Disctronics Ltd v Edmonds

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST

No. 2053 of 2001

DISCTRONICS LTD & ORS	Plaintiffs
v
CHRISTOPHER EDMONDS & ORS	Defendants

and

No. 6221 of 2001

KINGSTON LINKS COUNTRY CLUB P/L	Plaintiffs
v
DISCTRONICS LTD & THE REGISTRAR OF TITLES	Defendants

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JUDGE:	WARREN J
WHERE HELD:	MELBOURNE
DATE OF HEARING:	9-11, 15-19, 22-24, 26, 29 and 30 April and 1 May 2002
DATE OF JUDGMENT:	23 October 2002
CASE MAY BE CITED AS:	Disctronics Ltd & Ors v Edmonds & Ors
MEDIUM NEUTRAL CITATION:	[2002] VSC 454

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FIDUCIARY DUTY – Retainer – Agency – Joint venture.

DUTIES – Honesty- Good faith – Acting in interests of principal or joint venturer – Survival of duties after termination of relationship.

AGENCY – Retainer – Identity of principal – Duties arising.

JOINT VENTURE – Duties arising – Repudiation – Ongoing duties of honesty and good faith – Survival of duties after termination.

DISCLOSURE – competing interest – Obligation on agent – Obligation on joint venturer.

CONSTRUCTIVE TRUST – Priorities – Knowledge of prior interest founded on a constructive trust – Interest in land subject to constructive trust – Application as a remedy – Last resort – Equity.

NOTICE – Prior equitable interest – purchaser for value without notice – wilful blindness – indefeasibility of title.

DELAY – Acquiescence – Failure to register interest – Substantial delay in lodging caveat.

CORPORATIONS – Imputation of knowledge of principals to the company – Vehicle to perpetuate breach of fiduciary duties.

REMEDIES – Suitability of declaration of interest in land subject to constructive trust – Restitution - Account of profits – Allowance for contribution to land and profits.

EQUITABLE COMPENSATION – Appropriate remedy – Allowance for costs and contributions by fiduciaries and third parties.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr G. Nettle Q.C. with Mr S. Parmenter	Mallesons Stephen Jaques
For the Defendants	Mr R. Macaw Q.C. with Mr J. Delany	Arnold Bloch Leibler
For the Defendants	Mr M. Sifris	Herbert Geer & Rundle

TABLE OF CONTENTS

Background......................................................................................................................................... 3

The Early History – the Concept..................................................................................................... 4

The Concept Promoted by Bucknall.............................................................................................. 5

Events of April 1999 – the involvement of Edmonds.................................................................. 6

The Events of May 1999 – the involvement of Cahill................................................................. 8

Events of June 1999 – meetings with the Kingston Group and Spotless................................ 9

Events of July 1999 – Development of Project............................................................................ 11

The Meeting of 20 July 1999........................................................................................................... 18

The Events of August 1999............................................................................................................. 20

The Disintegration of the Joint Venture..................................................................................... 20

The Involvement of the Buxton Interests.................................................................................... 31

The Offer by Emanbee.................................................................................................................... 36

The Acquisition of the Land by the Defendants....................................................................... 38

The Commencement of the Proceedings..................................................................................... 39

The Plaintiffs’ Claim....................................................................................................................... 40

(a) The original joint venture..................................................................................................... 40
(b) Edmonds................................................................................................................................. 41
(c) Cahill........................................................................................................................................ 41
(d) The obligations...................................................................................................................... 41
(e) The variation of the joint venture........................................................................................ 42
(f) The breaches alleged.............................................................................................................. 42
(g) The allegations against Kingston Links Country Club (“K.L.C.C.”)............................. 43
(h) Unjust enrichment................................................................................................................. 43

The Relief Claimed by the Plaintiffs........................................................................................... 44

The Defence of the Defendants - Edmonds, Cahill and K.L.C.C........................................... 44

(a) Defendants’ denial................................................................................................................ 44
(b) Defendants’ allegations of an alternative joint venture................................................... 44
(c) Duties owed............................................................................................................................ 45
(d) Breaches alleged - repudiation............................................................................................ 45
(e) Response to plaintiffs’ claim for relief................................................................................ 45

The defence of the defendants – Buxton, Emanbee and MRB................................................ 46

The Evidence for the Disctronics’ Interests................................................................................ 46

Evidence for the K.L.C.C. Interests............................................................................................... 46

The Evidence for the Buxton Interests......................................................................................... 47

The Retainers of Edmonds and Cahill as Agents...................................................................... 47

(a) The retainer of Edmonds...................................................................................................... 47
(b) The retainer of Cahill............................................................................................................ 51
(c) Other observations upon the retainers............................................................................... 53

Findings as to whether there was a Joint Venture..................................................................... 54

Fiduciary Duties – General Observations................................................................................... 56

The Fiduciary Duties Arising from a Joint Venture................................................................. 58

Findings as to the Conduct of Edmonds and Cahill................................................................. 64

The Survival of the Fiduciary Duties........................................................................................... 69

The Claim by Disctronics............................................................................................................... 75

The Claim of Solette........................................................................................................................ 76

The Claim Against K.L.C.C............................................................................................................ 76

Conclusions as to the K.L.C.C. Defendants................................................................................ 77

The Interests of the Buxton Defendants...................................................................................... 79

The Consequences for the Buxton Interests............................................................................... 82

Remedies and Relief........................................................................................................................ 83

Remaining Miscellaneous Matters............................................................................................... 91

HER HONOUR:

There are two sets of proceedings before the Court. In the first and main proceeding (No. 2053/2001) (“the main proceeding”), the plaintiffs, being the Disctronics parties claimed relief arising from alleged breach of fiduciary duties and an alleged constructive trust against the principal defendants, the K.L.C.C. defendants. As a consequence of their allegations, the first plaintiff lodged a caveat over disputed land. In the second proceeding (No. 6221/2001) (“the caveat proceeding”), the K.L.C.C. defendants sought an order for removal of the caveat. For convenience, a reference to a plaintiff or plaintiffs and to a defendant or defendants is a reference to those parties on the record in the main proceeding.

The case was one essentially where the plaintiffs claimed they entered into a joint venture with some of the defendants in relation to a property acquisition but that after the joint venture fell apart those defendants went away and secretly acquired the property for themselves and another party by using confidential information acquired from the joint venture. The K.L.C.C. defendants claim that any joint venture between the parties was repudiated by the plaintiffs and that they were entitled, therefore, to acquire the property for themselves.

The plaintiff and the K.L.C.C. defendants engaged in a course of extensive communication and negotiation during the period from early April to early August 1999. Most of the communications and negotiations were irrelevant save for two purposes. First, in order to determine the role, if any, of the first plaintiff, Disctronics Limited in the alleged joint venture. Second, in order to provide the commercial context of the relationship between the plaintiffs and the K.L.C.C. defendants. It is necessary, therefore, to canvass those events in some detail.

Background

The first plaintiff, Disctronics Limited (“Disctronics”), was a company utilised by the second, third and fourth plaintiffs as a vehicle for investment. Prior to its investment role, Disctronics was formerly a manufacturer of optical discs known as compact discs and digital versatile discs in Europe and the United States. The second, third and fourth plaintiffs are all directors of Disctronics and associated with the firm of solicitors, Oakley Thompson and Co.

The second plaintiff, Kevin Patrick Donovan (“Donovan”), is a director of Disctronics and an associated company, Disctronics Holdings Limited (“DHL”), a barrister and solicitor and a consultant to Oakley Thompson and Co. Donovan had a longstanding friendship with the third plaintiff, Stephen Howard (“Howard”) who is also a director of Disctronics and DHL, a barrister and solicitor and a consultant to Oakley Thompson and Co. Similarly, the fourth plaintiff, Michael James Quinert (“Quinert”) is a director of Disctronics and DHL and a barrister and solicitor. He was and remains a partner of the firm Oakley Thompson and Co.

The fifth plaintiff, Richard Bucknall (“Bucknall”), is self-employed as a consultant on golf course based investment projects. The sixth plaintiff, Solette Pty Ltd (“Solette”), was a company also utilised by Donovan and others as a vehicle for property development and investment.

The Early History – the Concept

Bucknall was an acquaintance of Donovan. From about 1997 onwards Bucknall investigated golf related investment opportunities to refer to Donovan. For this purpose, Solette paid consultancy fees to Bucknall from time to time. In late 1998 and early 1999 Bucknall told Donovan of a particular investment concept for the purchase and financing of a golf course. The core ingredients of the concept involved the purchase of a public golf course, the leasing of the golf course and associated catering rights and the application of the rental stream to underwrite the purchase of the golf course. The concept was described by Bucknall to Donovan in two facsimile transmissions dated 5 October 1998 and 21 January 1999. However, the concept was not Bucknall’s own (although he represented as much to Donovan). In fact, the concept was developed in or about September 1998 by another company, Club and Resort Operations International Pty Ltd (“CROI”) for one Alan Thomas Maw (“Maw”), who was involved in golf course construction and development consultancy. CROI and Maw were not connected to the plaintiffs in any way. The concept was explained in a document entitled “Dingley Public Golf Facility (Preliminary Consulting Report)” known as the “CROI”) report. Bucknall was referred to Maw by some golf course architects in October 1998. The referral led Maw to an exploratory meeting at Oakley Thompson and Co with Bucknall and Howard and one John Lester on 26 October 1998. Maw provided various documents relating to the golf course concept to those attending the meeting and later on provided some other documents to Howard. In this way the CROI report came into the possession of Bucknall. Discussions revolved around the acquisition of a golf course at Dingley. Ultimately, it did not proceed and Maw had no further dealings with Bucknall, Howard or any other person connected with Oakley Thompson and Co.

The Concept Promoted by Bucknall

On 5 October 1998 Bucknall urged Donovan towards investment in public golf courses. On 21 January 1999 Bucknall sent a concept document to Donovan setting out a proposal for the acquisition of a public golf course at Keysborough. The document sent by Bucknall to Donovan was virtually identical to the CROI report given by Maw to Bucknall in October 1998. The proposal made mention of an established golf course known as Kingston Links Golf Course. It also floated the possibility of a long term lease of the golf course acquired to an operator known as “Spotless”.

This led Bucknall in February 1999 to meet one Stuart Rose of Spotless (“Rose”), with a view to Spotless acquiring leasehold rights of any golf course development projects that might eventuate. Bucknall told Rose that he was involved with a “group of investors” and enquired whether Spotless would be interested in leasing and operating a golf course from the investment group. Rose expressed enthusiasm. Afterwards, Bucknall told Howard and Donovan of the interest of Spotless. On 4 March 1999 he sent Donovan and Howard a fax informing them of his activities. Bucknall regarded the concept of an entity operating as an anchor tenant of a leased golf course and the application of rent to underwrite development costs as a novel concept. He regarded the identity of Spotless as the potential tenant as a secret. Bucknall calculated that the amount required by his investment group by way of annual rental of a golf course development was in the order of $900,000. Bucknall met Rose again in early April 1999. Rose indicated that Spotless may pay an annual rent in the range of $900,000 to lease a golf course.

Events of April 1999 – the involvement of Edmonds

In April 1999 events took a significant turn. It occurred to Bucknall that the acquisition of an established golf course compared with the development of a greenfields site may be a preferable option. He identified a potential target site being the Kingston Links Golf Course. Bucknall suggested this path to Donovan. He was interested. As a result, Bucknall organised a meeting on 13 April 1999 at a restaurant (known as “Daniel’s”) between Donovan, Rose and Bucknall. Donovan invited the first defendant, Christopher Edmonds (“Edmonds”) to attend. Edmonds was a former bank manager who operated a finance consultancy known as Home Link Mortgage Corporation Limited (“Home Link”). It was the third defendant in the main proceeding. It was de-registered on 10 May 200 and thus the plaintiffs ultimately did not proceed against it. Edmonds had worked for Donovan and his interests before. In fact, Edmonds had an office as a sub-tenant within the offices of the solicitors, Oakley Thompson and Co with whom each of Donovan, Howard and Quinert were connected. Edmonds and his company, Home Link, were also clients of Oakley Thompson. Donovan spoke to Edmonds twice on 9 April 1999 and invited him to the meeting at Daniel’s restaurant on 13 April 1999 in order to provide advice on the financing of the project involving the purchase of a golf course, in particular, the possible purchase of the Kingston Links Golf Course.

In the first conversation Donovan outlined his intention to buy or establish a privately owned golf course accessible to the public and lease the course to an operator. Edmonds told Donovan that the financial arrangement of such transaction was significant and that there would need to be equity in the property. He said that for this reason a strong tenant was important.

In the second conversation on 9 April 1999 Donovan told Edmonds that the prospective tenant for the project was Spotless and that discussions had been held with the latter already. Donovan told Edmonds that he wished to engage him to advise on financing the project and the debt and equity arrangements. Edmonds agreed to provide the service requested. He attended lunch at Daniel’s restaurant on 13 April 1999. Donovan told Edmonds the “normal” arrangement fees of one per cent for debt finance and three per cent for equity finance ought apply and that Edmonds should operate on that basis. Edmonds agreed.

The meeting at Daniel’s restaurant on 13 April 1999 occurred. Donovan, Bucknall, Edmonds and Rose, from Spotless were present. Discussion revolved around golf course projects, both greenfields and established sites. The possibility of acquiring the Kingston Links Golf Course was raised. Rose said Spotless would be interested in the right circumstances. The lunch finished without any decisions, agreements or arrangements being concluded. Immediately after the lunch on 13 April 1999 Donovan, Bucknall and Edmonds continued discussions. Edmonds suggested the retainer of an estate agent to negotiate the acquisition of a site. He proposed the second defendant, Peter Joseph Cahill (“Cahill”). Edmonds described Cahill as an effective, well connected and qualified estate agent. He said Cahill knew the owners of the Kingston Links Golf Course and could ascertain if the site was up for sale. Edmonds said that Cahill could take over the sale negotiations role managed by Bucknall up until that time. Donovan authorised Edmonds to speak to Cahill.

Cahill was a qualified estate agent with experience in business. He conducted his business through a company, the fourth defendant, Domain Hill Property Services Pty Ltd (“Domain Hill”) and another company. Both companies were later deregistered. Ultimately, therefore, the plaintiffs did not proceed against the fourth defendant. Edmonds spoke to Cahill and told him in general terms of the proposal of the group. Edmonds suggested possible sites such as Kingston Links Golf Course and Keysborough. On 20 April 1999 Cahill met Bucknall. Cahill was informed of the interest of the group in the purchase of a golf course. Cahill and Bucknall discussed a greenfields site at Sunshine. The discussions were quite detailed and directed towards design, earthworks and construction, planning approval and price range. The discussions also included a reference to Kingston Links Golf Course. Ultimately, the suggestion of the Sunshine site by Cahill did not lead anywhere. Cahill told Bucknall that he knew the owners of the Kingston Links Golf Course and said he would ascertain whether the site was up for sale. Cahill told Bucknall that if the Kingston Links Golf Course was up for sale and the investment group proceeded further, he, Cahill, would request payment of a fee and a success fee. The matters they discussed were set out by Bucknall in a fax he sent to Donovan on 21 April 1999 but incorrectly dated 15 April 1999. On 29 April 1999 Cahill met Kevin Wood, the managing director of the owner of the Kingston Links Golf Course in order to ascertain interest.

The Events of May 1999 – the involvement of Cahill

On 7 May Cahill wrote to Donovan in his capacity as a director of Solette referring specifically to the acquisition of Kingston Links Golf Course “by your group”. The form of the letter was settled after an exchange of drafts between Cahill and Bucknall. Cahill proposed a fee payment structure for his company, Domain Hill to act. The fee arrangement encompassed an hourly rate up to a maximum of $1,000 and a success fee of .75 per cent of the purchase price less hourly fee. Cahill stated in the letter:

“ … In respect of the Kingston Links Golf Course, Domain Hill will act as an intermediary with its role being to finalise the acquisition on the most favourable terms and conditions possible.”

The Cahill letter of 7 May 1999 was never signed by the plaintiffs. However, the arrangements were never questioned or challenged by the plaintiffs. Nonetheless, Cahill acted himself personally thereafter for the Donovan group.

On 19 May 1999 Cahill wrote to Wood as managing director of “the Kingston group of companies”. The letter was settled following an exchange of drafts between Bucknall and Cahill. The letter of 19 May 1999 referred to a luncheon discussion between Cahill and Wood and Kingston Links a few days earlier. The letter referred to the interests of a “consortium” in the acquisition of the Kingston Links Golf Course. It identified the involvement of Donovan, Howard and Bucknall and referred to “co-investors” and “partners” without identifying those parties. In particular, Cahill stated in the letter of 19 May 1999 to Wood:

“ ……………..
In respect to the Kingston Links Golf Course specifically, Domain Hill will not form part of the investment consortium but will act as an intermediary and endeavour to conclude a transaction which meets the needs of both parties. Solette Pty Ltd is the investment vehicle currently used by the consortium including partners of Oakley Thompson and Co but in the event that we consummate a transaction with you a special purpose entity will be established to undertake the acquisition.
……………………………………. “

The letter went on to request provision by Wood of information including site and financial details relating to the Kingston Links Golf Course. After dispatch of the letter of 19 May 1999 Cahill followed Wood up on the provision of the information required. It was subsequently provided.

On 25 May 1999 Bucknall met Rose and informed him of the possibility of the acquisition of the Kingston Links Golf Course and enquired as to the potential interest of Spotless. Rose expressed very keen interest.

Events of June 1999 – meetings with the Kingston Group and Spotless

After Wood provided the information requested by Cahill in his letter of 19 May 1999, Cahill arranged a meeting of Howard and Bucknall at the Kingston Links Golf Course with Wood. As preparation for the meeting, Howard wrote to Edmonds on 7 June 1999 requesting specific financial advice if a project proceeded involving the Kingston Links Golf Course. In his memorandum Howard informed Edmonds of the fact of a likely lessee, unidentified in the document, but described as being “known” to Edmonds. The memorandum suggested that the proposal would produce “a handsome yield”. Edmonds responded to Howard in a memorandum dated 8 June 1999 wherein he cautioned as to the difficulty in obtaining finance for golf course projects but advised that a particular lease arrangement could render the project attractive to a financier in that the market value of the asset would be constituted by the capitalised value of the rental income rather than the value of the land itself. Edmonds described this arrangement as similar to the structure of finance for a shopping centre. On the basis of the tenant being regarded as of “blue chip” quality he was supportive of the proposal. Otherwise, in his reply of 8 June 1999 Edmonds provided financial information to Howard as had been requested.

On 10 June 1999, Bucknall, Howard, Edmonds and Cahill met Wood at Kingston Links Golf Course for a luncheon meeting. A view of the site occurred. It was made plain to Wood that there was definite interest in purchasing the site. The meeting concluded on the basis that Cahill would contact Wood to obtain necessary information. Meanwhile, Bucknall asked Rose to provide a letter from Spotless declaring its potential interest in Kingston Links.

On 22 June 1999 Donovan, Edmonds and Cahill met for lunch at a restaurant, the Red Emperor. There was general discussion about various matters including Donovan’s corporate work in England and his involvement with the company, Disctronics. Donovan did not mention to Edmonds or Cahill at that time any intentions he had for Disctronics if a golf course investment eventuated.

On 22 June 1999 Donovan, Cahill and Bucknall met Wood at Kingston Links Golf Course and inspected the site. This was the first meeting between Donovan and Cahill and also Wood. Negotiations commenced with Donovan asking Wood as to an acceptable purchase price and Wood responding with the figure of $10,000,000. It was resolved that discussions would continue between Cahill and Wood. On 30 June 1999 Rose provided Donovan of “Solette Pty Ltd” with a letter of indicative interest for leasing Kingston Links Golf Course for a total annual rental of $960,000.

By this time, the identity of the specific participants in the venture and the extent of their interests were not known save that there were indications that Donovan, Howard, Quinert and Solette were involved.

Events of July 1999 – Development of Project

A significant shift in the role and involvement of Edmonds and Cahill came to light in early July 1999. Edmonds and Cahill came to the view that they wanted to share in the profit of the proposed transaction.

On 2 July 1999, Edmonds sent to Donovan a facsimile proposing a framework for the acquisition of the Kingston Links Golf Course. He proposed the distribution of responsibilities as follows:

“Team leader – Donovan
Assistant to team leader – Edmonds
Arrangement of disbursements and deposit – Donovan and Howard
Acquisition of property – Cahill
Finance – Edmonds and Cahill
Arrangement of lease – Cahill
Legal work – Howard
Accounting – Edmonds”

Initially, Edmonds left Quinert out but a short time later substituted him for Howard in relation to legal work. The framework included an analysis by Edmonds that contemplated equity being provided for the sum of $3,000,000, a debt of $7,600,000 amounting to a total cost of $10,600,000. The figure included fees to Edmonds and Cahill for their services totalling $272,250 and a “development profit” to persons referred to as “consortium members” of $427,750 by way of a 25 per cent share to each of Donovan, Howard, Edmonds and Cahill, that is, $106,437.05 each, those four being contemplated by Edmonds as the “consortium members”. Hence, Edmonds and Cahill saw themselves not merely as agents or employees but direct participants in the venture and necessarily sharing in any profit. The whole tenor of the letter of Edmunds of 2 July 1999 was to push Bucknall sideways and to exclude Quinert. Edmonds required Donovan to telephone him to discuss the proposal. Edmonds said that before sending the memorandum of 2 July 1999 to Donovan that he spoke to Donovan by telephone and put the proposal that Edmonds and Cahill share in the profits. Donovan denied the conversation. In any event, Donovan was irritated at the proposed exclusion by Edmonds of Quinert and Bucknall. However, Donovan did not respond to Edmonds at this point although he resolved shortly thereafter with Howard that it would be inappropriate to exclude Bucknall and Quinert. It so happened that on 2 July 1999, Bucknall also wrote to Donovan seeking an opportunity to be included an equity participant. On 5 July 1999 Edmonds sent another fax to Donovan advising that he was ready to progress negotiations for the purchase but stating his belief that it was inappropriate to do so until internal arrangements had been resolved. On 6 July 1999 Donovan telephoned Edmonds and told him he would not alter existing arrangements so as to exclude Bucknall and Quinert. Donovan did not take any steps to exclude or discourage Edmonds and Cahill. Edmonds said he would alter his proposal. Around this time Donovan spoke to Bucknall and told him that if the project was successful he would be compensated appropriately. Edmonds acknowledged that as a result of the conversation he had with Donovan on 6 July, he prepared a revised proposal and sent it to Donovan on the same date. It seemed that the memorandum of 2 July 1999 may have caused Edmonds some embarrassment. Howard said that Edmonds requested the return of the memorandum. Edmonds could not recall whether he had done that or not.

On 6 July 1999 Edmonds sent a revised scenario by facsimile to Donovan. Rather than providing for four equity participants (as in the facsimile of 2 July 1999) Edmonds provided for six participants, namely, Donovan, Howard, Quinert, Bucknall, Powell and Edmonds. In the facsimile of 6 July 1999 Edmonds contemplated that each of Donovan, Howard, Quinert, Bucknall, Cahill and Edmonds would receive an equal one-sixth share of a development profit of $427,750, namely, the sum of $71,292 each. This proposal also included an additional fee 0.75 per cent of the purchase price being a charge for property (acquisition and lease) projected at $71,250. Such item had been contemplated in the facsimile of 2 July 1999 but was described there simply as a fee for “property consultation”. On receipt of the facsimile on 6 July 1999 Donovan telephoned Edmonds and stated his dissatisfaction at Edmonds and Cahill receiving a profit and also charging fees for services. Edmonds endeavoured to persuade Donovan that Cahill should receive the property fee of $71,250, being one per cent, because it remunerated him for his estate agent services and was an incentive to Cahill to work with the group in the future. At this point, Donovan did not comprehend that Edmonds would receive any part of the property fee. Donovan told Edmonds that if equity in the range of $1,000,000 to $1,500,000 was needed the company Disctronics may provide the necessary equity. Donovan said that if as much as $3,000,000 was needed then such amount was beyond the range and capacity of Disctronics. This was the first time that the involvement of Disctronics was disclosed by Donovan or by any of the plaintiffs to Edmonds but even then only in passing. Donovan asked Edmonds to provide him with some further financial scenarios.

On 6 July 1999 Edmonds did so, sending another facsimile to Donovan setting out seven different scenarios contemplating different purchase costs, profit share, property value and initial paper profit to an investor. Each of the scenarios contemplated a uniform item designated “professional fees” in the sum of $272,000 (which were to be payable to Edmonds and Cahill). One of the scenarios, described as “scenario 4A” required equity of $1,440,000 and was therefore within the range that would enable Disctronics to provide the necessary equity. Around 7 July 1999 Donovan telephoned Edmonds and confirmed Disctronics’ position. Edmonds said it was unlikely the transaction could be effected with that amount of equity. Donovan said he would discuss the proposal of Edmonds with Howard and Quinert. On 10 July 1999 Edmonds sent Donovan another facsimile setting out an additional scenario. It contemplated a purchase cost of $10,100,000 including professional fees of $306,250 and a development profit of $893,750 and requiring equity of $3,000,000. The professional fees included, as they had done previously, a debt arrangement fee of $76,000 payable to Edmonds and an equity arrangement fee of $90,000 payable by an unidentified “investor”. The amount of the development profit was to be split six ways giving each of Donovan, Howard, Quinert, Bucknall, Cahill and Edmonds the sum of $148,958.

Donovan was annoyed by this latest scenario for three reasons. First, he realised that Edmonds wanted to be paid both a share of the purchase profit plus a debt arrangement fee of one per cent being $76,000. Secondly, the scenario and the facsimile of 10 July 1999 proposed an equity beyond the capacity of Disctronics. Thirdly, the high equity figure was derived from the allowance of a notional profit to be paid to the consortium by the equity provider. By this time Donovan, Howard and Quinert were all in London. Donovan met with Howard and Quinert. They resolved that Quinert would speak to Edmonds.

On 11 July 1999 Edmonds gave a copy of the memorandum of 10 July together with some other papers to Quinert at the offices of Oakley Thompson and Co. Edmonds told Quinert that in his view Disctronics would be best to sell the Kingston Links Golf Course and achieve a quick profit rather than hold on to it. Quinert gave evidence that during the conversation Edmonds was intense. Quinert said Edmonds told him that he, Edmonds, was the best person to run the project and that Donovan was trying to make it available as an investment for Disctronics. Edmonds denied that these matters were discussed between he and Quinert.

The next development occurred on 12 or 13 July 1999 when Donovan, Howard and Quinert met to discuss the golf course project. Donovan told the meeting that he wanted the project to be available as an investment opportunity for Disctronics provided that Disctronics had the financial capacity to meet the equity requirement. Donovan told Quinert and Howard that Disctronics could manage equity up to $1,500,000 that could be achieved through the redemption of insurance bonds. The meeting concluded on the basis that Quinert was to speak to Edmonds. Quinert was directed to clarify the position as to fees payable including the payment of an equity arrangement fee of $90,000 specified in the scenarios and to confirm the objectives of Donovan, Howard and Quinert in relation to Disctronics and the project.

On 14 July 1999 Quinert telephoned Edmonds from London. Discussions revolved around the fees that Edmonds and Cahill proposed charging and the role of Disctronics. Edmonds complained that Donovan was treating the transaction as one for Disctronics. Quinert told Edmonds that the transaction had always belonged to Donovan and that if Disctronics was the equity provider, no equity fee would be payable and that Donovan, Howard and Quinert would rebate their entitlements, if any, to Disctronics. Edmonds complained that if the transaction went that way Edmonds and Cahill would lose fees. The conversation finished without any resolution.

On the next morning, Edmonds phoned Quinert and proposed that Edmonds and Cahill withdraw from the project and take the Kingston Links opportunity with them but that Donovan, Howard, Bucknall and Quinert retain the relationship with Spotless. In cross‑examination Edmonds was initially equivocal about whether the intention was Disctronics would provide the equity in the project. When it was directly put to him that it was made plain on that occasion he denied the assertion. In so far as it is necessary and ultimately relevant, I do not accept the evidence of Edmonds in this regard. He asserted that he was told by Quinert that there was “a very slim chance” that Donovan, Howard and Quinert might want to have Disctronics provide the equity. Having had the benefit of observing the witness I do not, as I say, accept his evidence. My view is borne out, further, by the corroboration of Donovan and Howard as to the position communicated to Quinert during their meeting on 12 July and, importantly, that in scenarios drafted by Edmonds thereafter he included options of Disctronics participating by way of providing the equity. Furthermore, it was specifically put to Edmonds in cross‑examination that he did not make enquiries or question the prospect of Disctronics being included (or for that matter excluded) from the equity in the project. Edmonds acknowledged that he did not raise the matter. He said the reason for not doing so was because it did not occur to him. At a subsequent opportunity he said he believed the prospects of Disctronics providing the equity was unlikely. Again, having observed the witness and considering his evidence I do not accept the version of events of Edmonds.

It transpired that a board meeting of Disctronics was about to be convened. Quinert said he would call Edmonds back later.

After the board meeting, Donovan, Howard and Quinert met informally to discuss the position most recently put by Edmonds. It was resolved that a compromise offer be conveyed to Edmonds and Cahill. There were a number of components to the offer: a fixed fee of $140,000 was to be paid to Cahill and Edmonds, to share, and $140,000 was to be paid to Bucknall, Howard, Quinert and Donovan, to share, but that Howard, Quinert and Donovan would pay $70,000 of their amount to Bucknall save that if Disctronics was involved the remaining $70,000 would be rebated by them; external disbursements of $140,000 would be paid before any profit; internal disbursements, projected between $210,000 and $280,000 would be drawn from consortium profits; if an external equity provider was involved the return on equity would be capped at 22 per cent but if Disctronics was the equity provider no such cap would be imposed; finally, if the equity requirement was $1,500,000 or less Disctronics had an option to proceed with the transaction but if the equity was more Edmonds would be entitled to arrange an external equity provider.

Quinert prepared a rough note listing these items before he spoke to Edmonds. Edmonds expressed contentment with the proposal as outlined by Quinert but said he would discuss the matter with Cahill. Edmonds responded by facsimile sent on 16 July 1999 (but actually dated 12 July 1999) to Quinert. Edmonds agreed to the proposal put forward by Quinert save for the non-payment of profit share if Disctronics was the equity provider. Edmonds proposed that there should be none. Quinert spoke to Donovan and then called Edmonds. Quinert told Edmonds that his response was acceptable but that a profit may be payable, if possible, if Disctronics proceeded with the transaction. Edmonds told Quinert he was happy with the proposal. At that stage Quinert believed the matter was resolved.

Significantly, the memorandum dated 12 July but sent 16 July 1999 referred specifically to Disctronics. The memorandum establishes that by that date at the latest Edmonds had specific notice of the intention of Donovan, Howard, Quinert and Bucknall to include Disctronics in the project, in particular, as the equity provider. The attitude of Edmonds towards the memorandum was disingenuous. Edmonds gave evidence‑in‑chief that he did not discuss the contents of the memorandum with Quinert after it was sent. It was suggested to Quinert during his cross‑examination that Edmonds told him that in sending the memorandum he had made a mistake. Nevertheless, no such evidence was given by Edmonds in‑chief. During his cross‑examination Edmonds said that he told Quinert that in sending the memorandum on 16 July 1999 he had “stuffed up”. Edmonds was vigorously cross‑examined as to the memorandum sent on 16 July 1999. I found his evidence to be unacceptable. At one point Edmonds endeavoured to explain his position by relying on the fact that he was ill with influenza at the time of these events. I was satisfied that as demonstrated by the memorandum sent 16 July 1999 Edmonds knew of Disctronics. Nevertheless, as events transpired the knowledge was not all that important.

On 19 July 1999 Edmonds sent another facsimile to Quinert containing two further scenarios that were at variance with the arrangement discussed between Edmonds and Quinert on 16 July 1999. The variations related to fees, the splitting and payment of profit and unknown assumptions such as land cost and rental return. On its face the document was also a response to the suggestion of Quinert that a profit share may be available even if Disctronics provided the equity. By the time of this memorandum Disctronics was not referred to specifically in the document at the request of Quinert. Curiously, Donovan, Howard and Quinert appeared to desire that the identity of Disctronics as a participant in the project remain a commercial secret. The 19 July 1999 memorandum proposed a number of scenarios, two of which contemplated Disctronics as the equity provider. Quinert did not respond to the facsimile.

Meanwhile, Bucknall was continuing discussions with Rose of Spotless. He met Rose on 13 July 1999. Rose indicated that the lease figure would exceed $1,200,000 per annum and there could be a first term of 15 years under the lease. Bucknall informed Donovan of these matters. On 13 July 1999, also, Cahill sent a memorandum marked “confidential memorandum” to Donovan, Howard, Quinert, Edmonds and Bucknall attaching financial information and a draft letter of offer to Kingston Links. In his memorandum Cahill advised that he believed Wood of the Kingston Links Group had a primary price target of $9,000,000 but suggested an opening offer under $8,000,000. On 19 July 1999 Bucknall introduced Cahill to Rose. There was discussion as to financial matters and the meeting ended on the basis that Rose would prepare a brief to go to the board of Spotless.

The Meeting of 20 July 1999

On 20 July 1999 a meeting by way of telephone conference was convened between Donovan, Quinert, Bucknall, Edmonds and Cahill. Howard was absent. The events and resolutions of the meeting were set out in well revised draft minutes that were finalised at a further telephone meeting on 26 July 1999. Howard was present at the second occasion. The minutes warrant particular consideration.

The meeting on 20 July was preceded by a memorandum of Edmonds of 19 July 1999. In that memorandum Edmonds put forward four core proposals to Donovan, as follows:

(1)External disbursements for the acquisition of the golf course were estimated at $140,000 if an external equity provider was involved.
(2)Moneys for internal disbursements of $200,000 were to be split, that is, $140,000 between Donovan, Howard, Quinert and Bucknall, and $140,000 between Edmonds and Cahill.
(3)Approximately 50 per cent of the notional profit of the transaction, excluding disbursements payable to Donovan, Howard, Quinert, Bucknall, Edmonds and Cahill, accrued to the equity provider.
(4)The remaining notional profit would be applied to pay external disbursements, then internal disbursements and the balance called “a profit share” was to be split six ways between Donovan, Howard, Quinert, Bucknall, Edmonds and Cahill equating to the sum of $30,000 each.

The minutes of the meeting of 20 July 1999 were drafted by Edmonds and went through two drafting phases including a further meeting on 26 July 1999 when the form of the minutes was finalised. The final minutes fixed the fees of Edmonds and Cahill at $140,000. The minutes reflected that the persons present resolved that the profit share was to be determined at a later time. This was very important as events panned out. The minutes did not disclose that any final decision was made in relation to Disctronics. Indeed, Disctronics was not mentioned in the minutes. This fact, too was important. Generally, the minutes were cast in vague terms. A number of elements of the minutes require attention. First, the minutes referred to a “team structure” that encompassed all of Donovan, Howard, Quinert, Bucknall, Edmonds and Cahill and allocated a role to each individual. Secondly, the minutes described the topic or agenda discussed at the meeting as being “Property venture to acquire Kingston Links Golf Course and arrange Spotless Services Limited to become long term operator/tenant”. Thirdly, a broad approach was contemplated encompassing allowance for acquisition costs, disbursements, including the fees of Cahill and Edmonds, and a profit share. To a large extent, the concept of the profit share was left open‑ended and undetermined. Fourthly, the minutes revealed it was contemplated that the profit share would be split among the “team” in six equal proportions. Fifthly, it was contemplated that the arrangement of equity funding would be addressed when the purchase price of the property and the details of release were known. In this respect the minutes were particularly vague. Sixthly, the minutes revealed that Cahill had the role of conducting negotiations with the Kingston Group, Edmonds the financial role, whilst Bucknall had the role of negotiating with Spotless. The minutes, as finalised, bear out that on 20 July 1999 the parties resolved to embark on a joint venture involving Donovan, Howard, Quinert, Bucknall, Edmonds and Cahill in quite loose terms so as to acquire the Kingston Links Golf Course. The joint venture did not encompass Disctronics as a member.

Commensurate with the general plans of the joint venture, on 21 July 1999 Cahill sent a letter to Wood marked “private and confidential” offering to purchase the Kingston Links Golf Course in the names of Howard, Quinert and Edmonds as nominees for a special purpose entity for the sum of $7,750,000 plus stock at value.

On 29 July 1999 Spotless wrote to Donovan in his capacity as a director of Solette conveying an indicative offer to lease the Kingston Links Golf Course for the annual rental of $1,165,000 for a minimum term of ten years with a ten year option. On 2 August 1999 Rose met Quinert, Howard, Bucknall and Cahill at the offices of Oakley Thompson and Co to discuss the terms of a possible lease. Rose advised that Spotless wanted to proceed at a rental in the range of $1,160,000.

The Events of August 1999

Hence, by early August four key events had occurred. First, a joint venture had been resolved by 20 July 1999 encompassing Donovan, Howard, Quinert, Bucknall, Edmonds and Cahill. There was, at most, a loose arrangement that an external equity provider would be found but at a later time. Second, on 29 July 1999 Spotless had formally offered to pay rental of $1,165,000 per annum. Third, conditions of a proposed lease had been agreed with Spotless on 2 August 1999.

There was a significant fourth element. On 3 August 1999 Cahill and Wood agreed, verbally, that the Kingston Group would sell Kingston Links to the venture for $8,680,000. Cahill telephoned Quinert to inform him. Quinert made a handwritten file note of the conversation on 3 August 1999. It recorded: “Have foot on the land at $8.68M (includes machinery)”. Thus by that date the price acceptable to the Kingston Group was known.

The Disintegration of the Joint Venture

On 3 August 1999, Edmonds telephoned Quinert and enquired as to the general financial capacity of Quinert, Donovan, Howard and Bucknall to access funds. Edmonds told Quinert he was contemplating another approach so that the individuals could fund the project themselves. Quinert asked Edmonds to reduce his ideas to writing. Edmonds responded with a memorandum on 3 August 1999 to Quinert, Howard and Cahill. It contemplated the restructure of the transaction so that instead of an external equity provider, the profit share would be distributed differently and the equity would be provided by the six participants, namely, Donovan, Howard, Quinert, Bucknall, Cahill and Edmonds. In cross‑examination Edmonds acknowledged that it was his understanding that in all likelihood Donovan, Howard and Quinert would want Disctronics to be the equity provider in the transaction. He acknowledged, also, that if the transaction proceeded with Disctronics as the equity provider the profit share to the consortium would be considerably less than if the equity provided was otherwise. Quinert gave evidence that Edmonds agitated for a response to the memorandum of 3 August on both 3 and 4 August 1999. Edmonds was evasive when questioned about his pursuit of an answer but ultimately conceded that he may have made an enquiry of Quinert.

Donovan entirely rejected the proposal of Edmonds formulated on 3 August 1999 and directed Quinert to inform Edmonds that Disctronics would be the equity provider. Quinert stalled his response to Edmonds until the afternoon of 4 August 1999 when Quinert gave Edmonds a memorandum.

In his memorandum of 4 August 1999 Quinert informed Edmonds that “ … Disctronics intends to exercise its entitlement to take on the acquisition … “. Quinert rejected the most recent plan of Edmonds of the six equity participants. He proceeded to analyse the proposed structure. The memorandum of Quinert included the following remarks:

“Thanks for your memo dated 3 August 1999.
I confirm that based upon the indicative purchase price and rental figures now on the table the public company group ie Disctronics intends to exercise its entitlement to take on the acquisition. Accordingly the alternative put forward by paragraph 2.2 of your memorandum is not possible.
In relation to the "External Equity" attachment I think that there are several matters which require clarification. Perhaps it will assist that process to set out for your consideration the following comments:
1.The non Disctronics associated consortium members are to receive the fees you referred to (eg PC [Cahill] and CE [Edmonds] each $140,000). As directors KD, MQ and SH will rebate their entitlements in favour of the purchaser.
2.It was settled that the consortium members would receive a share of the "profit". KD [Donovan] MQ [Quinert] and SH [Howard] will rebate their entitlements.
3.You have put forward your model of what should determine "profit". Irrespective of whether you look at it from Disctronics or from some other outside party's perspective I would respectfully suggest that there are fundamental questions regarding the appropriateness of your methodology.
(a)The capitalisation of yield approach, whilst useful in the context of a financing request for a loan of around 65% to 67% of theoretical value, is only one of many factors which the real market place will take into account. As PC has himself said, at the end of the day it is what the market will pay which determines value and thereby profit; not one or more valuation techniques.
(b)You have used the proposed gross rental figure in the capitalisation equation whereas costs directly associated with holding and preserving the asset as well as developing future golf prospects will be incurred. By getting the gross rent above the figure of $1 million (which we have always worked with) Rick [Bucknall] has provided us with a real opportunity to meet those costs and still retain an effective return of $1 million.

It would be our intention to engage Rick to take care of those objectives by at least using some of the surplus he created. Surely, this is only fair and at the end of the day will be to everyone's benefit. The return in net terms is therefore around $1 million not of 1.165 million.
(c)Not all of the asset is in the land. Indeed I think PC has suggested a $5 million figure for land with the rest tied up in goodwill, plant, names etc. These are business type assets which are not in my experience treated the same as a straight yield based on static bricks

By dealing with Disctronics we are adding $90,000 to the pie (ie no proc fee) and substantially eliminating the delay and frustration we have all experienced in dealing with outside venture capital sharks and their advisers. These are significant benefits to the consortium members.
However, just as an outside equity provider would assess the real potential profit rather than a theoretical profit that requirement should also be acknowledged and applied in this case.
I do accept that at the end of the day the non associated consortium members want the issue of quantum settled. Certainly with the land secured there should be enough pieces of the jig saw now in place to resolve that issue. Based on my discussions with PC a contract note could be exchanged by as early as next week. At that time KD will be in Australia and therefore all six could meet face to face. Certainly, that is a better forum than the haphazard and confused lines communication (sic) which otherwise tend to develop. For example, I have no idea what PC or RB [Bucknall] think! Presumably you have told PC not to ring me! Certainly, neither RB or myself are having calls returned.
In an effort to perhaps allay your fears I assure you that I believe the transaction can procure a real and substantial profit. As such there will be an entitlement to non associated consortium members for a return significantly greater than the agreed professional fees. Given that as I understand it, yours and PC's engagement was originally to be as consultants only this outcome when viewed in that context probably represents the best deal you have ever done. It would be extremely disappointing if you were not happy in those circumstances.
To be candid your approach always seems directed towards pushing the other consortium members to a position rather than simply discussing and resolving the matter in an open and co-operative serve (sic) is not my style and, frankly, I am personally not going to participate in such a process with people I consider associates. That is how I feel.”

Edmonds gave evidence that he regarded the memorandum of 4 August 1999 such that “ … they (being the other consortium members) were reneging on the transaction … on what had been agreed”. He said that he formed this view because he regarded the other consortium members as wanting to negotiate the calculation of profit when that had been agreed upon already. Edmonds refuted that it was always contemplated that the negotiation of profit would occur later on in time.

Essentially, Edmonds, and also Cahill, asserted that the imposition by Donovan and the others of Disctronics into the role of equity provider in the transaction had an impact on the agreed profit share. In fact, profit share had been agreed upon to a certain extent at the meeting on 20 July 1999 but only in very loose terms. Nevertheless, it was clear to all parties, including Edmonds and Cahill, from 20 July 1999 that the profit share would be split six ways but that equity funding would be arranged later. The extent and the amount of the profit share remained undetermined. It would depend in part on the extent of the equity required and the identity of the equity provider.

There were inconsistencies in the evidence of Edmonds in relation to the Quinert memorandum of 4 August 1999. Initially he acknowledged that negotiation on the calculation of profit would occur at a later time. Such evidence was given initially by Edmonds in the first day of his cross‑examination. After an overnight adjournment the cross‑examination of Edmonds continued into a second day. At that time the matter of the memorandum of 4 August 1999 was raised with him again. Edmonds shifted his evidence from that given on the preceding day. He rejected the suggestion that there was always going to be a negotiation to calculate profits later in time. When pressed in cross‑examination Edmonds conceded that upon receipt of the memorandum of Quinert of 4 August 1999 he realised that once Disctronics was the equity provider the amount of profit available to be shared was less than he desired. In addition, his later evidence contradicted the matters set out in the minutes of the meeting of 20 July as settled and finalised on 26 July 1999. Edmonds was at pains in his cross‑examination on the second day to assert that there had been an “agreement” and that the memorandum of 4 August 1999 was inconsistent with such agreement. It was the case of Edmonds and Cahill that the memorandum of 4 August 1999 constituted a repudiation of the joint venture asserted by the Disctronics interests.

Cahill acknowledged in his evidence that by end July/early August 1999 it appeared to him that there might be a substantial profit to be made out of the transaction. He said that Edmonds told him he was going to table the idea of a joint venture involving Edmonds and Cahill. Indeed, Cahill acknowledged that during July he was in regular contact with Edmonds about the achievement of an agreement on a share of the profit to be made from the transaction. Cahill said that he regarded the 4 August 1999 memorandum as an attempt by the other parties to cut he and Edmonds out of the joint venture. It was put to Cahill in cross‑examination that he believed the memorandum of 4 August 1999 would lead to a negotiation as to the calculation of profit. The rejection was contrary to other evidence given by Cahill to the effect that he prepared an analysis for the advancement of moneys that proposed a payment of $740,000 that he sent to Edmonds. In the course of discussions between Howard, Quinert and Edmonds on 4 August 1999 Edmonds put forward a proposal of a payment to he and Cahill of the sum of $740,000. A reasonable inference can be drawn, therefore, that Cahill knew upon receipt of the memorandum of Quinert of 4 August 1999 that further negotiations were to ensue and for that very reason he proposed the figure that he did in the analysis he provided to Edmonds.

Whilst discussions and communications were proceeding, Quinert set matters in train to expedite the transaction. He activated a shelf company known as Corwen Grange Pty Ltd (“Corwen Grange”). Disctronics acquired one ordinary share in Corwen Grange with the intention that it would be the nominee for Disctronics in the project. Howard and Quinert were appointed directors of Corwen Grange. Quinert telephoned Howard and directed that he nominate Corwen Grange in the written offer to be sent to the Kingston Group.

On 5 and 6 August 1999 various discussions ensued between Howard, Quinert and Edmonds as to the position of Edmonds and Cahill. By this time relations between Edmonds on the one side and Howard and Quinert on the other had become strained. Edmonds was concerned that Donovan was allowing Disctronics to take over the acquisition whilst he saw an opportunity for the six team members to provide the equity themselves. Donovan, Howard and Quinert on the other hand saw Edmonds as seeking to gain more than he was entitled to and at the expense of Disctronics.

A meeting had been arranged on 5 August 1999 involving Edmonds and Howard. Before Edmonds met Howard, he and Cahill took the precaution of obtaining legal advice on the morning of 5 August 1999 from solicitors, Abbott Stillman and Wilson. One of the reasons for so doing was in order that Edmonds could arm or prepare himself for the imminent meeting with Howard later that day. Another purpose was to negotiate a buy‑out position for Edmonds and Cahill. By 5 August 1999 Edmonds and Cahill saw an opportunity to make money from the Kingston Links Golf Course without Donovan and the others and that they, Edmonds and Cahill, could effect the transaction themselves. The plaintiffs knew nothing of these intentions or considerations by Edmonds and Cahill. The discussions proceeded and concluded on 6 August 1999 when Howard and Edmonds proposed that Cahill and Edmonds would each be paid the sum of $150,000. Edmonds left the meeting on the basis he would consider the proposal with Cahill. Quinert prepared a document referred to as a “fee agreement” and left it in Edmonds’ office at Oakley Thompson and Co on 6 August 1999. It provided:

“Our fee agreement is as follows:
Subject to:
l.a wholly-owned subsidiary of Disctronics Limited "D.L." or its/their nominee satisfactorily completing the acquisition of the Kingston Links Golf Course ("the Property") for an aggregate price not exceeding $8.688 m. ("the net purchase price") which said net purchase price includes all land, buildings, tradenames, goodwill, plant and equipment, machinery etc at on, upon or appurtenant to the enjoyment and use of the Property; and
2.C.E. and P.C. procuring bank finance ("the finance facility") for D.L. at not more than prevailing commercial rates of interest, fees and charges to a level which requires D.L. to contribute equity of not more than $750,000 to acquire the Property; and
3.the finance facility being provided on a non-recourse basis to the directors of D.L.; and
4.the finance facility being premised upon a net rental available to D.L, of S1.065m., being the gross rental payable by the intending Lessee (being a member of the Spotless Group of Companies who must unconditionally consent to entering into an Agreement for Lease of the Property for a term of not less than 5 x 5 x 5 x 5 years at a gross commencement rental of not less than $1.165 m. per annum plus rates, taxes, and outgoings within one month of D.L. entering into a conditional contract to purchase the Property) less the reasonable cost of engaging R.B. for a term of 1 x 1 x 1 years at a commencement salary package not to exceed $80,000 per annum to supervise the intending lessees use of the Property so as to preserve and enhance its value.

Then, but not otherwise:
5.D.L. shall pay C.E. and/or nominee on completion of the purchase of the Property $150,000; and
6.D.L. shall pay P.C. and/or nominee on completion of the purchase of the Property $150,000; and
7.D.L. shall pay R.B. and/or nominee on completion of the purchase of the Property S 100,000.

These terms are confidential.”

Edmonds informed Cahill on 6 August 1999 of the offer of $150,000 each. On Sunday 8 August 1999 Edmonds went to his office (at Oakley Thompson and Co) and found the memorandum from Quinert of 6 August 1999. He also found a facsimile sent to him by Cahill on 6 August consisting of a proposed letter of settlement that Cahill contemplated would be sent to them from Donovan and the others formalising the offer of $150,000 each. Edmonds read both documents. On that Sunday 8 August 1999 Edmonds telephoned Cahill from his office. They discussed the possibility of going ahead with the transaction alone. Edmonds and Cahill believed if they did they could make more money than the $150,000 each then had on offer. They did not purport to assert existing rights, if any, as agreed on 20 July 1999 pursuant to the joint venture. They contemplated a completely different arrangement.

Edmonds and Cahill resorted to their solicitors, Abbott Stillman and Wilson for further legal advice. They sent the memorandum of Quinert of 6 August 1999 constituting the offer and conditions to the solicitors. Edmonds and Cahill drafted a letter to send to Donovan and the others purporting to terminate their relationship. Edmonds and Cahill sent the draft to their solicitors to settle. Upon Abbott Stillman and Wilson settling the letter, Edmonds wrote to Quinert on 10 August 1999 in the following terms:

“I acknowledge receipt of your proposal on Friday evening 6 August 1999, which purports to be an agreement. I must emphasise that no such agreement is in place. Confirmation of your revised offer was sought so that I could discuss the matter with Peter Cahill. However, the offer is a dramatic variation from the profit sharing arrangements that were agreed and documented and it is therefore unacceptable.
Whilst Peter acknowledges being invited into the consortium initially as a consultant, the deal very clearly and demonstrably evolved into a joint venture between yourself, Kevin Donovan, Stephen Howard, Rick Bucknall, Peter Cahill and myself. From my end, I always considered that my interests, through Home Link Mortgage Corporation Limited, were part of a partnership/joint venture. The basis of the agreement and the formula for equity/profit sharing was documented (and countersigned by Kevin Donovan without objection from any of the participants.
Clearly, you believe the joint venture (for which Oakley Thompson & Co is the appointed legal firm) is now at an end because you have excluded Peter, Rick and myself from any involvement as principals and are seeking to appoint us merely as consultants to the transaction so as to maximise your own commercial returns.
I am immensely disappointed that you have repudiated the joint venture arrangements, which were very clear cut. The present proposed terms for our on-going involvement is unacceptable. Peter and I are somewhat relieved that we are no longer involved because we believe your integrity and ethics are profoundly lacking.”

The letter of 10 August 1999 from Edmonds was sent by he and Cahill with the intention of terminating their relationship with Donovan and the others.

Quinert replied to Edmonds’ letter of 10 August 1999 in sharp terms by letter dated 12 August 1999. He rejected the contentions of Edmonds. Quinert also cautioned Edmonds that any attempt by him to undermine or frustrate the project would constitute a breach of fiduciary duty. The letter from Quinert was sent on the letterhead of the solicitors, Oakley Thompson and Co. Similar exchanges occurred between Quinert and Cahill.

On the same day, 12 August 1999, Howard wrote to Edmonds in self-serving terms asserting, among other things, two significant matters. First, that Edmonds and Cahill started out as consultants to Solette but that eventually a joint venture was formed. Secondly, that “at all material times it was agreed” between the joint venturers that if less than $1,500,000 was required to acquire the Kingston Links Golf Course then the “Disctronics Group of Companies” could elect to proceed with the acquisition alone and the joint venture would “cease to exist”. Howard told Edmonds further in the letter that on 11 August 1999 he had arranged with Wood of the Kingston Links Group to resume negotiations for the purchase of the golf course.

On 13 August 1999 Edmonds responded to Howard refuting his assertion. In particular, Edmonds rejected that there was an agreement such that Disctronics could become the purchaser. Edmonds stated:

“ …..
Whilst I understood that the level of equity that Disctronics Limited would be prepared to commit to such a project would not be infinite, this is the first I have been advised of a ‘$1.5 million’ equity threshold. ‘It is false and quite absurd of you to suggest that it was agreed that the joint venture arrangements would cease if Disctronics Limited became the ultimate purchaser … ‘.”

These matters stated by Edmonds contradicted the discussions between he and Donovan in July 1999 and between Edmonds and Quinert in July also. Meanwhile, on 10 August 1999, the day Edmonds wrote to Quinert upon the letter being settled by Abbott Stillman and Wilson, Cahill wrote to Wood of the Kingston Links Group advising him that the consortium was “dissolved”. In the letter, Cahill acknowledged that the Kingston Links Golf Course was “not officially on the market”. On 11 August 1999 Wood responded stating that he would be delighted if Cahill considered the acquisition in his own right or with another party. At this stage, Cahill and Edmonds knew that Kingston Links would accept an offer in the range of $8,688,000.

There were some curious aspects surrounding the letter by Cahill to Wood dated 10 August 1999. The letter provided:

“I regret to advise that the investor consortium proposing to acquire the above property has been dissolved.
I expect one of the other consortium members may contact you either directly or through a consultant, if they wish to pursue the matter.
For your information, my last communication on the negotiations was with Michael Quinert and Stephen Howard. I indicated to them that you would consider accepting an offer of $8,688,000 as the total consideration to conclude the transaction. My intention was to attempt to finalise the deal at that figure following your request that the offer be submitted in writing so that you could discuss it in detail with your board. I trust this reflects your understanding of our recent discussions.
I wish you all the best with the course and respect your position that the property is not officially on the market. You can be assured that our dealings will remain strictly confidential.”

The letter noted that a copy was sent to Quinert. Word processing details were endorsed at the foot of the letter bearing the date 10 August 1999 and indicating that date as being the date of creation of the document.

An additional letter was obtained by the plaintiffs through non-party discovery. It was accepted by Cahill during cross‑examination that it was a draft letter of which he was the author. The document was headed “draft letter” and bore the date “10 August 1999” which date was crossed out. The letter was addressed to Wood and constituted an offer to purchase the Kingston Links Golf Course for the price of $8,700,000. At the foot of the letter the word processing identification details were endorsed bearing the date 5 August 1999. It was suggested to Cahill during cross‑examination that the date at the foot of the document indicated the fact that it was created on 5 August 1999, that is, before the letter of Edmonds to Quinert on 10 August 1999. Cahill refuted the suggestion and explained the date at the foot of the draft letter as being erroneous. A reasonable inference can be drawn that the date at the foot of the draft letter was accurate.

Nonetheless, Cahill made every effort to hide his intentions from Howard and the others. He said in cross‑examination that he was concerned that Donovan and the others might engage in legal tactics to thwart the transaction he contemplated. There was no evidence to support the defendants’ alleged fear of the plaintiffs. I am satisfied that at this time Cahill was concerned not to be discovered as to his actions and intentions. Indeed he said as much in his evidence. The behaviour of Cahill was furtive and devious.

The Involvement of the Buxton Interests

At this point, the sixth, seventh and eighth defendants in the main proceeding entered the scene. The sixth defendant, Michael Buxton (“Buxton”) was a business acquaintance of Cahill. The seventh defendant, Emanbee Nominees Pty Ltd (“Emanbee”) was an investment vehicle of Buxton. The eighth defendant, MRB Life Pty Ltd (“MRB”) was another Buxton company.

Cahill telephoned Buxton on about 10 August 1999, again, the same day as Edmonds wrote to Quinert terminating arrangements, and told him of a possible investment opportunity involving a golf course at Rowville. Little else was said by Cahill at that point. Buxton was interested and asked for information. As a consequence, Cahill sent a facsimile to Buxton on 11 August 1999 as follows:

“I am finalising a major property deal with following elements:
·     Acquisition cost of around $8,500,000 - conditional contract with vacant possession.
·      Pre-arranged tenancy commitment from a major public company for 20 years.
·      Value with tenant in place approximately $12,500,000.
·      Paper profit day 1 approximately $4,000,000.
·      No development works or town planning hassles required.
·      Deal is cash flow positive approximately $500,000 per annum.
I have the financial capacity to do this deal myself although the most likely outcome is that very little real equity will be required. However, I am prepared to cut you in on the deal for other reasons - if you're interested.
Will need to meet with you ASAP if you want in.
I will be using Arnold Bloch Liebler on the acquisition.”

The facsimile was sent about 10.00 a.m. on 11 August 1999, 24 hours or less after Edmonds wrote to Quinert.

After Buxton received the facsimile from Cahill on 11 August 1999 the two men met at Cahill’s home shortly afterwards, on the evening of 12 August 1999. In that discussion Cahill explained to Buxton that he had been involved with other persons, that the involvement was over and that Cahill wanted to involve Buxton in the transaction together with Edmonds. By this time Edmonds had passed on to Cahill the letter of Quinert of 12 August 1999 containing the warnings as to the alleged legal ramifications of the actions of Edmonds. In cross‑examination Cahill said that it was highly probable that he disclosed to Buxton the contents of the Quinert letter of 12 August 1999. In his evidence, Buxton did not specifically say as much. In fact, the Quinert letter of 12 August was not put to Buxton in cross‑examination. Indeed, Buxton said Cahill did not explain to him his dealings with Disctronics and Oakley Thompson and Co, rather, only referred to “other persons”. Buxton said he learned of the identity of Donovan and others later in time in September 1999 when correspondence was sent to him through his solicitors from Cahill. Cahill described the events of the meeting with Buxton of 12 August 1999 in his evidence‑in‑chief (by witness statement) in the following terms:

“On the evening of 12 August 1999 Michael Buxton came to my home. We discussed the fax which I had sent him on 11 August 1999. We had a general discussion about the background to the Kingston Links project. I informed him that the group which had previously agreed to join together to buy the property had disbanded and that I regarded the property as an opportunity worth pursuing. As well as discussing the Kingston Links proposal, at about this time Mr Buxton and I were both involved in discussions regarding another project for which we jointly tendered being a property at Studley Park Kew. The tender process was ultimately was unsuccessful.
During the course of my initial discussions with Michael Buxton I explained to him, in general terms, the background to the proposed transaction and the extent of my involvement with Donovan, Quinnert, Howard and Bucknall.
Before any commitment was given by Buxton I informed him amongst other things that:
(a)I was initially invited in as a consultant to help some lawyers at Oakley Thompson & Co and a consultant get a golf course development deal off the ground with a view to pre-leasing the course to Spotless Group;
(b)Chris Edmonds and I brought the opportunity of Kingston Links to the table which meant it would be possible to buy an existing operating course and avoid all the development hassles;
(c)The deal evolved into a joint venture which was clearly minuted and agreed by all 6 participants;
(d)As the deal was coming close to being finalised, the lawyers unjustifiably asserted that they had an option to buy the property which excluded us from participating in the profit share;
(e)I felt free after taking legal advice to try to get the deal done on my own or with others;
(f)If we were successful with the purchase, we could expect the lawyers to take umbrage at our success and issue legal proceedings against us even though they would have no proper basis for doing so. I referred to them as ‘smoke and mirror experts with a penchant for litigation’.”

This description was not rebutted by Buxton, but, the matters described by Cahill were not specifically put to Buxton in cross‑examination.

As events transpired, Buxton agreed to participate in a transaction with Cahill and Edmonds.

Cahill was concerned to ensure that Donovan and the others did not know of his intentions from 10 August 1999 onwards. He asked Buxton to agree to be nominated as the purchaser and Buxton agreed to do so. Eventually, the relevant transactions were carried out in the name of Emanbee, Buxton’s company.

On 12 August 1999 Cahill wrote to Rose of Spotless informing him that he, Cahill, was no longer involved with Donovan and the others. He remarked in the letter as to his belief that “ … other prospective purchasers may also be in discussions with the Kingston Group”.

On 13 and 19 August 1999 Howard spoke by telephone to Cahill. The conversations were recorded by Howard. The conversations were tense but polite and finished on the basis that Howard and Cahill agreed to go their separate ways without any ill feelings. Cahill made no mention of any future intentions of his own or of he and Edmonds together with any other person in relation to the Kingston Links Golf Course.

Meanwhile, Quinert ascertained that, contrary to his instructions, Cahill had not forwarded a formal offer on behalf of Corwen Grange to the Kingston Group. On 19 August 1999, Quinert wrote to Wood of the Kingston Group in the following terms enclosing a formal offer to purchase the Kingston Links Golf Course for the sum of $8,688,000:

“As you are aware Mr Peter Cahill of Domain Hill Property Services Pty Ltd was until recently engaged in negotiations with you regarding the proposed acquisition of Kingston Links Golf Course ("the facility"). In conducting those negotiations Mr Cahill was acting as an agent for, and was a member of, a consortium which, was formed to pursue the acquisition on behalf of an equity investor. Pursuant to certain financial parameters agreed to by the consortium members, the equity investor which took up the option to pursue the acquisition was an unlisted public company group which operates pre-dominantly in the United Kingdom and the United States of America. Certain members of the consortium including myself, Mr Stephen Howard and Mr Kevin Donovan are also Directors of the equity investor group.
On the 3 August last, Peter advised me that following further discussions, you had informed him that you would be prepared to recommend an offer of $8,688,000.00 for the acquisition of the facility subject only to that offer being put in writing. On the basis of that advice arrangements were made to incorporate a local subsidiary of the equity investor group on behalf of which the formal acquisition offer could then be made. The company so incorporated was Corwen Grange Pty Ltd ACN 088 393 337. Mr Howard and I were appointed as Directors of Corwen Grange Pty Ltd.
At that point in proceedings a negotiation was initiated by a member of the consortium regarding advisory fees and other entitlements arising out of the consortium. This individual had originally invited Peter to participate first as an advisor and ultimately as a member of the consortium. Although Peter neither initiated nor participated directly in this kerfuffle (sic), we were not surprised that as a friend and invitee of the chief protagonist, he felt bound to hold the line. We presume this is why when that person withdrew from the consortium so did Peter; despite the fact that he had substantially succeeded in his specific task of securing an agreement to purchase the property. Certainly, we have sought to assure Peter that upon settlement it is our intention to remit his fees and entitlements in recognition of Domain Hill's work.
Unfortunately the abovementioned events have delayed the communication of the formal offer you requested from Peter. We regret any inconvenience caused by that delay and hope this explanation at least enables you to appreciate our position.
As indicated, the investor group has always and still intends to proceed with the formal offer which was the subject of your discussions with Peter. As such, we enclose herewith the written offer put by Corwen Grange Pty Ltd.”

On 19 August 1999, also, Quinert wrote to Cahill in a self-serving manner asserting that Edmonds knew of the entitlement of Disctronics to proceed with the proposal in its own right if it chose to do so. The letter suggested that Edmonds was fully aware of the position vis‑à‑vis Disctronics.

On 19 August 1999, also, Cahill wrote to Buxton by way of facsimile proposing that an amount of $300,000 described as a “mezzanine debt” be provided by Buxton. The debt was a reference to an agreement by Buxton to inject funds into the project with Cahill and Edmonds. The facsimile of 19 August 1999 was accompanied by a proposed letter from Cahill to Buxton formalising their intended joint venture with respect to the Kingston Links Golf Course. The draft letter contemplated a joint venture whereby Cahill or his nominee would hold a 55 per cent interest, Buxton and his nominee a 20 per cent interest and Edmonds or his nominee a 25 per cent interest. The letter proposed, further, that a new entity would be established to undertake the acquisition of the golf course by way of nominee for a joint venture and that Buxton was to be the sole director of that entity. The shareholding of the entity was proposed in the same proportions as the joint venture. In addition, the letter proposed a loan by Buxton in the amount of $300,000 by way of “mezzanine debt” at a rate of 12 per cent per annum fixed for five years from the date of settlement. Furthermore, it was contemplated that Buxton would advance funds in the sum of $435,000 by way of deposit that would accrue interest at the rate of six per cent per annum and be re‑paid at settlement when the equity and/or mezzanine debt would be contributed; equity was contemplated in the range of $200,000.

On 23 August 1999 Buxton responded to Cahill confirming the proposed contribution of $300,000 to the joint venture between them. The letter revealed that Buxton proposed that one of his companies provide the mezzanine finance of $300,000. Furthermore, Buxton proposed in his letter of 23 August 1999 that land be made available at the Kingston Links Golf Course for the erection of a sports club, including gymnasium and swimming pool. The letter contemplated that the owner of the land would provide finance to erect the sports club and grant a lease to an operator for a total term of 18 years consisting of six three year terms. The letter also proposed some variations to the arrangements contemplated by Cahill in his letter of 19 August 1999.

The equitable doctrine of constructive notice coincides exactly in result in this respect with the common law concept of inferred knowledge. A person who wilfully shuts his eyes, or wilfully and recklessly fails to make such enquiries as an honest and reasonable man would make, might find himself ‘disentitled to rely on lack of actual knowledge’: Belmont Finance Corporation Limited v Williams Furniture Limited (1979) Ch 250 at 267, per Buckley L.J.; Charles Harpum, ‘The Stranger as Constructive Trustee’ (1986) 102 L.Q.R. 114 at 122-3.
There was, in my opinion, no evidence to support a finding of wilful blindness in the sense in which that expression is commonly used in order to indicate a form of cognisance which law and equity alike equate to subjective knowledge from which dishonesty may be inferred. I understand the expression to connote more than a failure to see or look: the adjective is to be given its due value. The compound expression connotes a concealment, deliberately and by pretence, from one’s self – a dissembling or dissimulation. In other words wilful blindness connotes a form of designed or calculated ignorance, of which none on the part of the appellant or its agents were proved. That being so, and there being no evidence that the appellant, through any servant or agent, had actual knowledge of the forgery before the mortgage’s registration, a finding of fraud cannot be sustained.”

[110]supra at 145.

In my view, exactly the same analysis can be applied to the circumstances described by Buxton. I accept his evidence that until he received the correspondence after 2 October 1999 he did not know of the possible claim by the plaintiffs. In my view, the present circumstances are entirely different from those as arose in Koorootang Nominees Pty Ltd v Australia and New Zealand Banking Group Limited.[111] I am satisfied that the Buxton interests have fulfilled the onus they bear to establish that they were tantamount to a purchaser for value without notice: see Goff and Jones, Law of Restitution, 5^th ed.;[112]also, Re Tilley’s Will Trusts.[113]
[111](1998) 3 VR 16.
[112]at 117.
[113](1967) Ch. 1179.

However, the question then arises whether Buxton and his companies having been on notice of the plaintiffs’ claims from 2 October 1999 onwards and that K.L.C.C. was not registered on title until 14 December 1999 has consequences.

The Consequences for the Buxton Interests

The claims underlying the constructive trust crystallised at the time the Kingston Group accepted the offer of Emanbee on 2 September 1999. A constructive trust arises “ … from the situation in which [the person who has been wronged] is entitled to the remedy of restitution, and it arises as soon as that situation is created”.[114] It is then a matter of what has been described as the incidents of the constructive trust.[115]
[114]Scott, Law of Trusts, 3^rd ed. Vol. 5, para 462.4, cited with approval by Deane J in Mushinski v Dodds, supra, at 614.
[115]Meagher, R.P. and Gummow, W.M.C., Jacobs’ Law of Trusts in Australia (6^th ed), p.329 para [1331]

The critical incident here is the impact of the constructive trust upon the Buxton interests. Their interests are the 20 per cent interest in K.L.C.C. (and thereby an equivalent interest in the land) and the moneys contributed to and expended upon the land and the interest owing thereon (the deposit, the mezzanine debt, the loan for the constructive of the sports centre and the increased value of the land arising from the improvements made).

The constructive trust and the approach to it has troubled commentators who have postulated questions but sometimes few answers.[116]
[116]ibid, p.331, para [1333]; also, Megarry, R. & Wade W., The Law of Real Property (6^th ed), p.544, para 10-017; and Goff & Jones, The Law of Restitution (5^th ed), pp.84-89.

Buxton, Emanbee and MRB were in effect a purchaser in good faith for value without notice of the irregularities and since registered through the vehicle of K.L.C.C. It would be necessary, therefore, for me to be satisfied as to certain matters before the equitable interest arising from the constructive trust in favour of the plaintiffs, excluding Disctronics, would have priority over that legal interest. I would need to be satisfied as to fraud (see Bahr v Nicolay) (No. 2);[117] the application of the statutory exception (see s.42 of the Transfer of Land Act 1958); or the right of a claim in personam against Buxton and the others (see Frazer v Walker;[118] Breskebar v Wall.[119]
[117](1988) 164 CLR 604.
[118](1967) 1 AC 569.
[119](1971) 126 CLR 376, 385.

On the facts as found none of those factors is made out against the Buxton interests, even allowing for the onus of proof they bear. As for the competing equitable interests between Donovan and the others and the Buxton interests, the interests of Donovan and the others is postponed to that of Buxton, it being a purchaser of an equitable interest for value without notice: see Latec Investments Limited v Hotel Terrigal Pty Ltd.[120]
[120](1965) 113,265.

Remedies and Relief

In these types of circumstances commentators have suggested that the remedial characteristic of the constructive trust may enable the Court to make a declaration of a constructive trust so as to accommodate the equity of the equitable charge.[121]
[121]Meagher and Gummow, ibid; also, Ford, H. and Lee, W.A., Principles of the Law of Trusts, (3^rd ed), para 22985.

In Australia, the genesis for treatment of the constructive trust as a remedy as distinct from an institution seems to be the judgment of Deane J in Mushinski v Dodds.[122] The facts of the case warrant re-visiting. An unmarried couple purchased land intending to renovate a building thereon. The woman, Mushinski, paid the purchase price but agreed to include the man, Dodds, on the title if he renovated the building and paid the associated costs. They were registered as tenants in common in equal shares. The couple later separated without the building work being done.
[122](1984-85) 160 CLR 583, 610ff.

Mushinski claimed the sole beneficial ownership of the land. After concluding that no relief was available to Mushinski on the grounds of breach of express or implied agreement or express or implied trust, Deane J[123] considered the concept of the constructive trust. The learned judge referred to the debate between the commentators,[124] for example, Scott, Goff and Jones, Wade and others. Deane J observed:[125]

“ … Like express and implied trusts, the constructive trust developed as a remedial relationship superimposed upon common law rights by order of the Chancery Court, it differs from those other forms of trust, however, in that it arises regardless of intention. For that reason, it was not as well suited to development as a conveyancing device or as an instrument of property law.”

[123]At 612-617.

[124]at 612-613.

[125]at 613.

The judgment continued:[126]

“ … Viewed in its modern context, the constructive trust can properly be described as a remedial institution which equity imposes regardless of actual or presumed agreement or intention (and subsequently protects) to preclude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principle.
……
Equity acts consistently and in accordance with principle. The old maxim that equity regards as done that which ought to be done is as applicable to enforce equitable obligations as it is to create them and, notwithstanding that the constructive trust is remedial in both origin and nature, there does not need to have been a curial declaration or order before equity will recognise the prior existence of a constructive trust … Where an equity court would retrospectively impose a constructive trust by way of equitable remedy, its availability as such a remedy provides the basis for, and governed the content of, its existence inter partes independently of any formal order declaring or enforcing it. In this more limited sense, the constructive trust is also properly seen as both ‘remedy’ and ‘institution’.”

[126]at 614.

Deane J continued[127]:

“This is a fortiori in the case of constructive trust where, as has been mentioned, the remedial character remains predominant in that the trust itself either represents, or reflects the availability of, equitable relief in the particular circumstances. Indeed, in this country at least, the constructive trust has not outgrown its formative stages as an equitable remedy and should still be seen as constituting an in personam remedy attaching to property which may be moulded and adjusted to give effect to the application and interplay of equitable principles in the circumstances of the particular case. In particular, where competing common law or equitable claims are or may be involved, a declaration of constructive trust by way of remedy can properly be so framed that the consequences of its imposition are operative only from the date of judgment or formal court order or from some other specified date. The fact that the constructive trust remains predominantly remedial does not, however, mean that it represents a medium for the indulgence of idiosyncratic notions of fairness and justice. As an equitable remedy, it is available only when warranted by established equitable principles or by the legitimate processes of legal reasoning, by analogy, induction and deduction, from the starting point of a proper understanding of the conceptual foundation of such principles … .”

[127]at 615.

The judgment proceeded:[128]

“The mere fact that it would be unjust or unfair in a situation of discord for the owner of a legal estate to assert his ownership against another provides, of itself, no mandate for a judicial declaration that the ownership in whole or in part lies, in equity, in that other … Such equitable relief by way of constructive trust will only properly be available if applicable principles of the law of equity require that the person in whom the ownership of property is vested should hold it to the use or for the benefit of the others.
…..
Once its predominantly remedial character is accepted, there is no reason to deny the availability of the constructive trust in any case where some principle of the law of equity calls for the imposition upon the legal owner of property, regardless of actual or presumed agreement or intention, of the obligation to hold or apply the property for the benefit of another … “.

[128]at 616.

Deane J concluded[129] that equity called for adjustment of the rights of the parties to compensate for their disproportionate contribution. He concluded[130] that a claim based on unconscionable conduct was not made out but that there should be a declaration that the subject property was held by Mushinski and Dodds upon a constructive trust. As to the framing of the order and the date of imposition of the constructive trust, Deane J considered that a declaration should be made such that the constructive trust was delayed to the date of the making of the order so as to protect the legitimate interests of third parties.
[129]at 622.
[130]at 623.

In Mushinski v and Dodds, Mason J[131] agreed with Deane J. Gibbs CJ agreed with the orders proposed by Deane J[132] but for different reasons. Gibbs CJ did not accept that the law permitted the imputation of an intention to the parties contrary to the evidence. Indeed, Gibbs CJ specifically rejected[133] the arguments as to the declaration of a constructive trust but held that Mushinski was entitled to contribution from Dodds. Brennan J, with whom Dawson J agreed, dissented. Brennan J[134] criticised the argument for the constructive trust as based on a mistaken view as to the arrangements between the parties. Rather, Brennan J analysed[135] the argument as a plea for fairness and which he rejected as not providing a basis for a declaration of a constructive trust.
[131]at598-599.
[132]at 598.
[133]at 595.
[134]at 608.
[135]at 609.

The approach of Deane J in Mushinski v Dodds was applied unanimously by the High Court in Baumgartner v Baumgartner,[136] a case where a defacto couple pooled funds and later purchased property in the sole name of the man. The court declared that the man held his interest in the land on trust for himself and the woman beneficially in specified proportions.
[136](1987) 164 CLR 137.

In Bathurst City Council v PWC Properties Pty Ltd,[137] the High Court, in the context of a charitable trust, revisited the remedial approach to the constructive trust. The court clarified the application of the constructive trust as a remedy to a last preferred option:[138]

“In any event, before the court imposes a constructive trust as a remedy, it should first decide whether, having regard to the issues in the litigation, there are other means available to quell the controversy. An equitable remedy which falls short of the imposition of a trust may assist in avoiding a result whereby the plaintiff gains a beneficial proprietary interest which gives an unfair priority over other equally deserving creditors of the defendant. This appears to have been the cause of division between Gibbs CJ on the one hand and Mason J and Deane J on the other hand in Muschinski v Dodds. The Chief Justice saw as an adequate equitable remedy an entitlement of the appellant to a contribution from the respondent to the extent to which she had paid more than one-half of the purchase moneys, coupled with an equitable charge for that amount upon the half interest of the respondent in the land.”

[137](1998) 195 CLR 566.

[138]at 585.

Mason J discussed the approach to relief where breach of fiduciary duty arises in Hospital Products[139] and observed each case will depend upon its own facts and circumstances. Sometimes, a court will order disgorgement of profits or may be unwilling to apportion the gain where a profit was acquired by a fraudulent fiduciary: see Zobory v FCT.[140] It has long been established that fiduciaries must strictly account for the benefits they wrongfully receive in breach of the duties owed: see Keech v Sandford.[141] Essentially, the usual approach is to require the fiduciary to restore to the other party the value of the assets of which that party was deprived by the fiduciary including all increases in market value: see Re Dawson.[142]
[139]supra at 110.
[140](1995) 129 ALR 484, 489.
[141](1726) Cas. t. King 61; 25 ER 223.
[142](1966) 2 NSWLR 211.

It is recognised, also, that there is an entitlement to recoupment of expenditure by the fiduciary including an entitlement to interest and compensation for the value of improvements made on the subject property: see Mansard Developments Pty Ltd v Tilley Consultants Pty Ltd.[143] The Court has a discretion: see Warman International Limited v Dwyer.[144] Indeed, in some cases the courts have taken a very strong view as to any gains achieved by a fiduciary: see Katingal Pty Ltd and Ors v Amor and Ors.[145]
[143](1982) WAR 161.
[144](1995) 182 CLR 544, 561-2; see, also, Kearney, Acting for a Fiduciary’s Gains in Commercial Context in Finn, P. (ed), Equity and Commercial Relationships, p.195ff.
[145](1999) 30 ACSR 545, 549.

I am satisfied that in view of the innocent role of the Buxton interests in the acquisition of the Kingston Links Golf Course it is entitled to maintain the equivalent of a 20 per cent interest in the land and to be repaid the moneys it expended on the acquisition and improvement of the land.

I am satisfied that in the circumstances of this case it is appropriate that Edmonds and Cahill be allowed moneys they expended on the acquisition and purchase of the land. I am also satisfied that Edmonds and Cahill should be treated for all intents and purposes as if they were each a one-sixth member of the joint venture as originally agreed. Despite their breaches of fiduciary duties as I have found I do not consider that the conduct of Edmonds and Cahill warrants forfeiture of their interests.

Subject to the repayment of the deposit moneys, the mezzanine debt, the sports centre loan all to Emanbee and the costs applied by Emanbee towards settlement of the purchase of the land; and subject, further, to the allowance to the Buxton interests, Edmonds and Cahill and the other parties associated with the K.L.C.C. joint venture of moneys expended on improvement of the land the plaintiffs, except Disctronics are entitled to relief. The question is the form of the relief to effect such outcome.

The plaintiffs sought the declaration of a constructive trust as their primary relief. They sought also, and alternatively, equitable compensation and an account of profits. Mindful of the clarification of the relief expressed by the High Court in Bathurst City Council I must consider whether there are other means available to resolve the controversy between the parties. If a constructive trust is imposed it must be capable of being moulded so as to be effective from the date of judgment subject to appropriate orders to protect third parties such as the Buxton interests and any mortgagee including the repayment of moneys owed.

However, I could not be satisfied that in doing so the effect of such declaration and order would be devoid of the risk of giving the plaintiffs unfair priority over others such as any mortgagee. Unfortunately, the consequences of a declaration in the circumstances of this case were not the subject of sufficient evidence as to the risks to other parties such that I would be prepared to impose a constructive trust in this matter. I consider that in this case there are clear remedies available capable of resolving the matter without resort to the imposition of a constructive trust. I make one further observation. Most of the cases where the imposition of a constructive trust has been contemplated have generally fallen into two broad categories. First, the domestic property cases. Secondly, the insolvency cases where a party seeks priority over creditors.[146] Here the circumstances do not fall easily into either category. Most recently, in Pilmer v Duke Group Limited (in liq) the High Court observed that compensation by a fiduciary is determined by equitable principles.[147] As the High Court observed in Warman International Limited v Dwyer:[148]

“It is necessary to keep steadily in mind the cardinal principle of equity that the remedy must be fashioned to fit the nature of the case and the particular facts.”

[146]See Baumgartner, supra, Re Jonton Pty Ltd (1992) 2 Qd 105; Katingal Pty Ltd and Ors v Amor and Ors (1999) 30 ACSR 545.

[147]Majority judgment of McHugh, Gummow, Hayne and Callinan JJ at 201.

[148](1995) 182 CLR 554, 559; see also, Maguire and Anor v Makronis and Anor (1996) 188 CLR 449, 474-475.

Relevantly, in Hospital Products[149] Mason J considered that an equitable obligation to account best matched the wrong to be remedied and not a constructive trust for the wrong there arose from a wrongful achievement of value as distinct from the misappropriation of the title to the themes in specie that constituted the value.
[149]At 115.

There is an additional factor that arises in this case. The plaintiffs did not take any action until well after the defendants gained title on 14 December 1999. There were legal avenues open to them none of which were pursued. This was an important factor that weighed against the imposition of a constructive trust in these circumstances.

It seems to me in this case the better way to achieve equity is to order equitable compensation. This type of approach was applied by Ipp, J. in Biala Pty Ltd v Mallina Holdings Ltd (No. 4).[150] The appropriate remedy whether it be equitable compensation or the taking of an account will vary from case to case. Here the trial proceeded on a determination of liability only. The court has the full benefit of hindsight.[151] I am satisfied that it will be necessary for an assessment to be made for an amount of equitable compensation to be paid to the plaintiffs, except Disctronics, by Edmonds, Cahill and K.L.C.C. after the deduction of outstanding debts, including any adjustments to allow for ANZ, in an amount equivalent to four-sixths of the value of the golf course and, after the ascertainment of profits, an amount equivalent to four-sixths of the profit derived from the golf course. This component of the compensation is not the taking of an account in the strict sense, rather, an assessment of the opportunity that the plaintiffs lost. These amounts ought be calculated from the date of formal acceptance of the offer by the Kingston Group on 9 September 1999 to the date of final orders. They ought place the plaintiffs, excluding Disctronics, in the position they would have been save for the breaches of fiduciary duty by Edmonds and Cahill. The compensation should carry the burden of interest to be calculated in the prescribed amount:[152] see also Warman International Limited v Dwyer;[153] also, Kettle Chip Co Pty Ltd v Apand Pty Ltd.[154]
[150]The Full Court of Western Australia on appeal expressed a preference for the taking of an account as the method that best compensated the plaintiff.
[151]See also, the analysis in Boros, E., Equitable Compensation as a Remedy for Diversion of Opportunity, paper delivered at “Key Developments in Corporate Law and Equity”, 16 March 2001, University of Melbourne.
[152]See Supreme Court Act 1986 sections 57-60; also, Duke Group Limited (in liq) v Pilmer (1999) 73 SASR 64, the point not being considered by the High Court.
[153]Supra, at 570.
[154](1998) 144 ALR 134; (1999) 162 ALR 505.

Orders will be made, accordingly, in the main proceeding. With respect to the caveat proceeding, the claim by Disctronics has not been made out. It had no caveatable interest in the subject land. Appropriate orders will be made in the caveat proceeding for the removal of the caveat.

Remaining Miscellaneous Matters

There is a remaining matter to be addressed. On the fifth day of the trial the first, second and fifth defendants, the K.L.C.C. defendants, applied to amend the particulars of their defence. In summary, the proposed amendment was to the effect that the memorandum from Quinert to Edmonds of 4 August 1999 purported to change the nature of the relationship with respect to Edmonds and Cahill from one of a fee plus profits to one of a fee alone. The purpose of the amendment was to enable senior counsel for the K.L.C.C. defendants to cross-examine Donovan as to new matters, not pleaded, and raised after the plaintiffs’ case was well advanced and without the plaintiffs’ counsel having the opportunity to obtain appropriate instructions. The application was refused. I indicated to the parties that I would state my reasons in the course of my ultimate reasons for judgment.

The next day, the sixth day of trial, another application was made by the K.L.C.C. defendants to amend the particulars of the defence to the effect that the plaintiffs repudiated the joint venture agreement with Edmonds and Cahill by seeking to impose terms that differed from the existing terms of the joint venture. It could be said that the second application overtook the first application on the preceding day. Further submissions were made in support of the second application on the seventh day of the trial. The second application was refused and on that occasion I stated my reasons. In so far as it remained necessary, save for the slight and obvious variations in the recitation of events surrounding the first application I adopt and apply the reasons for refusal of the second application to amend to the refusal of the first application to amend.

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[2002] VSC 454

23 October 2002