Harrison v Schipp
[2001] NSWCA 13
•20 February 2001
CITATION: Harrison & Anor v Schipp Cameron & Anor v Schipp [2001] NSWCA 13 FILE NUMBER(S): CA 40728/98; 40761/98 HEARING DATE(S): 15, 16, 17 May 2000 JUDGMENT DATE:
20 February 2001PARTIES :
G Harrison & Emibarb Pty Ltd - Appellants/Cross-Respondents in 40728/98
D R Cameron & Don Cameron Real Estate Pty Ltd - Appellants in 40761/98
D J Schipp - Respondent in both matters and Cross-Appellant in 40728/98
Aegon Insurance Company (UK) Ltd & Ors - Third Cross-Respondent in 40728/98JUDGMENT OF: Handley JA at 1; Giles JA at 2; Fitzgerald JA at 153
LOWER COURT JURISDICTION : Supreme Court - Equity Division LOWER COURT
FILE NUMBER(S) :ED 6425/91 LOWER COURT
JUDICIAL OFFICER :Einstein J
COUNSEL: R B S Macfarlan QC & J P A Durack - Harrison & Emibarb Pty Ltd
I G Roberts - Cameron & Don Cameron Real Estate Pty Ltd
N C Hutley SC & P J Brereton - Aegon Insurance Company (UK) Ltd & Ors
M J Slattery QC, J M Hennessey & P J Gormly - D J SchippSOLICITORS: Blake Dawson Waldron - Harrison & Emibarb Pty Ltd
D Cameron in person
Minter Ellison -Aegon Insurance Company (UK) Limited & Ors
Barker Gosling - D J SchippCATCHWORDS: JOINT VENTURES - breach of fiduciary duty - obtaining advantage without knowledge and informed consent of joint venture partner - taking advantage of vulnerability of joint venture partner and of dominion and influence gained over her - liable for loss thereby suffered by joint venture partner. FIDUCIARY RELATIONSHIP - whether trust and confidence necessary - not essential. AFFIRMATION OF TRANSACTION BROUGHT ABOUT BY UNCONSCIONABLE CONDUCT - must know facts on which rights depend and what the rights are. EQUITABLE COMPENSATION - loss on resale of joint venture property - whether too remote to be loss for which liable - equitable compensation not so limited. EQUITABLE COMPENSATION - whether each delinquent joint venturer liable only for amount received - whether interest only on amount received - both liable for whole loss and interest on whole amount. COSTS - indemnity costs - whether "relevant delinquency" - whether taking advantage of joint venture partner and unconscionability warrant indemnity costs - leads to compensatory or other relief and costs on normal basis - more necessary for indemnity costs. COSTS - Bullock order - whether warranted on facts - not warranted. EQUITABLE COMPENSATION - whether could be allowance in favour of delinquent joint venturers - not necessary to decide - amount not assessable and order for inquiry not warranted. CASES CITED: JOINT VENTURES -
United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1
FIDUCIARY RELATIONSHIP -
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1
Breen v Williams (1996) 186 CLR 71
Johnson v Buttress (1936) 56 CLR 113
AFFIRMATION OF TRANSACTION BROUGHT ABOUT BY UNCONSCIONABLE CONDUCT -
Allcard v Skinner (1887) 26 ChD 145
re Howlett (1949) Ch 767
EQUITABLE COMPENSATION -
Morgan Corporate Pty Ltd v GWG Leviny Pty Ltd (1995) ATPR 41-414
Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281
Kenny v Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413
re Dawson; Union Fidelity Trust Co Ltd v Perpetual Trustee Co Ltd (1966) 2 NSWLR 211
O'Halleran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262
Beach Petroleum NL v Abbott Tout Russell Kennedy (1999) 33 ACSR 1
Duke Group Ltd (in liq) v Pilmer (1999) 31 ACSR 213
EQUITABLE COMPENSATION -
Barnes v Addy (1874) 9 Ch App 244
Catt v Marac Australia Ltd (1986) 9 NSWLR 639
Gluckstein v Barnes (1900) AC 240
Burdick v Garrick (1870) 5 Ch App 233
Wallersteiner v Moir (No 2) (1975) QB 373
Hungerfords v Walker (1900) 171 CLR 125
re Dawson; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co (1966) 2 NSWLR 211
Holmes v Walton (1961) WAR 96
COSTS - indemnity costs -
Degmam Pty Ltd (in liquidation) v Wright (No 2) (1983) 2 NSWLR 354
re Smith, ex parte Rundle (No 2) (1991) 6 WAR 299
Oshlack v Richmond River Council (1998) 193 CLR 72
Warman International Ltd v Dwyer (1995) 182 CLR 544
Hagan v Waterhouse (No 2) (1992) 34 NSWLR 400
Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397
Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estae Pty Ltd (1992) 30 NSWLR 359
Colgate-Palmolive Pty Ltd v Cussons (1993) 46 FCR 225
COSTS - Bullock order -
Bullock v London & General Omnibus Co (1907) 1 KB 264
EQUITABLE COMPENSATION -
Warman International Ltd v Dwyer (1995) 182 CLR 544
Boardman v Phipps (1967) 2 AC 46
United States Surgical Corporation v Hospital Products Ltd (1983) 2 NSWLR 157DECISION: (1) Appeals allowed in part. (2) Set aside the order that the first, second, third and fourth defendants pay the plaintiff’s costs on an indemnity basis and order in lieu thereof that they pay the plaintiff’s costs. (3) Appeals otherwise dismissed. (4) Cross-appeal dismissed as against the first and second cross-respondents. (5) Appellants pay 90 per cent of the respondent’s costs of the appeals and cross-appellants pay the first and second cross-respondents’ costs of the cross-appeal. (6) Reserve costs of the cross-appeal as between the cross-appellant and the third cross-respondents. (7) List the cross-appeal for mention on 12 March 2001.
THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL
CA 40728/98
EQ 6425/91
CA 40761/98
EQ 6425/91
HANDLEY JA
GILES JA
FITZGERALD JA
Tuesday 20 February 2001
JUDGMENTHARRISON & ANOR v SCHIPP
CAMERON & ANOR v SCHIPP
1 HANDLEY JA: I agree with Giles JA.
2 GILES JA: Mrs Delcie Schipp provided the money for the purchase of a property at Mary Street, Thirroul under a joint venture arrangement with Mr Donald Cameron and Mr George Harrison and their companies. The property was to be developed by the erection of townhouses, which were then to be sold. It was resold at a profit prior to the intended development and the profit was shared. Some of Mrs Schipp’s money was left with Mr Cameron and Mr Harrison as a so-called loan, and some was put towards the purchase of a property at Kembla Street, Wollongong under a joint venture arrangement with Mr Cameron, Mr Harrison and others. This property was also resold prior to its intended development, but at a loss.
4 The equitable compensation in the orders was made up of -3 In proceedings brought by Mrs Schipp against Mr Cameron, Mr Harrison and their companies it was held that they had breached fiduciary obligations owed to Mrs Schipp and had acted unconscionably towards her, and that Mrs Schipp was entitled to relief by way of equitable compensation. It was held that the relief was of sufficient width that it was unnecessary to grant relief consequent on breaches of duties of care and engaging in misleading and deceptive conduct also held to have occurred. Mrs Schipp obtained orders against Mr Cameron, Mr Harrison and their companies for payment of $230,880.04 as equitable compensation and $394,526.81 as interest calculated on a compound basis. She also obtained an order that her costs be paid on an indemnity basis.
(a) $90,880.04 being the amount taken by Messrs Cameron and Harrison or their companies as shares of the profit on the sale of the Mary Street property;
(b) $40,000 being the money lent to Mr Cameron and Mr Harrison; and
It had been held that Mrs Schipp was also entitled to equitable compensation and interest in respect of two amounts of $2,000 paid to meet expenses of the second joint venture. This seems not to have been taken up in the orders.(c) $100,000 being the money put towards the purchase of the Kembla Street property.
5 Messrs Cameron and Harrison and their companies appealed, seeking to overturn or modify the orders for payment of equitable compensation and as to compound interest, and to overturn the order as to indemnity costs.
7 The hearing of the cross-appeal as to the insurers’ liability was deferred. It is convenient to approach the appeals of Messrs Cameron and Harrison and their companies through the components of the equitable compensation, to go then to the orders as to compound interest and indemnity costs, and to conclude with the cross-appeal as to costs.6 The proceedings below included a claim by Mrs Schipp against Mr Harrison’s insurers pursuant to s 6 of the Law Reform (Miscellaneous Provisions) Act 1946. The claim failed and Mrs Schipp was ordered to pay the insurers’ costs. Her application for a Bullock order or a Sanderson order against Mr Harrison in respect of the costs was declined. Mrs Schipp cross-appealed, contingently seeking to overturn the failure of the claim and seeking a Bullock order against Mr Harrison in respect of the costs.
The profit on the sale of the Mary Street property
8 Mrs Schipp was divorced from her husband in 1985. In late 1986 she received a property settlement of $360,000. When buying a home unit in which to live she met Mr Cameron, an estate agent, who was the agent for the vendor.
9 In October 1987 Mrs Schipp contacted Mr Cameron and said that she had about $150,000 to invest and wanted him to help her find a home unit as an investment. Mr Cameron said that she could probably invest in something where they could both make some money. He suggested that she could buy the Mary Street property, then for sale for $120,000, and that he could develop it by the construction of three townhouses, which would then be sold. He introduced her to Mr Harrison, a solicitor, as a person who could also be involved.
10 There was extensive conflict in the evidence given by Mrs Schipp, Mr Cameron and Mr Harrison. Mrs Schipp was in the witness box for nine days, and was forcefully cross-examined. Mr Cameron was in the witness box for five days, and Mr Harrison for three days. There was full opportunity to assess these witnesses as they were tested on their affidavits and by reference to documents. As a general statement, the trial judge accepted the evidence of Mrs Schipp in preference to that of Messrs Cameron and Harrison where there was conflict. I will return to his assessment of Mrs Schipp as a witness later in these reasons when it will be more meaningful. He did not consider either Mr Cameron or Mr Harrison a satisfactory or reliable witness. As to each he considered that he tailored his evidence to support his case and gave false evidence. There were ample grounds for these assessments.
11 Mrs Schipp paid a deposit on the Mary Street property. The trial judge found that during meetings between the three of them leading up to 25 February 1988 Mrs Schipp was told by Mr Cameron and Mr Harrison that the arrangement was -
· that Mrs Schipp would purchase the property;
· that Mr Cameron and Mr Harrison would build (that is, arrange for the building of) three townhouses on the property, and would arrange for the sale of the townhouses;
· that the building work would be financed by selling the townhouses off the plan;
· that Mr Cameron would arrange for the plans to be drawn up;
· that Mr Harrison would look after all the legal aspects;
· that when the townhouses had been built and were sold, Mr Cameron and Mr Harrison would each have one third of the profits;
· that Mrs Schipp would be paid by Mr Harrison and Mr Cameron 14 per cent on the money she was to provide for the purchase; and
· that all Mrs Schipp would have to do was to outlay the purchase money and expenses incidental to the purchase.
12 On 25 February 1988 a joint venture agreement was signed at Mr Cameron’s office. It had been prepared by Mr Harrison. The trial judge said that Mr Harrison quickly read it through to Mrs Schipp, but did not give a detailed explanation, and that he did not give a copy to Mrs Schipp to read. He found that Mrs Schipp signed it trusting Mr Harrison as a solicitor and relying on his expertise.
13 The joint venture agreement named Mrs Schipp and the companies of Mr Cameron and Mr Harrison as the participants. It recited that they had agreed to associate themselves in a joint venture “for the purpose of acquiring [the Mary Street property] for the purpose of building 3 units (the ‘project’)”. It provided that Mrs Schipp, who was designated as “the trustee”, would purchase the Mary Street property “for the purposes of the project in its [sic] capacity as trustee”, would hold it on trust for the participants, and would if required transfer it to the participants. It provided that Mrs Schipp would lend “the trust” the full purchase price on which she would be paid 14 per cent interest and that “the balance of the funds required to complete the project” would be borrowed using the property as security. It recorded that Messrs Cameron and Harrison “shall be the Project Managers and shall not be paid any remuneration”, without specifying more particularly what they were to project manage. It provided that the participants were “entitled to 1/3 profit and liable for 1/3 loss of the project”, and that they covenanted to indemnify each other for any liability in excess of the participant’s correct share and to act so as to distribute or bear income, profit and loss in the appropriate proportions.
15 Important to the relief in relation to the $90,880.04 taken by Messrs Cameron and Harrison and their companies as shares of the profit on the sale of the Mary Street property, the trial judge found -14 The trial judge found that when she signed the joint venture agreement Mrs Schipp did not understand the significance of a trust. He found that she thought that the Mary Street property was hers and that she did not have any obligation to transfer it or hold it on trust for anyone else. He found that she was unaware that the joint venture agreement provided for the balance of the funds to be obtained by borrowing on the security of the property, and that she had been told and believed that the development would be funded by the pre-sale of townhouses off the plan.
- “She understood that in payment for Mr Cameron and Mr Harrison’s efforts in managing and selling the development project, they would each be entitled to one-third of the profits upon the sale of the three units after the development was completed. She understood that Mr Cameron and Mr Harrison’s rights to a one third share in the profits each was dependent upon and contingent upon the development and sale of the units.
- …. She simply believed that after the development was completed and in payment for Mr Cameron and Mr Harrison’s efforts as project managers in relation to the development and sale of the three units, they would be entitled to one-third each of the profits upon the sale of the three units.”
16 Contracts for the purchase of the Mary Street property were exchanged on 26 February 1988, now at a price of $150,000. Plans for the development of the property were prepared, and a development application was lodged with the council at the beginning of March 1988. Revised plans were submitted to the council in mid-April 1988. The purchase was completed on 3 May 1988. Mr Harrison acted on the transaction.
17 Further revised plans were submitted to the council in mid-May 1988, and development consent was granted on 1 July 1988. In September 1988 Mr Cameron gave instructions to prepare a building application.
18 For some time prior to September 1988 Mr Cameron had sought to market the proposed townhouses, it seems without success. In August 1988 he approached a lender for construction finance. But in early September 1988 he told Mrs Schipp that the townhouses would have to be smaller than expected and that there was some difficulty with the design of balconies. He said that the townhouses could not be sold for the price they had been asking, and that he thought the property should be auctioned.
19 There was then what the trial judge at one point described as pressuring Mrs Schipp to sell. It is desirable to go to other findings which place this in context.
20 Mr Cameron had had extensive experience in real estate sales and property development. Apart from his practice as a solicitor, Mr Harrison had engaged in commercial transactions including land developments on his own account, and was so engaged in 1987-88. Mr Cameron and Mr Harrison had been long acquainted, and for a time Mr Harrison’s offices had been within the offices of Mr Cameron’s real estate agency. In the past they had been associated in land developments.
21 In 1988 Mr Harrison’s bank was concerned about his exposure to it, in particular as a result of a foreign currency loan, and wanted Mr Harrison to reduce his indebtedmess. Mr Harrison was selling off assets, using Mr Cameron as his agent where appropriate, to reduce his indebtedness. One of Mr Harrison’s assets, held by himself and his wife, was the Kembla Street property. Development consent had been obtained for the development of the property, and instructions had been given to prepare a building application in early September 1988.
22 On 9 September 1988 Mr Cameron wrote to Mr Harrison’s bank submitting a proposal for finance for the development of the Kembla Street property. The letter included that arrangements were being made to sell the Mary Street property at auction on 15 October 1988, that a particular sale price was expected, and that “the proceeds of this sale would be used to reduce the borrowings on 55-57 Kembla Street”.
23 This assurance of sale of the Mary Street property preceded agreement to sale by Mrs Schipp, indeed was either before sale had been suggested to her or at a time when she was opposed to sale. The trial judge considered that the principal reason why Mr Cameron and Mr Harrison pressured Mrs Schipp to agree to sell the Mary Street property was to ease Mr Harrison’s financial difficulties. He rejected the evidence of Mr Cameron and Mr Harrison to the effect that in March 1988 Mrs Schipp had expressed concern about the risk of the Mary Street development; that they had agreed that she would leave her money in but get it back plus interest whether or not there was a profit and not be responsible for any losses; that they had also said that they would make her a gratuitous payment out of any profit; and that they had signed a replacement joint venture agreement intended to reflect this. I will return to the replacement joint venture agreement: the trial judge found that it was prepared and signed well after the sale of the Mary Street property.
24 When Mr Cameron told Mrs Schipp that he thought the Mary Street property should be auctioned, she said that she did not want that to happen. On 12 September 1988 Mr Cameron telephoned Mrs Schipp and told her that Mr Harrison was at his offices with a sale contract to sign. Mrs Schipp went to Mr Cameron’s offices, and there was a lengthy meeting in which Mr Cameron reiterated that the townhouses were too small and that he could not sell them off the plan, Mr Harrison said that they were too small and could not be sold for the money expected, and Mrs Schipp said that she could not believe that the project would not work and declined to sign the contract. At one point while Mr Harrison was temporarily absent Mr Cameron said that Mr Harrison really needed money for the bank. According to Mrs Schipp, she did not take much notice of this at the time.
25 Eventually, after being told that it was a good time to auction the property and that she really had no option but to sell, Mrs Schipp signed a selling agency agreement in favour of Mr Cameron’s company and a document making Mr Harrison her “appointee” for the sale of the Mary Street property. There had been no discussions between Mrs Schipp and Messrs Cameron and Harrison as to what the latter would be paid, if anything, in relation to the Mary Street property when it did not proceed into a development. Mrs Schipp gave evidence that she did not know what they would be entitled to “under our arrangements”, but that she did not believe it could be very much because the property had not been developed and she had paid for everything.
26 A bank diary note dated 26 September 1988, the content of which the trial judge found could only have come from Mr Cameron or Mr Harrison, recorded that Mrs Schipp, Mr Cameron and Mr Harrison had formed a partnership with the intention of developing the Kembla Street property. They had not: Mrs Schipp had not agreed to put any money into the Kembla Street property at this time. The trial judge inferred that Mr Cameron and Mr Harrison intended that all or a substantial portion of the money which had been invested to that time in the Mary Street property would come to be invested in the Kembla Street property.
27 The Mary Street property was sold at auction on 15 October 1988. It sold for $317,000. The sale was completed on 6 December 1988. Mr Harrison acted on the transaction.
29 The grounds for relief by way of equitable compensation were summarised by the trial judge -28 For the present it is not necessary to go into how some of Mrs Schipp’s money was left with Mr Cameron and Mr Harrison as the so-called loan and some was put towards the purchase of the Kembla Street property. In due course Mrs Schipp received, actually or notionally, her initial $150,000 and some expenses she had paid, interest on her initial $150,000, and one-third of the profit on the sale of the Mary Street property. Mr Cameron and Mr Harrison, or their companies, took the other two-thirds of the profit, being the $90,880.04 presently under consideration.
- “The Harrison/Cameron Interests are by this relief to be stripped of the profits they made in relation to the Mary Street transaction. The relief is grounded upon the defendants’ breaches of fiduciary obligation and unconscionable conduct in procuring a share of the profits in reliance upon a document to which Mrs Schipp had not assented as regulating their joint venture agreement. The relief is further grounded upon the failure to inform Mrs Schipp of the respects in which the First Joint Venture document presented to Mrs Schipp, departed from the oral agreement she had entered into. Had the Joint Venture Agreement still been inchoate at this stage, this would have constituted a breach of the duty of the promoters of the Mary Street Joint Venture agreement to make full and fair disclosure of matters which to their knowledge were material to be known to Mrs Schipp. In that situation Mr Cameron and Mr Harrison would have been obliged to draw to Mrs Schipp’s attention the fact that an express representation to her that they would share in profits once the units were developed and sold was not to be included as a term of the written Joint Venture Agreement which included no provision fettering their rights as immediately entitled to interests in the joint venture. On the basis that the parties had already reached a binding oral agreement, the conduct was a breach of the duties of good faith and disclosure owed by each joint venturer to the other. Mrs Schipp was entitled to be informed of the differences between the document presented to her for signature and the terms previously agreed. She was also entitled to a full and clear explanation of the whole of the document.
- At a more simplistic level, the Cameron/Harrison Interests are required to disgorge monies to which they were never entitled pursuant to the agreement entered into and to be stripped of profits they made on the transaction.”
30 Apart from equitable compensation, the trial judge considered that Mr Harrison was in breach of a duty of care owed as a solicitor to Mrs Schipp, and that he and his company had engaged in misleading or deceptive conduct or aided and abetted such conduct in respect of her entry into the joint venture agreement. It does not seem that alternative grounds for relief were found as against Mr Cameron or his company. The alternative grounds for relief as against Mr Harrison and his company do not obviously lead to an order that Mrs Schipp be paid the $90,880.04. As will appear, I do not think it necessary to consider the alternative grounds for relief.
31 It can be seen why I earlier described as important to the relief in relation to the $90,880.04 the trial judge’s findings to the effect that Mrs Schipp understood that the entitlement of Messrs Cameron and Harrison to a share in profits was dependent on the development and sale of the townhouses. The understanding must have flowed from the explanation of the arrangement in the meetings leading up to 25 February 1988, in particular that Mrs Schipp would purchase the property, that Mr Cameron and Mr Harrison would arrange for the building and sale of the townhouses at no cost to her, and that when the townhouses had been built and sold Mr Cameron and Mr Harrison would each have one-third of the profits. Mrs Schipp’s evidence was relevantly that, even after signing the joint venture agreement, she understood she was buying the Mary Street property and it would belong to her, that she did not know the significance of a trust, and that she did not have to transfer it to anyone else or hold it on trust for anyone else.
32 In the trial judge’s view, at the heart of the breach of fiduciary duty and unconscionable conduct, and whether prior to the agreement of 25 February 1988 the joint venture was an inchoate arrangement or (as the trial judge held) was then a final and binding agreement, it was necessary for Mr Cameron and Mr Harrison to disclose to Mrs Schipp that, contrary to the arrangement or agreement, the written joint venture agreement gave them a share in the profits even if the townhouses were not built and sold. They did not do so, and when the Mary Street property was sold before development they had to give up to Mrs Schipp the shares of profit they had taken.
33 If the premises be accepted, that is, the antecedent arrangement or agreement and failure adequately to disclose the change in the written joint venture agreement, then it seems to me that the conclusion follows. As proposed participants in a joint venture, or as parties to a joint venture, Mr Cameron and Mr Harrison and through them their companies owed fiduciary obligations to Mrs Schipp to refrain from pursuing, obtaining or retaining an advantage for themselves in relation to the venture without her knowledge and informed consent (see, for example, United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1). Under the antecedent arrangement or agreement Messrs Cameron and Harrison and their respective companies were not entitled to shares of profit if, as occurred, the Mary Street property was sold before development, and if the written joint venture agreement gave them the entitlement they gained that advantage in breach of the fiduciary obligations owed to Mrs Schipp. Separate regard to unconscionable conduct is not necessary. The challenges in the appeal were to the premises.
34 The submissions on appeal were that the sharing of profit should the development of the Mary Street property not proceed was not explicitly addressed in the meetings leading up to 25 February 1988, that there was adequate disclosure to Mrs Schipp of the contents of the joint venture agreement, and that Mrs Schipp understood and accepted that there would be a sharing of profit not only upon development and sale of the townhouses but, as the joint venture agreement provided, in any event. This involved contesting the trial judge’s findings of fact, with particular regard to evidence of Mrs Schipp’s conduct after the sale of the Mary Street property.
35 It is correct that the question of sharing of profit should the development of the Mary Street property not proceed was not explicitly addressed in the meetings leading up to 25 February 1988. All the discussions were of building and selling three townhouses and, according to Mrs Schipp, Mr Cameron said that she need not have any involvement beyond buying the property, and that his and Mr Harrison’s role would “be as project managers so we would organise the development of the units and then once the units are developed and sold we would share in the profits one-third each”. All Mrs Schipp had to do was “buy the property up front”.
36 However, in my view the trial judge was correct in seeing the arrangement or agreement as one in which the entitlement of Messrs Cameron and Harrison to share in profits was dependent on the development and sale of the townhouses, and his finding that Mrs Schipp so understood the arrangement or agreement was therefore well available. Mrs Schipp was to buy the property, and so far as the discussions went was to be its owner without Mr Cameron or Mr Harrison sharing in the ownership. Mr Cameron and Mr Harrison were to arrange the building and sale of the townhouses, financing the building by selling the townhouses off the plan. The feasibility of this may be thought doubtful, but the building and sale of the townhouses was their responsibility, and Mrs Schipp was not concerned with it and in particular her ownership of the property was not to be compromised by use of the property as security. Mrs Schipp was investing her $150,000 in a way which would let Mr Cameron and Mr Harrison make some money, but they contributed by their work in arranging the building and sale of the townhouses and by their agency and legal work. Mr Cameron and Mr Harrison would get their shares of profit from the building and sale of the townhouses in return for this contribution. If the building and sale did not happen, Mrs Schipp was left as the owner of the property, and Messrs Cameron and Harrison had not earned shares in profit; there was no profit from the building and sale of the townhouses in which they could share.
37 That Mrs Schipp would own the property, not sharing ownership with Messrs Cameron and Harrison and not making it available as security, was significant in the arrangement or agreement prior to 28 February 1988. The change in that regard in the joint venture agreement is marked. The relevant aspect of the arrangement or agreement may be tested in this way. If the Mary Street property were sold, before development, shortly after its purchase by Mrs Schipp, why should Mr Cameron and Mr Harrison have shared in any profit equally with Mrs Schipp? Mrs Schipp had provided all the money and had risked its loss. Mr Cameron and Mr Harrison had not provided their contribution or risked any money. They may have done some work, for example acting on the purchase and obtaining development consent, for which they might have had a moral claim or even a legal claim in the nature of a quantum meruit, but no more. The corollary of the entitlement of Mr Cameron and Mr Harrison to one-third of the profits when the townhouses had been built and sold was that they would not have an entitlement to share in profits if the townhouses were not built and sold, and was in the circumstances the common sense and necessary answer to the question not explicitly addressed in the meetings leading up to 25 February 1988.
39 The cross-examination began -38 I have earlier referred to the trial judge’s description of the signing of the joint venture agreement, in short that Mr Harrison quickly read it through to Mrs Schipp but did not give a detailed explanation and did not give her a copy. It was said that this did not take account of Mrs Schipp’s evidence in cross-examination.
- “Q. What do you say happened at this meeting?
A. They just said ‘We have the deed for the three of us to sign’. George had it in his hand and he put it on the table and he went through it with me and he said ‘Dar dar dar dar dar dar dar dar in the way it’s written’ and he said ‘That means whatever’, and went through each little bit and said to sign this’, and he said ‘You sign there’.
- Q. So he went through each little bit and explained it, did he?
A. Yes.”
40 Mrs Schipp was then taken though the joint venture agreement, and as to most parts agreed that Mr Harrison gave “an explanation” or “his explanation” of it. When asked whether she understood the explanation, she answered that it “seemed to be alright, I guess”, that “I guess I did”, and in similar language. But she also said that she did not remember what the explanation or explanations was or were, that Mr Harrison went through the joint venture agreement very quickly, in effect that what a trustee was was meaningless to her. She continued in the belief that “I owned the land”, and said that the document “was gibberish to me”.
41 However, the suggestion can not readily be accepted that this evidence showed disclosure to Mrs Schipp of the content of the joint venture agreement adequate to bring home to her that the companies of Mr Cameron and Mr Harrison shared in profits even if the townhouses were not built and sold. Whatever Mr Harrison went through, the requisite knowledge and informed consent on the part of Mrs Schipp depended on the extent and accuracy of the explanation. That Mrs Schipp may have thought at the time that an explanation was given and that she understood it does not take matters very far at all. Going beyond the particular cross-examination on which reliance was placed, it was well open on the evidence to find that Mrs Schipp was not brought to anything like a proper understanding of the joint venture agreement. When she said that Mr Harrison went through it very quickly, and demonstrated that she did not understand such an important element as trusteeship, the trial judge was entitled to find that the explanation was inadequate and did not make her aware that, rather than being the sole owner of the Mary Street property with an arrangement to share profits upon the building and sale of the townhouses, she held the property on behalf of Mr Cameron and Mr Harrison as well as herself and had to share with them even if the townhouses were not built and sold.
42 The disclosure to Mrs Schipp of the contents of the joint venture agreement must, of course, be considered together with what was said to be evidence of Mrs Schipp’s later understanding and acceptance that there would be a sharing of profits not only upon development and sale of the townhouses but, as the joint venture agreement provided, in any event. It is here that the trial judge’s findings of fact were most directly contested.
43 I have earlier set out the findings to the effect that Mrs Schipp understood that the entitlement of Messrs Cameron and Harrison to a share in the profit was dependent on the development and sale of the townhouses. In cross-examination Mrs Schipp firmly adopted such an understanding. For example, she agreed that she believed that “every penny out of Mary Street was yours”, that after the sale of the Mary Street property she knew that it was “all yours, subject to sale expenses” and that she had made a lot of money, and that she was excited at having made in the order of $150,000.
45 According to Mrs Schipp, shortly after the auction of the Mary Street property she met Mr Cameron and Mr Harrison and was told by Mr Cameron that she had -44 It was submitted on appeal, however, that much other evidence demonstrated that Mrs Schipp understood and accepted, after the sale of the Mary Street property, that Mr Cameron and Mr Harrison were entitled to share in the profit. So, it was said, she must have always so understood, and must have known of and assented to the contents of the joint venture agreement in this respect.
- “… made a good profit of $40,000 but you are going to have a tax problem because you haven’t owned the Mary Street property for more than twelve months. We don’t have a tax problem as we can put ours through our businesses.”
Mrs Schipp said that she had no idea that she would have a tax problem, and asked what she could do about it, and either Mr Cameron or Mr Harrison said that they could possibly help her by taking the money into their businesses where they could write the tax off. Mrs Schipp did not at the time protest that her profit entitlement was a good deal more than $40,000.
- “Her lack of understanding as to her legal position in the events which had happened coupled with the blithe assumption and statement by Mr Cameron and Mr Harrison that they had profits through the dealing, led Mrs Schipp not to question why it was that Mr Cameron and Mr Harrison had any right to profits when the development had not proceeded.”
47 Following the occasion last mentioned Mrs Schipp had other conversations with Mr Harrison, in which she asked for interest on her $40,000 if it was left with Mr Cameron and Mr Harrison. After consulting Mr Cameron, Mr Harrison declined: he said that Mrs Schipp could have her money and would have to pay $20,000 in tax, or could leave the money with them without interest. Mrs Schipp decided to leave the money with them, and this was the money the subject of the equitable compensation of $40,000. According to Mrs Schipp’s evidence, in one of the conversations she referred to Mr Cameron and Mr Harrison keeping “my share of the profits”, and in explaining her decision she referred again to them taking “my share of the profits”.
48 In December 1988 Mrs Schipp consulted Mr Baird, a solicitor, because she was concerned that she had not received any of her money from the Mary Street property. On 21 December 1988 she saw Mr Baird. She gave him a copy of the joint venture agreement. Although Mrs Schipp gave evidence that she told Mr Baird that, when she entered into the joint venture agreement, Mr Cameron and Mr Harrison said that the property was all hers unless they put up the townhouses, she did not tell Mr Baird that sharing the profit with Messrs Cameron and Harrison was contrary to her understanding. According to Mr Baird, Mrs Schipp told him that she wanted “my money out and my share of profits”.
49 Mr Baird wrote to Mr Cameron on 22 December 1988 asking for an accounting and the return to Mrs Schipp of the money she had contributed plus interest. He did not make a claim to all the profit.
50 Again according to Mrs Schipp’s evidence, at a meeting with Messrs Cameron and Harrison in late December 1988 or shortly thereafter she spoke of putting “my $40,000 share of the profits” into the Kembla Street property. This must have been her share in the profit from the Mary Street property.
51 The trial judge found that the replacement joint venture agreement was signed in late March 1989, and that it was proposed by Mr Harrison as necessary to “redo the earlier agreement” to reflect the new arrangement by which Mrs Schipp’s profit from the Mary Street property was taken into the businesses of Messrs Cameron and Harrison in order to overcome the tax problem. According to Mrs Schipp the $40,000 was at the time referred to as “her profit”, and the replacement joint venture agreement provided that Mrs Schipp would be trustee of the Mary Street property and that the companies of Messrs Cameron and Harrison would be the participants and would share the profits and losses. Mrs Schipp’s evidence included that she understood that the replacement joint venture agreement would apportion the distribution of “my profit share” to Mr Cameron and Mr Harrison.
52 In June 1990 Mrs Schipp’s new solicitor, Mr McInerney, wrote to Mr Cameron and Mr Harrison demanding payment of $20,000 from each on the ground that they had failed to account for “her share” of the profit from the Mary Street property. Mr McInerney did not make a claim to all the profit.
53 In May 1991 Mrs Schipp by her further new solicitor, Mr Lewis, again demanded $20,000 from each of Mr Cameron and Mr Harrison, and in August 1991 she brought proceedings against them to recover $20,000 from each, now on the ground that it had been lent to them. Once more there was no claim to all the profit.
54 The appellants relied on all this as showing acceptance by Mrs Schipp from the time of sale of the Mary Street property and over a long period that she was entitled to only part of the profit from the Mary Street property. They said that she spoke of a share rather than the entirety, and failed to assert when she might have been expected to do so that the written joint venture agreement departed from an antecedent arrangement or agreement, or to assert when she might have been expected to do so that Messrs Cameron and Harrison were not entitled to share in the profit from the Mary Street property because the townhouses had not been built and sold. They submitted that the correct finding was that Mrs Schipp understood that Mr Cameron and Mr Harrison were entitled to share in the profit even if the Mary Street property was sold undeveloped, an understanding that can only have come from adequate disclosure when the joint venture agreement was signed, and that in the light of this evidence the trial judge had “too fragile a base” ( State Rail Authority of New South Wales v Earthline Constructions Pty Ltd(in liq) (1999) 73 ALJR 306) for his finding as to Mrs Schipp’s understanding.
55 But the evidence was not all one way, and Mrs Schipp’s conduct after the sale of the Mary Street property, as with her evidence of the explanation of the joint venture agreement, must be seen in the wider context of what the trial judge considered to be Mrs Schipp’s position of disadvantage and its exploitation.
56 While Mrs Schipp did not clearly tell Mr Baird that sharing the profit with Messrs Cameron and Harrison was contrary to her understanding, she did tell him that she felt she was entitled to more than a third. In her evidence in chief she said that she gave Mr Baird a copy of the joint venture agreement and asked him, “Are George Harrison and Don Cameron each entitled to two thirds of the profits?” Mr Baird recalled her saying that she felt that after she bought the property “the rules changed so that I really don’t know what is happening right now”, and recalled that Mrs Schipp was upset that the townhouses had not been built and the property had been sold. He could not recall whether he discussed with her any discussions she had at the time of entry into the agreement. The trial judge was entitled to see in this Mrs Schipp’s belief that she was entitled to the whole of the profit, but confusion whereby she was not clear in her instructions to Mr Baird.
58 The trial judge found significance in an account written by Mrs Schipp for her solicitor in April 1991. It included, after reference to the sale of the Mary Street property -57 Mr Baird’s rather hesitant advice to Mrs Schipp that Messrs Cameron and Harrison were probably entitled to shares in the profits was then moulded by the joint venture agreement. Even then, Mr Baird said that when he wrote to Mr Cameron he did not make a wider claim because he was unsure of Mrs Schipp’s entitlement: he said he did not “have a lot of opportunity to cover all the refinements” and that he wrote “not being sure what she was entitled to out of that money at the end of the day”. It remains that Mrs Schipp did not convey to Mr Baird a forthright entitlement to all the profit, but it is difficult to escape the view that Mr Baird was not as vigilant in her interests as he might have been and in the absence of better exploration by him of her position Mrs Schipp would not have been encouraged to question the “blithe assumption” to which the trial judge referred (see para [45] above).
- “In original contract no provision was made for selling the site without having completed the original contract of building 3 town houses. I didn’t realise at the time the original contract was made and so it has to be split in 3 ways - which gave me a big tax problem and them a big $40,000.00 each.”
60 Mrs Schipp consulted another solicitor after August 1991, and a letter before action was sent to Mr Harrison reflecting more thorough consideration of her position. The letter was dated 9 October 1991, and dealt with the Mary Street property, the loan of $40,000, and the Kembla Street property. As to the first of these, it included -59 This was written, so far as appears, without prompting, and reflected a belief that, because of the sale of the property before it was developed, the profit should not have been shared. The significance of Mrs Schipp owning the property to which I earlier referred must not be overlooked, reflected in one of her answers, “Well, they sold my land so I considered that it had to be my money”. The account is also consistent with Mrs Schipp being less than forthright at the time or earlier in rejecting equal sharing of the profit.
“4. The fundamental basis on which our client was induced to provide the funds was that three units were to be constructed on the Mary Street property which were then to be sold, as was clearly contemplated by the joint venture agreement.
5. The joint venture agreement further provided that the work to be done by yourself and Don Cameron was the arrangement of the building of the units on the property.
6. The units were never built, and accordingly no activities were carried out in relation to the joint venture by either yourself or Don Cameron.
7. No provision is made on the joint venture agreement for the situation where the units were not built.
9. After paying out certain liabilities in respect of the sale of the land there was a sum of $120,000 remaining which was apparently disbursed by making equal payments of approximately $40,000 to each of yourself, Don Cameron and our client.”8. Contrary to the joint venture agreement, and our client’s understanding of what was supposed to happen, the property was subsequently sold without any units having been built at all for a sale price of $317,000.
- “In this case, I formed the clear view that Mrs Schipp was in fact a person with a special weakness, readily apparent to Mr Cameron and Mr Harrison which sprang from her quiet, reserved and timid character, from her lack of commercial experience and, at the time, from the fact that she had no close family support. …
- Mrs Schipp’s evidence which I accept, was that in the main she did not speak during most of the many meetings with Mr Cameron and Mr Harrison over aspects of the development of Mary Street. In my judgment, Mr Cameron and Mr Harrison came early to view Mrs Schipp as a very weak and naïve and vulnerable person who could simply be taken for granted and who was obviously way out of her depth in the commercial dealing which was involved. This was a case in which it was necessary to see Mrs Schipp in the witness box and to see Mr Cameron and Mr Harrison in the witness box to examine properly their relationship inter se and to form a judgment on whether their dealings from early days placed Mrs Schipp in a position where her weaknesses became more and more apparent to Mr Cameron and Mr Harrison. In my judgment, this did occur and Mr Cameron and Mr Harrison moved in to take unfair and unconscionable advantage of this weakness. Probably the weakness stemmed from Mrs Schipp’s inherent character, she being a small person who was quiet and timid, and also from her lack of education. Thus, as time went by, Mrs Schipp’s capacity to make decisions as to her own best interests became peculiarly susceptible to control and influence by Mr Cameron and Mr Harrison. She came to be extremely disadvantaged in her bargaining power as compared to that of Mr Cameron and Mr Harrison. She fell in with whatever Mr Harrison and Mr Cameron suggested. She was well out of her depth and they knew it. The relationship in respect which she had for their business experience was such that she, to their observation, became extremely susceptible to their influence as they knew. Their acts of manipulation were acts to which she was, as they believed, utterly vulnerable by reason of the personal domination which they had come to achieve over Mrs Schipp.
- The case presents as one in which Mr Cameron and Mr Harrison acquired such a special relation of domination, influence and superiority over Mrs Schipp as to render reasonable a presumption that the Kembla Street transaction was procured by Mr Cameron and Mr Harrison through the unconscientious use of their power over her.”
62 The trial judge regarded the tax problem as something used by Messrs Cameron and Harrison to unsettle Mrs Schipp and persuade her to put money into the Kembla Street property. Although he did not in terms so find, consistently with this he must have considered that Mrs Schipp’s belief that she was entitled to the whole of the profit from the Mary Street property was swamped by the assertion (the trial judge also called it a blithe assumption) that the profits were to be shared. So Mrs Schipp did not immediately question why Messrs Cameron and Harrison were entitled to share in the profits when the development had not proceeded, and spoke and acted accordingly.
63 The trial judge said that Mrs Schipp trusted estate agents and solicitors. The trust was challenged at the end of 1988, a matter which will assume much more importance when I come to her putting money towards the purchase of the Kembla Street property. She went to Mr Baird. But that was not very effective. As will appear, she was berated by Messrs Cameron and Harrison for having done so, and she brought his involvement to an end: see later in these reasons. In the environment described by the trial judge, as starkly illustrated by the short-lived and soon overcome independence of spirit at the end of 1988, the flower of insistence on the whole of the profit would hardly flourish.
64 As I have said, the trial judge did not consider either Mr Cameron or Mr Harrison a satisfactory or reliable witness, but he said that he accepted Mrs Schipp as having given evidence to the best of her recollection. He said that Mrs Schipp “has obviously lived with this case for some 9 or so years”, and that in many instances her recollection had been shown to be faulty in the course of cross-examination, but that notwithstanding he accepted her evidence as given without any intention to mislead and as constituting her best recollection of the events which took place. There is disparity between the emphatic evidence given by Mrs Schipp that she believed the profit was entirely hers, and was excited by the large profit, and her conduct after the sale of the Mary Street property. It is not unknown for witnesses to be over-emphatic, with the core of their evidence remaining valid. It seems to me that the trial judge considered that Mrs Schipp’s conduct was explained by the dominance gained over her by Messrs Cameron and Harrison, and that while she may not have held it with the clarity and intensity professed in her evidence after living with the case for a long time she nonetheless had the understanding presently in question in and after February 1988. I am not persuaded that the trial judge misused his advantage, an advantage of high order in the circumstances of this case, in seeing and hearing Mrs Schipp give her evidence, or that there was incontrovertible evidence to the contrary of his acceptance that she held the understanding. The trial judge’s findings of fact remain good.
66 It was submitted for the appellants, it seems by way of outflanking the basis on which breach of fiduciary duty was found, that despite whatever occurred between the initial arrangement or understanding and the signature of the joint venture agreement, at the time when the property was sold before development Mrs Schipp was content for the profit to be shared equally. Her then acceptance of equal division, it was said, dealt with the situation which had not been explicitly addressed in the meetings prior to 25 February 1988. I do not think this advances the appellants’ position. Mrs Schipp did not give fully informed consent at that time any more than at the time of the written joint venture agreement. Rather, on the trial judge’s findings such acceptance of equal division of the profit as there was came about because the appellants took advantage of her vulnerability, particularly by assertion of the tax problem.65 The challenged premises, in my view, should be accepted. There was an antecedent arrangement or agreement in accordance with Mrs Schipp’s understanding as found, and failure adequately to disclose the change in the written joint venture agreement. Messrs Cameron and Harrison and their companies must give up to Mrs Schipp the shares of profit taken by them on the sale of the Mary Street property.
The $40,000 lent to Messrs Cameron and Harrison
67 The $40,000 was most of Mrs Schipp’s one-third of the profit on the venture after the sale of the Mary Street property. It was received notionally in that, as earlier described, it was left by her with Messrs Cameron and Harrison in order to overcome the asserted tax problem. One-third of the profit was $45,440.02, although at the time it seems it was usually referred to as a round figure of $40,000, but by reason of payments to or for Mrs Schipp the amount left with Messrs Cameron and Harrison was reduced to either $40,540 or $40,000. It was agreed at the trial that the amount should be taken to be $40,000.
68 This came to be regarded as money lent. At about the end of January 1989 Mrs Schipp said to Mr Cameron that she “should have something in writing to show that you have my $40,000”, and there was discussion of when it could be repaid. Letters were signed by Mr Cameron and Mr Harrison acknowledging indebtednesses of $20,000 and undertaking to repay. Mrs Schipp was not satisfied with the letters because they did not include that the undertaking was to repay within two years from 1 February 1989 and that the loans were to be interest free for that period. On 12 July 1989 replacement letters were signed with these added contents.
70 When describing the money as money procured by unconscionable means the trial judge referred to an earlier portion of his reasons in which he said that, as part of pressuring Mrs Schipp to sell the Mary Street property and put money into the Kembla Street property, Messrs Cameron and Harrison represented to her -69 On any view Mr Cameron and Mr Harrison each had to pay Mrs Schipp $20,000 no later than 1 February 1991. The trial judge held that they were both liable in respect of the whole of the $40,000, not as money lent but as money “procured by unconscionable means”, and allowed compound interest on the $40,000 from 30 January 1989. There was therefore some point in the appeal in relation to this amount.
- “ … that unless Mrs Schipp agreed to their proposals as to a method of dealing with what was suggested as her limited share in the net profits procured on the sale by paying the same to them, she would have to pay capital gains tax. Regardless of the correctness or not of this advice, the representation was a ruse designed to unsettle Mrs Schipp and to ensure that Mrs Schipp’s funds remained out of her hands so as to further the prospect that Mrs Schipp would be enticed into developing a further property owned by Mr Harrison and his wife.”
- “ … the pressure placed upon Mrs Schipp to agree to Mrs Cameron and Mr Harrison taking an interest-free loan of Mrs Schipp’s alleged share of the Mary Street profits, amounted to unconscionable conduct.”
(a) Unconscionable conduct
72 Unconscionable conduct must be approached on the basis that the trial judge’s general acceptance of the evidence of Mrs Schipp is not vitiated by error in relation to her understanding of sharing in the profit from the Mary Street property. The thrust of the submission was that at the material time there was no relationship of trust and confidence because Mrs Schipp considered that Messrs Cameron and Harrison had cheated her, and so that the finding of unconscionable conduct lacked foundation.
73 The submission in this respect overlapped with the submission in relation to the Kembla Street property. Recall of how the money was left with Mr Cameron and Mr Harrison, and a more full account of how money was put towards the purchase of the Kembla Street property, are appropriate.
74 I have earlier referred to the false information given to Mr Harrison’s bank, prior to the sale of the Mary Street property, that Mrs Schipp, Mr Cameron and Mr Harrison had formed a partnership with the intention of developing the Kembla Street property.
75 Shortly after the auction of the Mary Street property came the tax problem discussion. Prior to this time Mrs Schipp may have been made aware of the Kembla Street property, but only at about the same time as the tax problem discussion did Messrs Cameron and Harrison broach the subject of her investing in it. Mr Cameron said that Mr Harrison had the Kembla Street property for sale at $600,000, that it was in an upmarket part of Wollongong and would be “a great superannuation thing for you”, and that a syndicate was going to be made up to build an office block on it. Mrs Schipp said that she needed to think about it, and would possibly take her money out of Mary Street and put it in the bank until she found another property she could rent out.
76 There followed the conversation about interest on Mrs Schipp’s $40,000 if she left it with Mr Cameron and Mr Harrison. The trial judge found that Mrs Schipp believed she had no choice but to pay $20,000 in tax or leave the money with them, and that she had no understanding of tax laws and relied on what Mr Harrison told her.
77 At the end of November 1988 Mr Harrison’s bank was threatening the appointment of receivers and managers. He told the bank he was confident a sale of the Kembla Street property could be arranged within a couple of weeks.
78 Mrs Schipp was not told that settlement of the sale of the Mary Street property had taken place on 6 December 1988. The trial judge found that a letter to her from Mr Cameron’s company dated 7 December 1988 purporting to account for the deposit was not received. The cheque for the proceeds of sale was made payable to Mr Harrison. He deposited it in an account specially opened with his bank styled “Solicitor Settlement Deposit Account” in trust for himself, Mr Cameron and Mrs Schipp. The deposit was paid into this account on 14 December 1988.
79 A few days after the settlement Mrs Schipp found out about it and telephoned Mr Harrison. He told her that the money was in the bank and “you can contact them and they will tell you where it is”. Mrs Schipp was concerned - she said she “became very, very wary”. Quite apart from the $40,000, she was to receive back her initial $150,000, and on any view Mr Harrison’s response to her enquiry was not only discourteous but also cause for concern.
81 It is evident that Mrs Schipp had become quite worked up. On 23 December 1988 she delivered a letter to Mr Baird -80 Mrs Schipp had to go to Queensland on a pre-arranged holiday. She telephoned Mr Baird, at his home, from Queensland, and told him that she was concerned and wanted him to “freeze” the bank until she returned. After her return to Wollongong she saw Mr Baird on 21 December 1988, see earlier in these reasons. Mr Baird wrote to the bank purporting to instruct it not to deal with the proceeds of the account without Mrs Schipp’s authority, and on 22 December 1988 he wrote to Mr Cameron asking for copies of the settlement statements on the purchase and sale of the Mary Street property and the accounting earlier mentioned. He said that if an accounting was not received by 5 pm on 12 January 1989 Mrs Schipp’s accountant would be appointed to investigate the matter, and called for release from the bank account without delay of “all moneys paid by [Mrs Schipp]” plus interest at 14 per cent.
142 The trial judge did not find this persuasive. Nor do I. By putting in issue whether he was acting as a solicitor Mr Harrison did not suggest an alternative target for Mrs Schipp’s claims to which in prudence she was obliged to give attention. The asserted prudence in avoiding separate determinations of the issue was inconsequential, because on Mrs Schipp’s case - despite the alternative ways it was framed - success against Mr Harrison would all but inevitably enliven the dishonesty exclusion, and the issue would mean nothing in a claim against the insurers. I see no error in the trial judge’s exercise of his discretion.141 Mrs Schipp accepted that the trial judge had addressed the material cases and had adopted the correct principles. She alleged fraud against Mr Harrison, and so reasonableness in claiming against the insurers and facing the dishonesty exclusion was not going to be easy to establish. On appeal it was submitted that Mr Harrison’s conduct in putting in issue whether he was acting as a solicitor in the material events made it reasonable to join the insurers, in order to avoid determination of that issue in the proceedings and then in separate proceedings against the insurer.
Miscellaneous
143 Mrs Schipp’s statement of claim included a claim to an account of profits. The defence as filed by Mr Harrison and his company included that if they had “a liability to account or to make restitution” they claimed “due allowances for proper outgoings, expenses, professional work and entrepreneurial skill and effort in the location, purchase, development, improvement and sale of the property”. Nowhere was an order for an inquiry sought, and on the face of the statement of claim and the defence if there was to be an allowance it was to be quantified at the trial.
144 The reasons of the trial judge did not advert to this, and there was neither an allowance nor the direction of an inquiry into an allowance. It was agreed that there was no mention of the matter in the submissions made to his Honour. The Harrison appellants raised it on appeal.
145 The Harrison appellants initially submitted that this Court should make an order whereby they obtained an allowance, either assessing the amount itself or directing an inquiry. Mrs Schipp responded that it was too late to ask for such an order, and that the evidence was insufficient to enable an assessment to be made or even to warrant an inquiry. In a written submission in reply the Harrison appellants then submitted that rather than the remedy of equitable compensation “the appropriate order would have been one for an account of profits, with due allowance being made to the Appellants for the work done by them”.
146 There is a fundamental difference between equitable compensation and an account of profits, and that is why a plaintiff must elect between them, see for example Warman International Ltd v Dwyer at 556-8. It is not apparent that the remedy given by the trial judge was inappropriate, and particularly when raised so late and without supporting argument the submission in reply so far as it sought to challenge the remedy should not be entertained.
147 Whether there could be an allowance in favour of the Harrison appellants in some manner offset against the equitable compensation was not taken up either in support of the initial submission or as part of the response. The cases cited by the Harrison appellants, Boardman v Phipps (1967) 2 AC 46 and Warman International Ltd v Dwyer , were both cases of account of profits. In United States Surgical Corporation v Hospital Products Ltd (1983) 2 NSWLR 157 an allowance was contemplated if the remedy of a constructive trust were granted, but the principle was described as vague. The remedy of a constructive trust is more akin to an account of profits than is the remedy of equitable compensation.
148 It is not necessary to decide the question. The Harrison appellants provided references to evidence showing efforts devoted by Mr Harrison to the joint ventures. A number of meetings with Mrs Schipp were listed, in the circumstances providing but dubious ground for an allowance. There were two meetings with the architect for one or both of the developments and attendance at the auction of the Mary Street property. Mr Harrison instructed another solicitor on the purchase of the Mary Street property, and did the conveyancing and legal work associated with its sale. For the latter work he was remunerated in the ordinary way. There was no evidence by which a value could be ascribed to any of the other work, which was in any event quite minimal. Assuming that there can be an allowance, this Court can not assess its amount, and I am not satisfied that Mr Harrison devoted such efforts to the fulfilment of the joint ventures that he should have a second opportunity to make out the grounds for and quantify an allowance through an inquiry.
149 Mrs Schipp’s cross-claim against Mr Harrison’s insurers was expressed to be in the event that certain grounds of the appeal by Mr Harrison and his company were upheld, they being grounds which challenged findings going to dishonesty. In the manner the appeals were conducted the grounds were not singled out for individual attention. The essential findings held to have enlivened the dishonesty exclusion have not been displaced, and it may be that Mrs Schipp will not continue with this aspect of her cross-appeal.
151 A mention date for the cross-appeal should be appointed, at which Mrs Schipp can inform the Court whether she wishes to continue with the cross-appeal as to the insurers’ liability and directions can be given with a view to submissions in relation to that matter and/or in relation to costs as between Mrs Schipp and the insurers.150 Save as to indemnity costs the appellants have failed in their appeals. They have successfully resisted Mrs Schipp’s cross-appeal as to costs. They have no (legal) interest in the outstanding insurance issue. They should pay Mrs Schipp’s costs of the appeals, but to an extent tempered by their limited success as to indemnity costs, and should have their costs of the cross-appeal. Costs as between Mrs Schipp and the insurers should be reserved.
Orders
1. Appeals allowed in part.
2. Set aside the order that the first, second, third and fourth defendants pay the plaintiff’s costs on an indemnity basis and order in lieu thereof that they pay the plaintiff’s costs.
3. Appeals otherwise dismissed.
4. Cross-appeal dismissed as against the first and second cross-respondents.
5. Appellants pay 90 per cent of the respondent’s costs of the appeals and cross-appellants pay the first and second cross-respondents’ costs of the cross-appeal.
7. List the cross-appeal for mention on 12 March 2001.6. Reserve costs of the cross-appeal as between the cross-appellant and the third cross-respondents.
153 FITZGERALD JA: I agree with the other members of the Court that orders should be made in the terms proposed by Giles JA.
154 His Honour’s extensive judgment explains the circumstances which have given rise to these appeals. While I agree with the award of equitable compensation to Mrs Schipp, I am unable to adopt all of his Honour’s reasons. The detail given by his Honour enables me to be brief.
155 The trial judge’s factual findings are dispersed throughout a very lengthy judgment which discusses many issues which need not be considered. The findings are sometimes repetitious and sometimes inconsistent. Even allowing for his Honour’s advantage in seeing and hearing the witnesses, some of his explanations and rationalisations of Mrs Schipp’s conduct and evidence are unpersuasive. His Honour’s opinion that Mrs Schipp was an honest witness must be taken with her attempts to provide answers which supported her case on every issue. In any event, the honesty of Mrs Schipp’s testimony is only one factor which is material to an assessment of the reliability of her evidence. There are significant conflicts in her evidence and her commitment to the justice of her claim obviously affected her interpretation and reconstruction of events which had occurred years earlier.
156 On the other hand, the trial judge’s unfavourable view of Mr Cameron and Mr Harrison was fully justified. Mr Cameron was a real estate agent and Mr Harrison was a solicitor. They were friends and were involved together in commercial activities. Mrs Schipp approached Mr Cameron to assist her to find a real estate investment. Mr Cameron introduced Mr Harrison to Mrs Schipp, and the three of them engaged in joint ventures in relation to properties in Mary Street and Kembla Street. Mr Cameron acted as a real estate agent and Mr Harrison acted as a solicitor in the course of those ventures. Each was in a fiduciary relationship with Mrs Schipp. Further, whether or not she trusted them she relied on them. Her business experience was limited and her desire for substantial profits quickly blunted her judgment and facilitated her manipulation by Mr Cameron and Mr Harrison. Circumstances which made Mrs Schipp vulnerable made Mr Cameron and Mr Harrison liable when they exploited her vulnerability.
157 Mrs Schipp shared the profit from the resale of the Mary Street property with Mr Cameron and Mr Harrison, lent them money from her share of the profit and invested part of her other proceeds from that resale with them in the Kembla Street project. The compensation which the appellants have been ordered to pay Mrs Schipp is the amount which she lost, with compound interest.
158 Mr Cameron and Mr Harrison took advantage of Mrs Schipp. Although her will was not overborne, the information which she was given was inaccurate and incomplete. Her decisions to share the profit from the resale of Mary Street, make loans to Mr Cameron and Mr Harrison and invest in the Kembla Street project were not informed decisions. In the circumstances, including the parties’ relationships and the respective roles played by Mr Cameron and Mr Harrison, Mrs Schipp became entitled to equitable compensation and compound interest for their unconscionable conduct in breach of their fiduciary obligations.
159 Although Mrs Schipp subsequently had access to legal advice from independent solicitors, I am not persuaded that she made an informed decision not to demand the money to which she was entitled from the resale of the Mary Street land but to pursue a profit from the Kembla Street project. The evidence does not warrant a conclusion that she lost her entitlement to equitable compensation by her subsequent conduct or inaction.
161 In summary, although there is substance in the appellants’ criticisms of Mrs Schipps’ evidence and the trial judge’s findings, I agree with Giles JA that the appellants’ challenge fails on all issues other than the award of indemnity costs.160 I agree with the reasons given by Giles JA for the other orders which he has proposed.
- I certify that this and the preceding 78 pages
546
22
0