Golden Sands Pty Ltd v Davegale Pty Ltd (No 2)
[2003] VSC 494
•19 December 2003
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
No. 8743 of 2002
F5536
| GOLDEN SANDS PTY LTD (ACN 096 491 913) | Plaintiff |
| V | |
| DAVEGALE PTY LTD (ACN 096 359 527) and ORS | Defendants |
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JUDGE: | Byrne J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 13 - 16, 20 - 23 October, 21 November, 8 - 10 December 2003 | |
DATE OF JUDGMENT: | 19 December 2003 | |
CASE MAY BE CITED AS: | Golden Sands Pty Ltd v Davegale Pty Ltd (No. 2) | |
MEDIUM NEUTRAL CITATION: | [2003] VSC 494 | |
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Orders – Declarations of Right – Specific Performance – Injunctions.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M.W. Shand QC | Bazzani Brand Lawyers |
| For the Defendants | Mr M. Adams QC and Mr D.F. Hyde and Mr D. Crennan | Phillip Hamilton |
HIS HONOUR:
On 21 November 2003 I published my reasons for judgment[1] following the trial of all questions in this proceeding other than those relating to the relief sought, including those which might bear upon discretionary aspects of this. The parties have now returned to court and presented evidence and argument on the excepted matters other than the quantum of damages.
[1][2003] VSC 458.
In the November judgment I concluded that the decision of Mr Derham and his letter of 4 April 2002 were ineffective to determine the joint venture contained in the April Agreement or the licence granted by Davegale to Golden Sands in the implementation of that agreement. The sending of this letter and the consequent conduct by him and by Davegale constituted a breach of the licence and of the April Agreement. Golden Sands then seeks against Mr Derham and Davegale declaratory relief, specific performance, injunctive relief and damages. I shall consider each of these in turn and then the relief sought against Hillview Sands and Hillview Compost. This judgment should be read in conjunction with the November judgment and I have adopted the terminology of that judgment.
In its statement of claim, Golden Sands seeks declarations against Davegale that it is bound under the terms of the Royalty Agreement and the April Agreement to give to Golden Sands “access to the water, raw materials, plant and equipment on the Davegale Site during the currency of the obligations of Davegale under the provisions of clause 9.11 of the Royalty Agreement”.
In the minutes of proposed orders provided by counsel for Golden Sands, six declarations are sought against Davegale and Mr Derham and two against each of Hillview Sands and Hillview Compost. Many of these appear to relate to findings which I have made or will make. In the exercise of my discretion I will make only those declarations which are necessary to settle the rights of the parties to this proceeding with respect to the joint venture including the licence.
I have in the November judgment set out my analysis of the legal effect of the April Agreement. It is undesirable that I should go further and make declarations binding on the parties as to this, because, of the three parties to that agreement, only Mr Derham is a party to this proceeding. I have concluded also that Davegale in the implementation of the April Agreement granted to Golden Sands a licence coupled with an interest in the land permitting it to enter upon the Davegale site for the purposes of removing and processing sand. This licence which was originally for no fixed term might have been determined for any reason by Mr Derham pursuant to cl 14.[2] Since both the grantor and the grantee are before the court and since the terms of the right of access are and are likely to be a source of potential conflict, I will make declarations in terms of the findings in the November judgment and in terms of the further findings I have been asked to make at the resumed hearing.
[2][2003] VSC 458 at [12].
I have concluded in the November judgment that the licence which was determinable at the will of Mr Derham was varied by the Royalty Agreement so that, thereafter, it was granted for a fixed term, namely the Initial Term and any Further Terms which might be fixed under the Royalty Agreement.[3]
[3][2003] VSC 458 at [28].
Water
The rights of the licensee are also a matter of controversy. The licence was granted in the implementation of the joint venture established by the April Agreement and it is inextricably intertwined with it.[4] The rights granted to the licensee as well as its obligations are therefore to be determined by reference to that agreement. The right of access is granted for the purposes of the joint venture, namely to quarry sand on the Davegale site and to remove it. It follows from this that activities ancillary to this on the land are also permitted. These include the processing and selling of the sand. That this is part of the joint venture for which the Davegale site was purchased is apparent from the references to plant and machinery and extractive licences which are referred to in the April Agreement. The evidence showed that the processing of sand requires water and that the processing produces a by-product which is referred to as slimes. Water was available on the Davegale site and I am satisfied that the grant of the licence included the grant of the right to take and use this water for the same purpose, namely to quarry sand. Again, and this is not a matter of controversy, it appears that the necessary governmental authorities and licences for this were in June and July 2001 granted or transferred to Golden Sands by or with the concurrence of Davegale. Having regard to the terms of the April Agreement, I find that there was to be no extra charge for this water or for receiving the slimes.
[4][2003] VSC 458 at [13].
The difficulty with the right of access to water arises from the fact that, shortly after 12 May 2001 when Golden Sands commenced its operation on the Davegale site[5], it obtained on 1 June 2001 access to the nearby Darra sites which was owned by Darra Exploration Pty Ltd (“Darra”) and operated by Excel Quarries Pty Ltd (“Excel”). This access, too, was for the purpose of mining and processing sand on that site. Again, in reaching agreement for this, those concerned showed a robust disdain for detailed documentation. The formal agreement for the operation by Golden Sands on the Darra site was the Royalty Agreement which was not executed until 21 December 2001.[6]
[5][2003] VSC 458 at [15].
[6][2003] VSC 458 at [23].
Clause 8 of the April Agreement provides:
“Golden Sands Pty Ltd will carry on the business of mining processing and selling sand and any other business as agreed by the parties at a later date.”
This provision does not specify the location of the mining and processing activities. Whether these activities of Golden Sands on the Darra site are to be seen simply as part of the primary business of the joint venture specified in the first words of that clause, or as “other business as agreed by the parties at a later date” is of little moment. If it be necessary, I would prefer the view that the mining and processing activities of Golden Sands on the Darra site were or became part of its primary mining and processing activities on the Davegale site. The evidence shows that this is how the parties saw it. They acquired access to the Darra site to complement the facilities on the Davegale site and with a view to exploiting both sites as part of the one operation. It follows from this that the facilities on the Davegale site, including water which Golden Sands needed to carry out this joint venture operation, were available for that operation whether it be carried out on the Davegale site or the Darra site. The Davegale water may be used for this purpose by Golden Sands free of charge.
Following the termination letter of 4 April 2002, Davegale interrupted the existing water supply from the Davegale site to the Darra site and refused to permit Golden Sands to take water from the Davegale site to the Darra site or to transfer from the Darra site to the Davegale site slimes from the processing operations carried on on the Darra site.[7] The right to transfer slimes was later accepted and the pipe was reinstated by Golden Sands at a cost of about $1,000.[8] Subsequently, Davegale permitted Golden Sands to take water from the Davegale site for the purposes of its sand processing on the Darra site and charged for this. The amounts paid are particularised by Mr P. Wilson as totalling $56,170 and are contained in seven invoices dated May 2002 and between April 2002 and September 2003. In the light of my conclusions, these amounts were not chargeable and they should be repaid or brought to credit.
[7][2003] VSC 458 at [50].
[8][2003] VSC 458 at [51].
Associated with this water dispute is an issue concerning the assignment from Golden Sands to Mr Derham on 14 October 2002 of the surface water licence with respect to the Davegale site. This was done, according to Mr Wilson, pursuant to an agreement made between Golden Sands and Davegale on 14 October 2002 whereby Davegale permitted Golden Sands to take water and to deposit slimes. It is alleged in the statement of claim that this agreement and the transfer of the surface water licence were made and obtained under economic duress and that the licence should be returned to Golden Sands. I agree. The transaction was entered into against the will of the directors of Golden Sands. I have found that the interruption of the water supply and of the receipt of slimes was a breach of the licence. The consequence of this interruption, if continued, would have been to cause Golden Sands to breach its obligations under the Royalty Agreement and to cause it irreparable harm. The pressure imposed upon Golden Sands was, therefore, illegitimate economic pressure and the agreement and the transfer are voidable.
The April 2003 settlement
Following the continuing disputation between the parties as to the right of access and the rights regarding water and slimes, Golden Sands sought interlocutory orders to protect its interest pending trial. The parties settled this dispute and on 10 April 2003 entered into terms of settlement. Pursuant to these terms Davegale agreed to sell only raw granitic sand and at a price and upon terms which differed from those applicable for this and for marine sand under the April Agreement. Furthermore, Davegale agreed to sell to Golden Sand water for a price and upon terms which are not relevant for my present purposes. These arrangements were made on a temporary basis only and payments made will have to be brought to credit against the entitlements of Davegale as I have found them.
Needless to say, the parties have since fallen into dispute as to these terms of settlement. Notices of breach have been given by each party to the other. Golden Sands has failed to pay for sand purchased and invoiced in the months of August and September 2003 for some $40,000 and for water invoiced in September and October 2003 for some $23,000. Notices of suspension of supply have been given[9]. Mr Strickland said that the invoices for water had been paid but not the invoices for sand in respect of which there is dispute. Supply of water has now been resumed. I make no findings as to the rights and wrongs of these disputes; they will be resolved and the amounts owing or overpaid will be brought to account.
[9][2003] VSC 458 at [48].
Plant and Equipment
A further question exists with respect to plant and equipment. Davegale purchased plant and equipment when it purchased the Davegale site in April 2001. Sometime in or after June 2001 Golden Sands decided to carry out its processing activities on the Darra site using plant and equipment that was there available. For this purpose parts were removed from the Davegale plant and installed in the Darra plant. In this way the Davegale plant was rendered inoperable. The question which now arises is whether Golden Sands is permitted in terms of the licence to bring onto the Davegale site plant described as “demountable” for the purposes of processing sand on the Davegale site. I am satisfied that it is permitted to do so. Not surprisingly, the April Agreement does not limit the plant and equipment which Golden Sands may use for the joint venture to that referred to in cl. 10. The licence to process sand on the Davegale site extends to the bringing onto the Davegale site such further plant and equipment as may be reasonably required for processing sand on that site in accordance with cl. 8.
Associated with the question of plant and equipment is the fact, not in controversy before me, that Davegale overcharged and received payment from Golden Sands for a greater sum than was payable under cl. 10 of the April Agreement. It was agreed that this overpayment was $38,456 and it should be repaid or credited to Golden Sands. There was, however, controversy as to whether this should be done as part of a general accounting process, the estimation of damages or by separate order. I will direct that it be done as part of the accounting.
An Exclusive Licence
Shortly after the giving of the notice of termination on 4 April 2002 Davegale permitted Hillview Sand to enter upon the Davegale site to carry out the business of quarrying sand in competition with Golden Sands. In its statement of claim, Golden Sands says that these acts of Davegale were in breach of the April Agreement as varied by the Royalty Agreement[10]. It further says[11] that insofar as he was involved in them, the acts were breaches by Mr Derham of his fiduciary duties owed by him as a co-venturer[12] and as a director of Golden Sands[13]. Declarations are sought as to these breaches.
[10]Statement of claim, para 48.
[11]Statement of claim, para 49C.
[12]Statement of claim, para 23.
[13]Statement of claim, para 23A.
The right of access of Golden Sands to the Davegale site is pursuant to a licence coupled with a profit à prendre granted in the implementation of the joint venture established under the April Agreement. Indeed, it is well established that the grant of a profit does not per se give exclusive possession to the grantee; if exclusivity is to be granted this must be done in clear terms[14]. The licence itself contains no express term as to exclusivity, but it and the profit were granted subject to the terms of the April Agreement. Nor is there anything expressly stated in this agreement as to exclusivity. Accordingly, it was put on behalf of the defendants that it would have been lawful for Davegale at any time, in 2001 for example, to have permitted another to mine sand from the Davegale site. Counsel for Golden Sands responded that in the circumstances of this case such conduct would amount to breach of fiduciary duty by Mr Derham as a joint venturer and director of Golden Sands and that Davegale would be liable for these as an aider and abettor. In the November judgment I found that Mr Derham was in a fiduciary relationship with his co-venturers and with Golden Sands[15]. Likewise, he owed fiduciary duties to Golden Sands as director of that company, an office which he held until his resignation on 7 March 2002[16]. He nevertheless remained a venturer, for he still holds his shareholding. The question, then, becomes whether Mr Derham as a venturer and a former director might, consistent with his fiduciary obligations and without consent of Golden Sands, permit a competitor to enter upon the Davegale site so that his company, Davegale, might earn whatever consideration is paid by that competitor in addition to that which it receives from Golden Sands. Any uncertainties as to this disappear when there is added to this scenario the further facts that the competitor is Mr Derham’s own company so that he profits from its successful competition, and that the competitor sought and obtained business from Golden Sands’ own customers. There might be added to this for good measure the further facts that in April 2002 Mr Allan William McKenzie the accountant and business manager of Golden Sands resigned shortly after to take up a like position with the competitor and that at about the same time John Severyn, the Golden Sands quarry manager did likewise. Finally, the right of access given to Golden Sands was wrongfully terminated on 4 April 2002. I have rejected the submissions offered on behalf of Golden Sands that those acts and others of Mr Derham dating back to December 2001 should be seen as part of a plan to undermine the joint venture for his own benefit[17]. I am, however, satisfied that, having become disenchanted with his co-venturers, Mr Derham sought to extricate himself from the venture. This he succeeded in doing by 4 April 2002 except for his interest as shareholder. The question, then, is whether the steps which he then took, given that Golden Sands was still entitled to exploit the Davegale site, put him in a position of conflict or potential conflict with Golden Sands or its interests.
[14]Hindmarsh v Quinn (1914) 17 CLR 622.
[15][2003] VSC 458 at [19].
[16][2003] VSC 458 at [47].
[17][2003] VSC 458 at [65].
It is, to my mind relevant to go back to the very beginnings of the dealings between the parties. The Davegale site as a potential quarry for Mr Derham to exploit was identified by Mr Wilson’s son who introduced his father to Mr Derham as a man with the knowledge to exploit the sand quarry which Mr Derham might purchase. Mr Strickland was or had been employed by the then owner as quarry manager on the site. The land was then purchased for the venture to which the three men brought their differing and perhaps unequal contributions. The basis of the venture was that the Davegale site would be exploited by the venturers. It will be recalled that they spoke at the time of being in for the “long haul” and that Mr Derham was given the right to terminate the venture at will. This is, to my mind, consistent and consistent only with the expectations of venturers that the whole of the land would be exclusively available for the venture, so long as it continued. The term of the venture was open ended because no one knew how long the exploitation of the sand resources on the Davegale site would take. It was terminable at Mr Derham’s will so that he, as the land holder, would be able to dismiss Golden Sands and engage another to exploit these resources. The fact that some eight months later Mr Derham, through his company, agreed to impose a fixed term on the venture does not alter this underlying fact.
It follows from this that the fiduciary’s normal duties to act with good faith and loyalty and not to allow conflict to arise take on a shape which responds to this situation. In April 2002 and thereafter the joint venture was still on foot. For Mr Derham to cause or commit his own company to have access to the Davegale site in competition with the joint venture is a breach of these duties owed to the venture and the venture vehicle.
The Compost Business
It was contended on behalf of Golden Sands that the establishment of Hillview Compost in May 2002 and Mr Derham’s decision that it conduct a compost on and from the Davegale site is likewise a breach of fiduciary duty. I think not. The compost business was not a business which Golden Sands ever carried on. Work in preparation for it was undertaken in 2001 and even earlier, and later in that year an EPA permit was granted to Golden Sands[18]. Clause 8 of the April Agreement contemplates that the venturers might carry on business other than that of sand mining if they agreed. I find that the preparatory work was undertaken by Mr Wilson and Mr Strickland with the knowledge and approval of Mr Derham but there is no evidence that he finally agreed to carry on the business. It must be remembered that it is he who would be providing the capital. It may be that, even after obtaining the permit, he would not be prepared to go ahead.
[18][2003] VSC 458 at [25].
Then it was said that the compost business was picked up by cl. 9.11 of the Royalty Agreement. Again, I reject this argument. Under this clause Davegale is obliged to allow Golden Sands access to the Davegale site “to continue to conduct the activities upon that site (including extraction of sand for processing) which Golden Sands undertook in periods prior to [1 June 2001]”. These activities did not include the processing or sale of compost.
Declaratory Relief
As I have mentioned I will make declarations only insofar as they concern the parties before the court and insofar as they are necessary for the continuance of the joint venture. I propose the following declarations:
(1)That Golden Sands as a licensee is entitled to access to the Davegale site upon the following terms:
(a)The right of access is for the purpose of Golden Sands carrying on of the business of mining, processing and selling sand (“Golden Sands Business”).
(b)The Golden Sands Business includes:
(i)the mining, processing and removal of sand on the Davegale site; and
(ii)the processing on the Darra site of sand mined on the Davegale site;
(c)The right of access is exclusive; Davegale may not during the term of the licence carry on or permit any other person to carry on the business of mining, processing or selling of sand on the Davegale site.
(d)The right of access continues for the Initial Term and any Further Terms as defined or granted under the Royalty Agreement, or until the Royalty Agreement is terminated.
(e)The right of access includes a right to do such other acts as may be reasonably necessary for the conduct of the Golden Sands Business, including:
(i)drawing water from the Davegale site;
(ii)depositing slimes on the Davegale site;
(iii)bringing onto, erecting and operating plant and equipment on the Davegale site.
(f)The right of access is subject to compliance by Golden Sands of its obligations under cll. 9, 10, 11, 12, 13 and 15 of the April Agreement.
(2)The transfer of the surface water licence by Golden Sands to Mr Derham on 14 October 2002 is voidable for economic duress.
(3)The establishment of the Hillview Sands business by Mr Derham and his causing Davegale to grant to Hillview Sands a right of access to the Davegale site for the purpose of carrying on a business in competition to the Golden Sands Business and his causing or permitting Hillview Sands to carry on that business are breaches of fiduciary duty owed by him to Golden Sands.
Injunctive Relief
I will not make orders for specific performance as sought by Golden Sands. The difficulties of formulating and enforcing such an order in this case are such that it would be inappropriate.
I will, however, grant injunctive relief since an award of damages would not provide an adequate remedy for Golden Sands. I propose an order that Davegale by its servants or agents or howsoever be restrained during the currency of the licence from:
(a)denying to Golden Sands its right of access to the Davegale site or interfering with its right of access to the Davegale site for the purpose of carrying on the Golden Sands Business during the currency of the licence; and
(b)permitting any person or entity to have access to the Davegale site for the purpose of or for purposes which include:
(i)carrying on the business of mining, process or selling sand on the Davegale site in competition with Golden Sands; or
(ii)interfering in any way with the exercise by Golden Sands of its right of access to the Davegale site.
I will order that Mr Derham do all things and execute all documents reasonably necessary to transfer to Golden Sands the surface water licence applicable to the Davegale site.
I will order that Mr Derham notify or cause to be notified the Department of Primary Industry that Robbyn Charles Strickland (or some other suitably qualified person nominated by Golden Sands) to be the quarry manager responsible for the work authorities applicable to the Davegale site.
Other Relief
Golden Sands seeks against Davegale common law damages and equitable compensation. There was some debate before me as to the matters in respect of which equitable compensation might be awarded. It is available in this case only for the breaches of fiduciary duty committed by Mr Derham. I am not persuaded that every of his wrongful acts in breach of the April Agreement or the licence amount to such breach. It is only where his conduct is in breach of his duties not to place himself in a position of conflict that questions of breach of fiduciary duty arise. His breaches of the April Agreement and the breaches by Davegale of the licence with which he was involved will not, without more, amount to such breach. Accordingly, the overcharging by Davegale for plant and equipment, its denial of the right of access to the Davegale site, its interruption and denial of water from the Davegale site, its imposition of charges for water from the Davegale site, and its imposition for charges for water do not amount to such a breach notwithstanding that they are all in breach of contract. These are all matters for common law damages or for an adjustment following the taking of an account. To my mind, the breaches of fiduciary duty which have been established in this case are Mr Derham’s establishment and conduct of the Hillview Sands Business.
I will therefore give judgment against Davegale for common law damages to be assessed for the following breaches of contract:
· its denial to Golden Sands of access to the Davegale site in April 2002 and thereafter for the carrying on of the Golden Sands Business; and
· its interruption of the supply of water in April 2002 and thereafter for the purposes of the Golden Sands Business including the cost of reinstating the pipeline and its refusal to permit Golden Sands to deposit slimes on the Davegale site.
There will be judgment for Golden Sands against Mr Derham for equitable compensation for his breaches of fiduciary duty referred to in paragraph [19] above, such compensation to be assessed. I will not make an order that the Hillview Sands Business be transferred to Golden Sands. Having regard to the injunction which I will make, this business will cease, insofar as it involves the taking of sand from the Davegale site. In these circumstances, an award of equitable compensation will sufficiently compensate Golden Sands for these breaches of fiduciary duty.
Hillview Sands is also liable to pay equitable compensation to Golden Sands in respect of the breaches of fiduciary duty of Mr Derham referred to in the preceding paragraph, for it knowingly received the benefit of these breaches. There will be an order against Hillview Sands for payment of this compensation to be assessed.
I will order that there be a taking of accounts as to the money owing by Golden Sands to Davegale or by Davegale to Golden Sands including:
· the sums paid by Golden Sands to Davegale for the removal of sand after deduction of the sums payable by Golden Sands to Davegale for its removal pursuant to the terms of the licence;
· the sums paid by Golden Sands to Davegale for plant and machinery after deduction of the sums payable for this pursuant to the terms of the licence;
· the sums paid by Golden Sands to Davegale for water taken from the Davegale site.
The bank guarantee provided by Golden Sands as security for costs of the defendants of this proceeding will be delivered up to Golden Sands.
The claim of Golden Sands against Hillview Compost and the counterclaim of the defendants against Golden Sands will be dismissed.
It would appear from this that Golden Sands has been successful in this proceeding. It should have its costs.
I will hear counsel further as to the precise terms of these orders and as to directions for the assessment of the damages and compensation.
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