Disctronics Ltd v Edmonds (No 2)
[2002] VSC 534
•3 December 2002
| 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: | 27 November 2002 | |
DATE OF JUDGMENT: | 3 December 2002 | |
CASE MAY BE CITED AS: | Disctronics Ltd & Ors v Edmonds & Ors (No. 2) | |
MEDIUM NEUTRAL CITATION: | [2002] VSC 534 | |
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EQUITABLE COMPENSATION – Breach of fiduciary duty – Assessment – Measure of compensation – Placement of successful party in position would have enjoyed save for the breach.
COMPENSATION – Lodgement of caveat – Caveatable interest – Honest belief as to caveatable interest.
TRANSFER OF LAND ACT 1958 – Section 118.
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| APPEARANCES: | Counsel | Solicitors |
| For the Second, Third, Fourth and Fifth Plaintiffs | Mr R. Strong with Mr S. Parmenter | Mallesons Stephen Jaques |
| For the First, Second and Fifth Defendants | Mr J. Delany | Arnold Bloch Leibler |
| For the Eighth Defendant | Mr M. Sifris | Herbert Geer & Rundle |
| (in No. 6221 of 2001) | ||
| For the Plaintiff | Mr J. Delany | Arnold Bloch Leibler |
| For the First Defendant | Mr R. Strong with Mr S. Parmenter | Mallesons Stephen Jaques |
HER HONOUR:
On 23 October 2002 I delivered reasons in proceeding No. 2053 of 2002 (“the main proceeding”). In essence, I found that the second, third, fourth and fifth plaintiffs (“the plaintiffs”) were entitled to equitable compensation in equal shares from the first, second and fifth defendants (“the defendants”) arising from breach of fiduciary duties owed by those defendants to the successful plaintiffs.
On 31 October 2002 I made consequential orders including that the fixing for hearing of the assessment of the compensation arising from the reasons for judgment.
The reasons for judgment delivered on 23 October 2002 encompassed, also, reasons in proceeding No. 6221 of 2001 (“the caveat proceeding”). On 8 November 2002 I made consequential orders including the fixing for hearing of the entitlement, if any, and if so the assessment of compensation pursuant to s.118 of the Transfer of Land Act 1958.
I turn first to the assessment of compensation in the main proceeding.
The Assessment of Compensation in the Main Proceeding
It is to be recalled at the outset that the task of the court at this stage is the assessment of equitable compensation. It is not the task of assessing damages or the taking of an account. The imperative of the assessment of equitable compensation here is to place the plaintiffs Donovan, Howard, Quinert and Bucknall in the position they would have been save for the breach of fiduciary duty by Edmonds and Cahill and as perpetrated through the vehicle of Kingston Links Country Club Pty Ltd. In this sense the court will approach the matter of endeavouring to ensure that equity prevails: see Warman Internationa Limited and Ano v Dwyer and Ors;[1] also Biala Pty Ltd v Mallina Holdings Ltd (No. 4).[2]
[1][1994-1995] 182 CLR 544.
[2](1994) 13 WAR 11.
The parties reached agreement on the parameters of the issues between them for the purposes of the assessment in the main proceeding. The formal agreement reached between the parties in writing was attached to written submissions filed on behalf of each group. In summary, the agreement related to the calculation of profit arising from the acquisition, management and eventual sale of the Kingston Links Golf Course by the defendants.
As a primary base position both parties agreed that the operating profit and the capital profit of the golf course should be calculated as a single item. They agreed, further, that the correct calculation derived the sum of $4,430,592 (“the basic amount”). The areas of dispute thereafter between the plaintiffs and the defendants related to adjustments to the basic amount. In summary, the plaintiffs contended that the defendants’ litigation costs totalling $588,970, a payment to the original purchaser of the golf course, Gauntlet Services Pty Ltd, in the sum of $100,000, and formation expenses totalling $11,200 should be added back into the basic amount of $4,430,592.
On the other hand, the defendants contended that the basic sum should be adjusted by deducting a personal guarantee fee allowance in the sum of $588,561, a service fee in the sum of $140,000 and an allowance for directors’ fees and company administration fees. The defendants contended, further, that once the basic amount was adjusted as agitated by them a further amount of 20 per cent should be deducted from the balance and paid to the Buxton interests in order to reflect the reasons delivered on 23 October 2001. Thereafter, the defendants proposed that four-sixths of the net amount should be paid to the plaintiffs plus interest but less the $100,000 amount payable to Gauntlet Services Pty Ltd.
I turn, therefore, to deal with each of the disputed amounts.
(1) The Legal Costs of KLCC
The defendants, claimed the costs of the defendant Kingston Links Country Club Pty Ltd (“KLCC”) of both the main proceeding and the caveat proceeding. They submitted that the costs should be allowed as a deduction from the basic amount. The legal costs totalled $588,970. These costs constituted solicitor-client costs. There was no issue between the parties as to the quantum of the costs. The position of the defendants was that the costs were properly incurred by KLCC in the prosecution of the caveat proceeding and the defence of the main proceeding. It was submitted for the defendants that KLCC was successful in the caveat proceeding. It was submitted, further, that the primary claim in the main proceeding was made by the first plaintiff, Disctronics Limited (“Disctronics”), alleging the whole of the property was held on constructive trust for it, consistent with the interest alleged in the caveat. It was submitted on behalf of the defendants that KLCC successfully defended the primary claim but that it failed in relation to an alternative claim made by the individual plaintiffs, Donovan, Howard, Quinert and Bucknall yet it succeeded in its defence of the alternative claim made against KLCC by the sixth plaintiff Solette Pty Ltd (“Solette”). Orders were made on 8 November 2002 that Disctronics and Solette pay costs to the defendants, including KLCC. Further orders were made that the defendants including KLCC pay the costs of the individual plaintiffs, Donovan, Howard, Quinert and Bucknall. On this basis, therefore, it was asserted on behalf of the defendants that there was no surety or guarantee that KLCC would actually recover costs ordered to be paid to it by Disctronics and Solette. However, there was no evidence to support the assertion. Furthermore, there was never an application by KLCC or the other defendants for an order for security for costs against Disctronics and Solette. In addition, it was asserted on behalf of the defendants that if the costs of KLCC were not allowed the effect in the context of the basic amount would be to encompass the costs as part of the compensation.
I do not accept the submission for the defendants. In particular, they have not made out their assertion of risk with respect to payment of costs by Disctronics and Solette. Furthermore, they did not take any step to protect their position. So far as the costs relate to compensation the costs of the proceeding has been dealt with on a separate basis and do not form part of the compensation.
It was submitted, also, by the defendants that if their costs are not added to the basic amount it would be tantamount to treating Buxton who holds an interest of 20 per cent in KLCC as a wrong doer. Such submission was not put on behalf of the Buxton interests nor was the point agitated at the time of argument on costs on 8 November 2002. In any event in my view it is not a relevant factor.
It follows that the submissions by the defendants are rejected. An additional observation is called for. The costs incurred by KLCC would not have been so incurred but for the breaches of fiduciary duty by Edmonds and Cahill and the involvement of KLCC. It follows, therefore, that the litigation costs of those defendants should be added back to the basic amount in assessing the compensation payable to the plaintiffs. Hence, the sum of $588,970 ought be added onto the basic amount.
(2) The Payment to Gauntlet
Some of the circumstances relating to a contract of sale between KLCC and Gauntlet Services Pty Ltd (“Gauntlet”) were described in the reasons for judgment delivered on 23 October 2002.
The circumstances relating to the contract of sale were described in further detail in an affidavit by Peter Joseph Cahill sworn on 20 November 2002 and filed in relation to the assessment hearing. The circumstances described by Cahill were not the subject of contradiction by the plaintiffs. On 16 November 2001 KLCC entered into a contract of sale for the Kingston Links Golf Course (“the land”) with Gauntlet. The contract of sale provided for settlement on 20 December 2001 or by earlier agreement. At the time the contract of sale was entered into the caveat being the subject of the caveat proceeding had already been lodged by Disctronics. The contract of sale between KLCC and Gauntlet provided for extension of the settlement date for up to 90 days to enable the procurement of the withdrawal of the caveat and a related caveat lodged by the Registrar of Titles. KLCC exercised its right under the contract of sale to extend the date for settlement. The extended settlement date was 20 March 2002. It transpired that KLCC was unable to obtain the withdrawal of the caveat by Disctronics prior to 20 March 2002. Discussions ensued between the parties but to no avail. Eventually, an application for an urgent interlocutory injunction was heard on 19 and 20 March 2002. Orders were made on 20 March 2002, among other matters, providing that the net proceeds of sale of the land be paid to a joint trust account in the names of the solicitors for the plaintiffs and the defendants and upon that event occurring Disctronics was required to execute all documents and do all things necessary to withdraw the caveat over the land.
On 20 March 2002, also, further agreement was reached between KLCC and Gauntlet to defer the settlement date further. However, on 8 May 2002 Gauntlet served a notice on KLCC purporting to rescind the contract and seeking compensation. Following discussions between those parties they agreed to cancel the contract and for Kingston Links to pay Gauntlet the sum of $100,000 on the earlier of the re-sale of the land or 30 June 2004. The latter agreement dated 28 June 2002 was produced to the court by the defendants. The sum of $100,000 was paid to Gauntlet at the settlement of the eventual sale of the land to a different purchaser on 29 October 2002.
It was submitted on behalf of the defendants that in the absence of the caveat lodged by Disctronics there would have been no impediment to settlement of the contract of sale between KLCC and Gauntlet on 20 December 2001. It was further urged that as events transpired the dispute between KLCC and Gauntlet was caused by the lodging of the caveat by Disctronics. The payment of $100,000 between KLCC and Gauntlet represented a compromise of the dispute between them. In the reasons for judgment delivered on 23 October 2002 a primary finding was reached that Disctronics did not have a caveatable interest in the land.
It was submitted by Mr R. Strong who appeared with Mr S. Parmenter on the assessment hearing for the plaintiffs that the defendants were never genuinely desirous of settlement of the original contract of sale with Gauntlet. It was asserted that there were a number of factors that supported the point. First, the contract with Gauntlet was entered into in full knowledge of the fact of the caveat lodged by Disctronics. Second, the defendants did not take any significant steps to negotiate the removal of the caveat with the plaintiffs’ solicitors, Mallesons Stephen Jaques, until early March 2002. Thirdly, on 6 March 2002 the plaintiffs’ solicitors made an open offer to facilitate the removal of the caveat subject to the retention of the net proceeds of sale into an account controlled by the respective solicitors for the plaintiffs and the defendants. After negotiations broke down and following a contested interlocutory hearing the court made a preservation order on 20 March 2002 in terms tantamount to the proposal made by the plaintiffs’ solicitors in correspondence on 6 March 2002. Fourth, notwithstanding the attitude of the plaintiffs and the facility for settlement encompassed by the court order made on 20 March 2002 the defendants did not settle with Gauntlet. Fifth, the accounting evidence of Richard Thomas de Bono demonstrated that the ownership of the Kingston Links Golf Course provided substantial income to the defendants that enabled them to fund their legal costs of the main proceeding and the caveat proceeding amounting to almost $600,000.
These matters were put to Cahill in cross‑examination on the assessment hearing. He rejected the suggestion. Neither Edmonds nor Buxton gave evidence at the assessment hearing. However, it was never suggested to Cahill that the only or main source of funding the litigation by the defendants was the income derived from the golf course. By contrast, at trial there was evidence that Cahill had substantial means available to him.
After careful consideration of the evidence relied upon by the plaintiffs I cannot be sufficiently satisfied that the defendants deliberately avoided settlement with Gauntlet so as to fund their costs from the income of the Kingston Links Golf Course.
It seems to me as a proper application of principle that Disctronics lodged the caveat over the land and was found to have no basis for doing so in the reasons for judgment delivered 23 October 2002. Disctronics was, further, unsuccessful in the main proceeding. The question arises that even if the amount is to be allowed in favour of the defendants whether the amount is allowed against the basic sum or whether it should be ordered separately as compensation payable in favour of KLCC. The question of the obligation and entitlement to compensation lies strictly between Disctronics and KLCC. It seems to me as a matter of proper legal principle, therefore, that if there is to be any payment in favour of KLCC with respect to the moneys it paid to Gauntlet then such order should be made and dealt with entirely in the context of the caveat proceeding. I will deal with that aspect, therefore, separately. It follows that the payment of the sum of $100,000 by KLCC to Gauntlet Services should be added back to the basic amount.
(3) Formation Costs
The defendants sought an allowance for an item described as “formation expenses” said to be constituted by the legal expenses incurred in the formation of their joint venture and KLCC. There was no issue as to the quantum of those costs. It was submitted on behalf of the defendants that notwithstanding the findings of the court in relation to breach of fiduciary duty it was likely that expenses of a similar character and quantum would have been incurred had the joint venture project proceeded between the plaintiffs and the defendants. It was asserted, further, that such formation expenses would in all likelihood have been incurred had the joint venture as originally conceived proceeded with the equity funding being predominantly provided by a third party. Emphasis was placed on the fact that the involvement of a third party eventuated, namely, through the vehicle of the Buxton interests. The formation costs claimed were the sum of $11,202.
I observe there was no finding in the reasons delivered on 23 October 2002 to the effect that a third party would be retained or involved for the purposes of providing equity for the joint venture proposed between Donovan, Howard , Quinert, Bucknall, Edmonds and Cahill. That was a matter in fact left unresolved arising from the meeting convened on 20 July 1999 and ultimately left unresolved when the parties fell out in early August 1999. So much is borne out by the reasons and, furthermore, by the relevant minutes of the meeting of 20 July 1999. I do not accept the foundation for the formation costs as claimed. I cannot be satisfied on the evidence that formation costs would have been incurred by the plaintiffs and the defendants if their joint venture had proceeded.
Those expenses will not be allowed against the basic sum.
(4) The Guarantee Fee Allowance
The defendants claimed the sum of $588,561 said to arise from a personal guarantee provided by Cahill, Edmonds and Buxton for the finance facilities provided to KLCC by the Australia and New Zealand Banking Group Limited for the purposes of their purchase of the Kingston Links Golf Course. There was no issue as to the quantum of the sum claimed by the defendants. In his affidavit Cahill deposed that a personal guarantee was provided by he, Edmonds and Buxton to ANZ for the loan facility of $8,350,000.
The defendants Edmonds, Cahill and Buxton each executed personal guarantees with limited liability in favour of Australia and New Zealand Banking Group Limited (“ANZ”) on 7 December 1999 with respect to a loan facility provided by the bank to KLCC for the purposes of purchasing the Kingston Links Golf Course. The amounts that were the subject of the guarantees were commensurate with the proportionate interest of each individual in the joint venture involving Edmonds, Cahill and Buxton. Thus, Edmonds personally guaranteed the sum of $2,087,000, Cahill the sum of $4,592,500 and Buxton the sum of $1,670,000.
The fact of the personal guarantees was not challenged. The point of issue was whether the defendants had an option between a lending facility with or without the provision of personal guarantees.
The defendants encountered difficulty in proving their claim. Cahill said in his evidence at the assessment hearing that a personal guarantee was a condition precedent of funding from all banks approached by the defendants when negotiating the funding of the purchase. Ultimately, the defendants called as a witness Alan James Dowland, a relationship manager of ANZ. He gave evidence that he was not involved in the original transaction between KLCC and ANZ but that once it was completed he assumed management of the facility. The original negotiation and implementation of the transaction was managed by an unidentified business development manager at ANZ. Dowland said that he believed that when the defendants put their proposal to ANZ it was put with personal guarantees in place and that no other proposal was considered. Dowland gave evidence that in his experience ANZ may have considered the provision of the facility without the guarantees because of the strength of the lease of the golf course to a tenant of the calibre of Spotless (as described in the reasons delivered on 23 October 2002). In such scenario, Dowland said that the bank may have charged an additional margin if no guarantees were in place. However, he was unable to say as to what the approach of the bank would have been if the personal guarantees had not been offered in the first place by the defendants.
It was submitted for the defendants that the profit available between the parties was a greater profit than would otherwise have been the case by reason of the personal guarantees provided by Edmonds, Cahill and Buxton to ANZ. They relied on the evidence of Cahill and Dowland.
I cannot be satisfied that the defendants had an option between a facility with or without personal guarantees. It is apparent that they approached ANZ and put forward the provision of personal guarantees from the outset. So much is clear from the evidence of both Cahill and Dowland. Furthermore, there was no satisfactory evidence from an appropriate ANZ officer as to a different or alternative position. Dowland made the best effort he could in the circumstances to inform the court as to ANZ requirements but ultimately he was not involved in the initial transaction and could not say what the position of the bank may have been or whether an additional margin would have been charged in the absence of the personal guarantees.
On balance, I cannot be satisfied, therefore, that the defendants have made out their claim. I do not accept that a personal guarantee fee in the sum of $588,561 should be deducted from the basic amount.
(5) Fees to Edmonds and Cahill
The defendants claimed an allowance of a fee of $140,000 to be paid to Edmonds and Cahill. The defendants relied upon the item as constituting an “internal disbursement” agreed to at the meeting between the relevant plaintiffs and defendants on 20 July 1999.[3] It was submitted on behalf of the defendants that the subject fee was found in the reasons of judgment to be agreed to be paid by the then joint venture to Edmonds and Cahill. It was said to relate to the procuration of the transaction and accordingly, the fee should be paid to Edmonds and Cahill in addition to profit. It was submitted that the fee of $140,000 was consistent with the reasons for judgment of the court delivered on 23 October 2002.
[3]See reasons for judgment at paras 42.2 and 43.
A re-visiting of the reasons for judgment delivered on 23 October 2002[4] discloses a finding that at the meeting on 20 July 1999 as recorded in the relevant minutes and adopted on 26 July 1999 it was resolved that fees of $140,000 be paid to Edmonds and Cahill for their services. It is apparent from the reasons that the subject fees were separate from the profit share to be determined between the joint venturers at a later time.
[4]At paras 42 and 43.
For the purposes of the assessment of compensation the plaintiffs criticised the claim by the defendants on the basis that there was no evidence to support the amount claimed. I do not accept that submission. It is apparent from the earlier reasons that there was a finding of fact of an entitlement as at 20 July 1999 of Edmonds and Cahill to a payment of $140,000. It follows that the subject amount should be deducted from the basic sum.
(6) Service Fee Allowance
The defendants claim that a service fee allowance said to constitute management fees should be deducted from the basic amount totalling $70,000 over the period of ownership by KLCC of the land.
The defendants also claimed an allowance of an administration fee for a period of 2.75 years being approximately 145 weeks, in the sum of $72,500 up to $145,000. They claimed directors’ fees per director for a period of 2.75 years in an amount of $27,500 per director. It was submitted on behalf of the defendants that it would be “usual” during the course of a joint venture for directors’ fees and company administration fees to be paid. It was submitted that such fees reflect proper allowance for the skill and expertise of those persons involved in the venture and their contribution to that venture.
I was informed that management fees and expenses were included in the calculation of the basic amount. It would appear, therefore, that the extra allowance sought by the defendants went beyond that agreed to between Edmonds, Cahill and Buxton. However, more significantly, there was no evidence put forward of any additional services that were actually provided to which such fees might relate. In addition, the burden of proof lay with the defendants in accordance with the usual standards. It was not sufficient, therefore, for the defendants to simply assert the entitlement. The defendants relied upon the evidence of Cahill and, also, an employee of one of Cahill’s companies, one Twelftree. In the course of evidence it became apparent that a company of Cahill, namely, Domain Hill provided services to KLCC in the nature of rent collection and the like. These services did not satisfy the nature of the services sought by the defendants. In my view there was insufficient evidence to support the fees claimed by the defendants. It follows that the amount claimed with respect to a service fee allowance encompassing directors’ fees will not be allowed.
(6) The Payment of 20 per cent to the Buxton Interest
The defendants submitted that a payment of 20 per cent of the basic amount should be paid to the Buxton interests. The submission was based on the position that it was always intended by the joint venture parties as constituted by the plaintiffs and the defendants that an equity provider would be involved in the project. It was submitted that the evidence established that there was discussion between the parties as to the appropriate cap on the return on equity and that in the case of an external equity provider the cap would stand at 20 per cent.[5]
[5]See paras 131, 27, 36 and 43 of the reasons.
In the reasons for judgment I stated that the compensation was intended “ … to place the plaintiffs, excluding Disctronics, in the position they would have been in save for the breaches of fiduciary duty by Edmonds and Cahill”.[6] It was submitted on behalf of the defendants that the profit on the transaction to the joint venture parties as found in the reasons, so as to place them in a position they would have been save for the breaches of fiduciary duty by Edmonds and Cahill required, first of all, that the equity provider be reimbursed on a return on equity, that is, the 20 per cent required to be paid to the Buxton interest. It was submitted that as a second step, the profit after the deduction of the 20 per cent should be split six ways.
[6]See paragraph 216 of the reasons.
I do not accept the submission on behalf of the defendants. The reasons for judgment of 23 October 2002 speak for themselves. The question has been determined. As I found in my earlier reasons, the plaintiffs are entitled to be put in the position they would have been in but for the breach of fiduciary duty by Edmonds and Cahill and as involved KLCC. In so far as it is necessary to do I refer back to the reasons for judgment delivered on 23 October 2002.[7] The critical aspect of the reasons relates to findings concerning the matters resolved on 20 July 1999. In particular, I held:[8]
“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 Service Limited to become long term operator/tenant’. Thirdly, a broad approach was contemplated encompassing allowance for acquisition, disbursements, including the fees of Cahill and Edmonds, and the profit shares. To a large extent, the concept of the profit share was left open-ended and undetermined. Fourthly, the minutes revealed that 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 … “.
[7]See especially paras 42 and 43.
[8]At para 43.
Upon re‑visiting the reasons for judgment of 23 October 2002, in particular, the paragraph just cited, it is apparent there was no finding to support the most recent assertion of the defendants that there was agreement that 20 per cent of the profit would be paid to the equity provider. As is apparent from the reasons, that matter was left open ended and undetermined between the parties on 20 July 1999. Based upon the reasons of 23 October 2002 the intention of the judgment was to place the four plaintiffs in the position they would have been but for the breach of fiduciary duty by the subject defendants. Doing the best I can in all the circumstances it is apparent that there is no agreement that a 20 per cent share of profit be paid to an equity provider commensurate with the role of the Buxton interests. Mr M. Sifris who appeared for the Buxton interests submitted that any adjustment to the basic amount should take account of the entitlement of the Buxton interests. However, the submissions did not take account of the basic amount and the way it was calculated essentially based upon an assessment by de Bono. Mr Strong for the plaintiffs submitted that there is a defined pool of assets disclosed in the balance sheet produced by de Bono consisting partly of cash held in bank and trust accounts and some cash in the hands of the joint venture parties. As I understood the position of the parties and the evidence and the assessment hearing, particularly the affidavits of de Bono the basic amount was fixed by virtue of the agreement between the parties and any additional entitlement asserted by the Buxton interests was not a matter before me. Given that the parties agreed upon the basic amount such agreement has set the parameters of the assessment.
It follows, therefore, that no allowance of 20 per cent will be made with respect to the Buxton interests or any other parties and that the plaintiffs are entitled to four-sixths of the basic amount subject to the adding back of the three amounts being first, the defendants’ costs of $588,970, second, the payment to Gauntlet of $100,000 and third, the formation expenses of $11,2000 but less the fee of $140,000 payable to Edmonds and Cahill. The net increase on the basic amount appears, therefore, to be the sum of $559,970. The basic amount to be distributed equally between Donovan, Howard, Quinert, Bucknall, Edmonds and Cahill appears then to be the sum of $4,990,562. The total amount of profit in effect to be disgorged by the defendants to the plaintiffs and to be distributed equally between them is the sum of $3,327.041.30. This amount represents the amount of equitable compensation that will be awarded in favour of the plaintiffs.
The remaining matter was the question of the entitlements to interest on the amounts added onto or deducted from the basic amount. The question was distinct from statutory interest.
In the overall assessment of equitable compensation as part of the goal of placing the plaintiffs where they would have been but for the breach of fiduciary duty an allowance for interest as to moneys used or taken by the defendants should be made. Similarly, in achieving equity, an allowance should be made as to interest on amounts to which the defendants are entitled. I was provided with calculations prepared by de Bono and also for the plaintiffs in this respect. I was informed by Mr Strong that only minor amounts were involved. So far as it is necessary to do so, therefore, I indicate that allowance will be made for interest on amounts added to or deducted from the basic amount as the case may be.
Subject to the confirmation of the amounts calculated and the formulation of orders, I will make orders accordingly.
I turn then to the matter of compensation in the caveat proceeding.
The Assessment of Compensation in the Caveat Proceeding
The applicable principles in relation to a claim under s.118 of the Transfer of Land Act 1958 were conveniently stated by Hayne J in Commonwealth Bank of Australia v Baranyay.[9] It seems I must be satisfied here that the caveator acted without reasonable cause. It seems, further, that I must be satisfied that Disctronics as the caveator did not hold an honest belief based on reasonable grounds that it had a caveatable interest. In light of my reasons published on 23 October 2002 I am unable to find that Disctronics held such an honest belief on reasonable grounds. If the caveat had been lodged by Donovan, Howard, Quinert and Bucknall matters might be different. It was not. It was lodged by Disctronics when it was not entitled to; no joint venture or involvement by Disctronics in a joint venture was ever agreed to by the affected party. So much is reflected in my reasons. I am satisfied, therefore, that KLCC is entitled to compensation under s.118 of the Transfer of Land Act from Disctronics.
[9](1993) 1 VR 588, 600-601.
The assessment of compensation seems on its face to be more in the nature of equitable compensation. There are no particular directives or guidelines in the section. Applying a purposive approach to the section it may be readily determined that the intention of the section is to enable the court to award an amount to a party affected by a wrongly lodged caveat so as to place that party in a position so far as practicable, as if the caveat had not been lodged.
In this matter, KLCC was placed in the position of having to resolve its dispute with Gauntlet for the sum of $100,000. But for the caveat it would not have been in that position and could have settled with Gauntlet on 20 December 2001. Whilst extensions to the settlement date were agreed settlement did not eventuate. It was not suggested to Cahill in cross‑examination that there was any artifice in the calculation of the sum of $100,000 or the settlement itself with Gauntlet. I accept that the defendants were in a position that faced with a rescission notice they settled their position with Gauntlet as best they could, namely, for the amount of $100,000. I am satisfied that the amount is the appropriate measure of compensation payable by Disctronics to KLCC under s.118 of the Transfer of Land Act and I will order accordingly.
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