf of Huang Jin is deemed to be conduct engaged in by that corporation.
[104]See Amended Statement of Claim (11 April 2011), paragraph 45.
[105]See Amended Statement of Claim (11 April 2011), paragraph 78A.
[106]See s 84(2) of the Trade Practices Act 1974.
[107]See s 84(2) of the Trade Practices Act 1974.

In relation to the Fair Trading Act 1999, the defendants submitted that in order to establish that Mr Douglass Cahill made the ownership representation on behalf of each of the transferees, the plaintiff must prove that the ownership representation was made by Mr Douglass Cahill in circumstances satisfying each of the elements of sub-s 144(3) of that Act. In response to this submission, the plaintiffs said that sub-s 144(3) of that Act was not the appropriate provision, because that provision is directed to establishing a state of mind, which is not presently relevant and that, rather, the appropriate analysis is achieved through the application of common law agency. As discussed above, Mr Douglass Cahill has acknowledged that he was acting on behalf of the transferees when he caused the land to be transferred to them. It follows that he was acting on behalf of the transferees when making the ownership representation. Consequently, the misleading conduct provisions of s 9 of the Fair Trading Act are applicable to the transferees, including Mr Douglass Cahill.

Summary and conclusions

For the preceding reasons I am of the opinion that the following position is established:

(1)Greater Bendigo Gold Mines Ltd, the sole shareholder in Diamond Hill, did not give consent to the transfer of mining licence, MIN 5471, at all or, to the extent that any such consent was given, it was not fully informed consent;
(2)no consent was given by Greater Bendigo Gold Mines Ltd, the sole shareholder in Diamond Hill, to the transfer of the land and the transfers of the land which were executed at Mr Douglass Cahill’s request of Mr Buchan were executed by him in the mistaken belief that the Board of Greater Bendigo Gold Mines Ltd had authorised those transfers;
(3)Mr Douglass Cahill breached his fiduciary duty and his statutory duties as a director of Diamond Hill;
(4)Mr Douglass Cahill was at all relevant times acting as a director of Huang Jin, for himself and as an agent of the other transferees. The transferees knew of Diamond Hill’s allegations in the proceeding. The transferees are bound by Mr Douglass Cahill’s conduct and liable in equity and for any breaches of the Fair Trading Act 1999;
(5)the conduct of Mr Douglass Cahill at the 26 June 2007 Greater Bendigo Gold Mines Ltd Board meeting was misleading in that he told the Board that the Wedderburn tenement being transferred was the one that he discussed with Mr Smith in 2005/2006 and that the tenement was his. In fact the tenement was the new mining licence, MIN 5471, which Mr Douglass Cahill had intentionally obtained in the name of Diamond Hill, using the resources of Greater Bendigo Gold Mines Ltd and money to do so. This conduct occurred in circumstances where the Board relied upon what Mr Douglass Cahill told them in this respect, with the consequence that each of the defendants has contravened the misleading conduct provisions of the Trade Practices Act 1974 or the Fair Trading Act 1999, as applicable;
(6)the evidence establishes that no reference was made by Mr Douglass Cahill to the land when he was referring to the Wedderburn tenement at the Board meeting on 26 June 2007. Were this otherwise the case and he was not referring to the mining licence alone, then his conduct would also be misleading in this respect, because Diamond Hill at all times owned the land; and
(7)the plaintiff’s claim for the retransfer of the land to it is established as the transfers of land were executed in the mistaken belief that Mr Douglass Cahill was entitled to them and without Board authorisation. The transfers of land were for no consideration and the retention by the defendants of the benefit of the transfers without payment for them is, in my view, clearly unjust.

Consequently, the plaintiff has established liability of the defendants to it on the basis of the claims made against them in these proceedings. The plaintiff requested that the parties should have an opportunity to consider the Court’s reasons before any orders are pronounced. In my view, this is appropriate, particularly as it will now be necessary to make further procedural orders in relation to the hearing and determination of remaining issues the subject of this proceeding; issues which might broadly be described as “quantum” issues. I also note that I reserve the question of costs and I will also hear the parties in relation to this issue.

[2011] VSC 288

24 June 2011