Kodogo Pty Ltd (in Liq) v Tabart
[1995] QSC 207
•22 August 1995
IN THE SUPREME COURT
OF QUEENSLAND
No. 316 of 1992
Brisbane
Before: Mr Justice Ambrose
[Kodogo Pty Ltd (in liq) v. Tabart]
BETWEEN:
KODOGO PTY LTD (In Liquidation)
Plaintiff
AND:JOHN EDWARD TABART
DefendantREASONS FOR JUDGMENT - B W AMBROSE J.
Judgment delivered 22/08/1995
CATCHWORDS: EQUITY - breach of fiduciary duty - defendant employed by Qintex Group to manage tourist resort operations - salary package included interest free loans - whether package so generous as to be consistent only with breach of fiduciary duty by Qintex's Managing Director - whether defendant aware that Managing Director must have been in breach of fiduciary duty in making them.
Counsel:Mr P Dutney Q.C., with him Mr A Ryan for the plaintiff
Mr C E K Hampson Q.C., with him Mr S Lumb, for the defendant
Solicitors:Blake Dawson & Waldron for the plaintiff
Minter Ellison for the defendant
Hearing Date: 8 June 1995
IN THE SUPREME COURT
OF QUEENSLAND
No. 316 of 1992
Brisbane
Before: Mr Justice Ambrose
[Kodogo Pty Ltd (in liq) v. Tabart]
BETWEEN:
KODOGO PTY LTD (In Liquidation)
Plaintiff
AND:JOHN EDWARD TABART
DefendantREASONS FOR JUDGMENT - B W AMBROSE J.
Judgment delivered 22/08/1995
The plaintiff (which is in liquidation) sues the defendant for moneys lent to him while he was employed to perform work for the benefit of some of a large group of companies being subsidiaries of and/or associated with Qintex Australia Limited. It is convenient to refer to that large group as the Qintex Group. The defendant had no contact with, or even knowledge of the existence of, the plaintiff prior to 31 January 1989.
The Qintex Group comprised public and private companies and a number of trusts. It is unnecessary to analyse the structure of the Group for the purpose of deciding the issues in this case. It suffices to say that Christopher Skase was the Managing Director of the principal company and, so it seems, of many of its subsidiaries. ANZ Executors and Trustee Company Limited was the trustee of various trusts which were part of or connected with the Qintex Group.
Essentially the Group was involved in the acquisition and development of two commercial interests. One interest was tourist resorts. This interest involved the development of tourist resort facilities within Australia and also within the United States of America. It is with the group activities concerning the tourist resort interest that this case is concerned. Another interest was commercial television. The activities of the Qintex Group in connection with the pursuit and development of that interest are not relevant to the determination of the issues in this case, but parts of the evidence indicate that the pursuit of the commercial television interest was taking place at the same time as the pursuit of the tourist resort interest.
As far as the tourist resort part of the Qintex Group activities is concerned, funds became available for the development of that work from financial institutions which lent the Group funds, presumably secured upon Group assets. Funds also became available by the issue of shares to members of the public. In the course of development of resort facilities within Queensland, as development work was completed it was sold and the proceeds of sale, also became available for further development activities of the Group.
The resort development commenced in 1985 - 1986. Substantially in Queensland it involved construction of very extensive and expensive, improvements, including international hotels, condominiums, golf courses etc. The development involved stage development of land at Port Douglas, Northern Queensland, and land on the Gold Coast on the Broadwater. Part way through the ultimate development, condominiums became available for sale so that the price received for them could be utilised in meeting the overall cost.
Within the United States of America property was acquired in the Hawaiian Islands and it was redeveloped and upgraded as a tourist resort.
In California an area of land was acquired which, until time of acquisition, had been used for the purpose of sporting and other similar sorts of recreational activity. The plan was to obtain necessary approvals from the relevant authorities so that this land could be developed also for the purpose of a high class international tourist resort.
Towards the end of 1985 Mr Van de Velde, a member of the firm of Amrop International - a firm of international management consultants - was retained by the Qintex Group to procure for it the services of a person with sufficient skill and experience to work for it and fill "a relatively unique responsibility; the design, development, building and commercialisation of the Mirage Resorts".
The "Mirage Resorts" for which he would be responsible over the years to come were those two within Queensland, to which I have referred, and as well the two in the United States of America.
According to Mr Van de Velde, he undertook a very thorough search of the Australian market in mid 1986 to locate a person who could be recommended to the Qintex Group for undertaking the significant and important role of developing resort facilities for it. Mr Van de Velde said that there was a very limited number of people in Australia who were both able and available to undertake the work. He said that there were more of such people available within the United States of America, however the cost of bringing those people to Australia would be significant and as well they could command on the American market benefits for their talents which exceeded by about 50% the benefits probably obtainable on the Australian market.
During the six months or so that Mr Van de Velde and his organisation sought a person suitable to undertake the responsibilities of managing the Qintex Group resort development it was learnt that the defendant was then employed by the Lend Lease Group of Companies to perform work roughly comparable with that which the Qintex Group sought somebody to perform for it. He had had a lot of experience in Australia and overseas and it was learnt that the Lend Lease Group had decided on no further expansion of the development area managed for it by the defendant. It seemed likely that within a relatively short time there would be less demand for his services, although because of his long association with that organisation (14 years) it was thought that his services as a very valued employee would be retained and used for the purpose of managing other branches of its commercial development activities.
Mr Van de Velde approached the defendant and negotiations took place between them.
The defendant made it clear, when approached by Mr Van de Velde, that he would consider accepting the position available with the Qintex Group only on the condition that its employment benefits would at least match those which he was then enjoying with Lend Lease. He was concerned at the prospect of the Lend Lease Group winding down the operations in which he had been involved; he thought that he might then be required to do work which, even though returning the same income, would not give him the professional satisfaction that he gained from doing the sort of work he had been doing for that Group for many years.
At the time Mr Van de Velde attempted to recruit the defendant for the Qintex Group he had a "total package" of salary allowances etc of $201,000 per annum including the benefit of two existing loans totalling $175,000 which he enjoyed in effect "interest free" - the amount of agreed interest (calculated at a very moderate rate) in effect being part of the salary package. It seems that these loans would not become repayable while he remained employed by Lend Lease. Although repayment was required after some specified years, I accept the contention of the defendant that for practical purposes he would not be called upon to pay them at the date when they nominally became payable provided he remained employed by Lend Lease. However upon termination of his services with Lend Lease they did then become repayable. It is unnecessary to set out in detail the "salary package"enjoyed by the defendant with the Lend Lease Group towards the end of 1986. This is set forth in the report of Mr Van de Velde of 2 June 1995 which is ex.30. Included in the package was an employer contribution to superannuation of $15,000 per annum.
As well as the "salary package" to which I have referred, the Lend Lease Group of Companies had, in December 1985, offered to the defendant a lump sum payment of $100,000 should he enter into a "restrictive covenant" of the sort to be found in ex.26. It is unnecessary to analyse the detail of that covenant. I refer simply to cl. 4 which details the constraint accepted by the covenantor in consideration of the payment to him of a lump sum of $100,000 The evidence is to the effect that this conditional payment was an accepted practice at the time it was suggested to the defendant at the end of 1985. It involved an employee's acceptance of a "capital payment" which was thought not to be taxable as income. However after the passing of capital gains tax legislation in 1985, it was thought that receipt of such a lump sum payment would or might attract capital gains tax. I take judicial notice that in the 1980s the practice was widely discussed in business and financial papers and was sometimes referred to as providing upper echelon executives with "golden handcuffs".
It is not clear whether the possibility of this sum being so taxed was contemplated by the defendant when the payment was offered to him by Lend Lease toward the end of 1985. Whether it was or not, he had reservations about tying himself to the Lend Lease Group in the event that he was required to do work of a different sort which did not satisfy his professional interest. He says that it was for this reason that he did not make up his mind to accept the offer by Lend Lease. However - subject of course to the effect of capital gains tax - it was obviously a matter of significant benefit that was available to him should he remain with the Lend Lease Group and this was a matter he raised with Mr Van de Velde.
As a consequence of discussions with Mr Van de Velde, the defendant attended a meeting with Christopher Skase at about the beginning of November 1986. By letter from Christopher Skase signing as Chairman of Qintex Limited dated 6 November 1986, Qintex Limited confirmed the appointment of the defendant as "Chief Executive Mirage Resorts Trust". His title was to be "General Manager Mirage Resorts Trust (Historical Qintex Group Policy that senior executives in key companies are titled General Manager - presently being reviewed)."
The letter is document 39 in ex.1 and it is unnecessary to set it out in detail.
As far as the issues in this case are concerned, I refer to detail 12 which is expressed as follows:"12.Financial Replacement:
(i)$100,000 housing loan at 6 % to be secured and repayable on death or departure;
(ii)$75,000 joint venture advance in housing property repayable in 3 years;
(iii)$100,000 restrictive covenant - subject to final discussion regarding relevance."
Detail 13 provides:
"13. Contract: 3 years with minimum notice of 3 months. Equity reverts to company on departure within 12 months".
Detail 14 provides:
"14. Financial Reviews: conducted annually post balance date and to include all elements of the commencing package."
Towards the end of the letter it is stated:
"Mirage is an exciting long term venture with the potential to increase assets to one billion dollars over 5 years.
I welcome you to the Qintex Group and look forward to a long happy and prosperous association."
By letter of 11 November 1986, the defendant accepted the offer of 6 November 1986, to which I have referred. The terms of the letter make it clear that the defendant was taking up the position on the assumption that it would extend beyond the contract period of three years specified in the written offer, which he accepted. In accepting the offer the defendant specifically referred to detail 10 "Equity - Mirage" which related to a right to acquire a "package" of a value of $500,000 being 200,000 units in the Mirage Resorts Trust at $2.50 per unit or market price less 10%, payable initially to 1 cent with the balance payable within 10 years. Some reference was made to this part of the salary package and to the fact that "it can be replaced by alternatives to suit both partners". (cf "Parties").
Detail 3 of the employment offer, "Salary", provided for a PAYE payment of $40,000 "ex Qintex Group Management Pty Ltd" and $70,000 net "ex QGM Trust".
In fact the defendant's first month's salary when he took up his position with the Qintex Group was paid by Qintex Group Management Pty Ltd. This was the company specified in the letter of offer of 6 November 1986. However, thereafter payment of salary was made by Qintex Group Management Services Pty Ltd. Although the evidence did not touch on the matter specifically, I assume the non-taxed payments from the QGM Trust were made by that Trust.
On 26 March 1987, Qintex Group Management Services Pty Ltd ("QGMS") repaid to Lend Lease Corporation the two loans ("interest free") which it had made to the defendant before he resigned from that Group.
These payments secured the undertaking of detail 12 "Financial Replacement" referred to in the Qintex letter of offer of 6 November 1986.
On 11 March 1988 QGMS paid to the defendant the sum of $40,000 (document 19 ex 1) and on 31 October 1988 paid to him the further sum of $60,000 (document 20 ex.1). It is not really in issue that both payments were by way of loan, although there seems to be no record in the company's books as to the terms of the loan. I am satisfied on the evidence that this loan was truly interest free in the sense that no interest rate on that sum was calculated and set off against the quantum of any benefit to which the defendant would otherwise be entitled under his quantified salary package components.
The defendant says that those sums amounting to $100,000 were lent to him for his own purposes as a "financial replacement" of the $100,000 restrictive covenant payment which had been discussed between him and Christopher Skase when they discussed the offer of employment by Qintex before he accepted that offer.
The $100,000 payment offered by the Lend Lease group was thought to be subject to the effect of the capital gains tax legislation and no longer a tax free payment in the hands of the defendant. It was such a benefit that he discussed with Christopher Skase with a view to getting an equivalent benefit if employed by Qintex. In the discussions before employment in early 1987 - probably in November 1986 - Mr Skase agreed to provide a salary benefit to the defendant which would be the equivalent of a tax effective restrictive covenant payment resulting in his receiving $100,000 tax free.
Although for convenience I have described the advance of $75,000 from Lend Lease to the defendant as an interest free "loan", that is not strictly correct. It was really an interest free advance on the basis of a "joint venture" development agreement requiring that should the renovated and altered home, upon which the "joint venture" advance was expended, produce either a profit or a loss upon the occurrence of specified events, that would be borne proportionately by Lend Lease and the defendant. I must say I have reservations as to whether this whole exercise was anything more than a stratagem to avoid Lend Lease having to pay fringe benefits tax on any interest foregone while the $75,000 advanced free of interest to the defendant remained outstanding. I am far from persuaded that whatever the wording of the documents prepared, obviously more for the purpose of the Income Tax Commissioner than to record the understanding between Lend Lease and the defendant, it accurately reflected the real benefit that was received by the defendant as the result of this "joint venture advance".
It seems abundantly clear that in the discussions between the defendant and Mr Skase there was little consideration given to the Qintex Group entering into any such complicated transaction with the defendant. Reference to a memorandum from the defendant to Burden of 26 March 1987 (ex.1 document 12) indicates a willingness on the part of the defendant to have Lend Lease assign to Qintex the benefit, whatever it might be, of the agreements it had with him with respect to the advances of $75,000 and $100,000 respectively. It does not emerge however in the material that any steps were taken to do this. The whole process by which the Qintex Group "replaced" the benefits enjoyed by the defendant with Lend Lease seems to have been rather haphazard. No claim for interest ever seems to have been made or recorded - except with respect to the 6% "housing loan" of $100,000 referred to in document 6 ex.1. The parties seem to have treated the other money advanced as being advanced on the basis that interest at some unspecified rate would be debited against components of the salary package, including no doubt, inter alia, "Distribution" "Performance Bonus" and "Profit Sharing": vide 1987/88 Financial Review (document 17 ex.1). There seems never to have been a suggestion that anybody in the Qintex Group ever even contemplated taking any security over any part of the assets of the defendant to secure repayment of the loans. There seems to have been an initial discussion (recorded in document 6 ex.1) as to the duration of the "loans" of $75,000 and $100,000 which had been "replaced". On the face of the material and on the evidence generally, it would seem that, at law in any event, the Qintex Group did not take an assignment of the rights of the Lend Lease Group with respect to those loans when it paid them out on behalf of the defendant. Having regard to what happened during the course of the defendant's employment with the Qintex Group, it becomes unnecessary to determine the precise terms of the initial agreement or understanding with respect to the circumstances in which the sums of $100,000 and $75,000 respectively paid to Lend Lease on behalf of the defendant were repayable to the Qintex Group.
By letter under the hand of Christopher Skase as Chairman of Qintex Group Management Services Pty Ltd, there are particulars of the financial review of the defendant's "financial package" for the period from 1 August 1987 to 31 July 1988. (Vide document 17 ex.1).
It is unnecessary to analyse that document in detail. It suffices to note that on p.2 it is provided:"Financial replacement unaltered (see previous correspondence on 6th November 1986."
It is relevant, however, to note in passing that comments (ii) and (iii) refer to an election given to the defendant to purchase during the five month period specified a condominium at a 5% reduction in the market price (estimated at $600,000). Obviously the balance purchase price, while not attracting interest while remaining unpaid, nevertheless would result in a debiting of one of the components of the salary package with a sum amounting to 15% interest on the balance unpaid. It is clear that the defendant preferred to take as a benefit of his employment an increase in the payment of cash rather than the benefit that might be achieved by acquiring a company condominium on beneficial terms.
It is clear from the evidence of the defendant, which I accept on this point, that in his initial discussions with Mr Skase it was contemplated by both parties that loans on their face, perhaps "interest free" or at a low rate of interest, would have an interest component calculated on the amount of the loans taken into consideration as one of the benefits of the "salary package" provided to the defendant from time to time.
By memorandum of 19 December 1988 (prior to the 1988 review) the defendant asked that upon his salary package review for the following year he be lent the sum of $300,000 upon a five year "interest free" loan secured against his superannuation and options which he expected to get but which had not at that time issued, or "perhaps similar to your condo offer last year". The value of his superannuation entitlement with Lend Lease when he left that organisation was $337,000 (vide document 10 ex.1). It seems clear that the "interest free" arrangement involved a reduction of the quantum of agreed benefit from other components of his salary package. This course would provide obvious tax advantages for him, although of course would make the employer liable for FBT.
Document 23 in ex.1 is the negotiated salary package of the defendant "effective 1 August 1988". (1989 is specified on the document but it is conceded that this is a typographical error). The term "interest free" in this context connotes the absence of an express agreement to pay a specified rate of interest but an understanding that an amount reflecting a lower than market rate of interest would be deducted from other agreed components of the salary package.
It seems abundantly clear from calculation (ii) in the following terms: "(ii) $300 interest‑free for 5 years equals 300 x 15% x 49%" that there was an agreement that there should be available as an option in the defendant's salary package an "interest free" loan of $300,000 from the Qintex Group to the defendant for a 5 year period. The calculation specified clearly refers to a calculation of the fringe benefits tax that would be payable by the Qintex Group upon such a loan being made.
Item 8 on that record "Fringe Benefits Tax (i) of $28,500, in my view, probably contains the tax payable, inter alia, upon the interest free loans of $275,000 being the "replacement" referred to in document 39 ex.1. (At 15% this would amount to $20,200). It is probable that the reference to the $22,000 part of the salary package in item 9(ii) refers to the fringe benefits tax on the $300,000 interest free loan.
It is unclear on behalf of which of the Qintex Group of Companies Christopher Skase signed the salary package effective 1 August 1988, which is document 23 in ex.1. It seems moderately clear however that it was QGMS that was paying the salary and presumably other parts of the income package at this time and it was QGMS which had provided the funds for the earlier loans.
There is a dearth of evidence as to the rate of interest taken into account in debiting benefit producing components listed in the various salary package documents prepared during the defendant's period of employment.
Presumably the current market rate of interest was used for calculation of FBT. However, in the first salary package recorded 6 November 1986 the housing loan of $100,000 attracted an interest rate of 6%. (Vide document 6 ex.1).
After Qintex Australia Ltd resolved to take over the employment of Qintex executives formerly employed by QGMS on 18 November 1989, it was resolved that it employ the defendant at a salary of $22,292 per month - i.e. $267,500 per annum. I infer that this resolution simply limited the total salary package payable to the defendant and allowed the debiting of the components of his package with the "low interest rate" deductions previously taken into account. (Vide document 40 ex.1).
It is clear from the evidence of the defendant, which I accept generally in this regard, that he was required to work very long hours, both in Australia and overseas, during the time that he was employed as General Manager of its resort interests. Without going into all the details, it seems that he spent nearly half of his time travelling to and from and working in Hawaii and California on Qintex development projects. It is also clear that he spent a great deal of time attending to the Qintex projects at Port Douglas and the Broadwater. It seems that he frequently, if not normally, worked a 12 hour day often 7 days a week.
I am satisfied that he worked at a hectic pace both within Australia and in the United States. Critical to the success of the development operation was the successful sale of condominiums at both Port Douglas and the Broadwater area in the initial stages of development. These matters occupied very fully the time of the defendant during the years 1987 and 1988. After the Queensland resort developments had reached a certain stage the defendant was required to spend even more time supervising the development of work in the United States. The general plan was to make large profits from the sale of condominium elements in the resorts in the first three years of the development project to keep the whole project afloat while the other elements under development management gradually achieved profitability.
The sale of condominiums in Queensland was very successful. In less than 12 months, 54 condominiums on the Gold Coast were sold at a price of approximately $29.7 m. Over a two year period 130 condominiums in the Port Douglas development were sold, returning about $97.5 m.
It is necessary to keep in mind the nature of the work being performed by the defendant and the success of that work when considering the salary reviews that took place during the three year period that he did work in the Qintex Group.
The plaintiff called evidence from Mr Hart, a remuneration consultant, who dealt with both the defendant's level of salary and in particular the provision of loans to him which were to be "interest free" and not repayable for years after termination of his services with his employer. The first comment to be made on his experience is that it related to company practices within Australia - albeit practices involving overseas corporations conducting business in Australia. He did not have the experience of Mr Van de Velde with levels of remuneration and employment conditions in the international business community overseas. He was unable to comment really upon the nature of the business which the defendant was appointed to manage or how it compared with competing businesses - even in Australia. He said he was "led to believe" the sales being achieved by the two resorts in 1988 were "around the $280 million" mark. Mr Hart was unaware of what the top salary packages were for persons employed to do comparable work to that being done by the defendant for the Qintex Group. Relying upon some statistical material available to him, he expressed the view that during one year of his employment the defendant received a 33% increase in employment benefit whereas other people in the market received an increase of 20 to 25%. I find this evidence of very little assistance. It certainly does not compare the hours worked or the responsibilities incurred by the defendant with those who had their salary packages increased by slightly less than was the case with the defendant. With respect to the $100,000 "interest free" loan repayable after 10 years termination of employment, Mr Hart was unaware that this loan was made to replace the offer made to the defendant by the Lend Lease group of a $100,000 payment in consideration of his execution of a restrictive covenant.
On my evaluation of the evidence they gave I prefer the expert opinion of Mr Van de Velde to that of Mr Hart. I am quite unpersuaded that the salary package, the benefits of which the defendant received while he remained employed with the Qintex Group, was so generous as to permit an inference to be drawn that it was given to him in breach of any fiduciary duty. Similarly, I am unpersuaded that the provision of the "interest free" loans repayable years after his termination of employment was such an extravagant use of the employer's funds as to lead to the conclusion that it involved a breach of fiduciary duty on the part of Christopher Skase of which the defendant was aware and indeed a participant. In my view, it is clearly open to an employer to provide as a benefit of employment a benefit to first be enjoyed upon cessation of that employment. That is the very nature of the institution of superannuation which has long been recognised as a remunerative benefit earned by the employee in the performance of tasks in the course of his employment.
In the latter part of 1988 and the early part of 1989, extensive negotiations took place with Japanese investors for the sale of an interest in the Mirage Resort Group. This sale was obviously of great importance at that stage to the Qintex Group and the defendant played a critical part in it - as critical as the part that he had played in the development to that stage. Ultimately, 49% of the Mirage Resort Group was sold to Japanese interests for the price of $433 m.
The agreement made concerning the provision of the so called "interest free" loans as part of the defendant's salary package towards the end of 1988 must be viewed against the background of the contribution made by the defendant to the development and marketing which resulted in the sale of assets to the value of $560 m.
On 24 September 1990, after an inter-company rearrangement, the defendant wrote that the amount of his salary package attributed to his loan of $210,000 drawn down from the $300,000 made available to him was $15,400 per annum - i.e. 7.3%. (Vide documents 41 and 42 ex.1). This assertion was not challenged either when made or in this Court.
It is clear that the first $30,000 of the promised $300,000 interest free loan was paid to the defendant by QGMS on 13 April 1989 - vide ex.13. At least I draw that inference from the rather unsatisfactory evidence as to which entity in the Qintex Group actually made that payment. What is abundantly clear is that it was not the plaintiff which made the payment to the defendant.
The plaintiff company had been acquired by the Qintex Group as a shelf company in connection with the completion of the commercial development of another resort facility at Maroochydore. Apparently it was desired in the course of this development to lend money to prospective tenants to enable them to establish themselves in the facilities to be leased to them by one of the Qintex Group. For this purpose a shelf company was obtained and it obtained a moneylender's licence on 15 May 1987. (Vide document 46 ex.1).
For reasons which are quite unexplained, it seems that after the first advance under the $300,000 loan agreement was made to the defendant by QGMS on 13 April 1989, subsequent advances, each of $30,000 were made by the plaintiff to the defendant on the following dates -
4 May 1989 (ex.1 document 25)
31 May 1989 (ex.1 document 27)
4 July 1989 (ex.1 document 29)
25 July 1989 (ex.1 document 31)
6 September 1989 (ex.1 document 33)
12 October 1989 (ex.1 document 35)
On the evidence, therefore, purporting to provide part of the salary package agreed to for the benefit of the defendant - i.e. advances under the $300,000 loan facility "interest free" for a period of 5 years - QGMS provided $30,000 and the plaintiff provided $180,000.
On one view of the evidence company records show that the plaintiff purported to reimburse QGMS the sum of $30,000 which it had paid to the defendant by way of loan advance on 13 April 1989. If this was done in fact, it was certainly done without the knowledge or acquiescence of the defendant.
The defendant, perhaps understandably having regard to the position he occupied in the Qintex company structure, knew nothing about the proposal to have the plaintiff make the "interest free" loan advances to him to which he was entitled under the salary package negotiated with Mr Skase as Chairman of Directors of QGMS until after persons in the hierarchy of the Qintex Group had, presumably for internal management reasons, decided to have it do so. The interest on the loan so advanced and the FBT was deducted from the salary package most of which was provided by QGMS.
I accept the evidence of the defendant that the first he ever heard of the plaintiff was when he took a draft letter he had had his accountants prepare concerning the nature and terms of the "interest free" loans he was receiving for the signature of Mr Skase or presumably of some other person in authority within the Qintex Group so that he might have something in writing to confirm the basis upon which he received these advances for his benefit. I accept his evidence that without any explanation of the reason (if there was any rational reason for doing so) Mr Burden informed the defendant that reference in the draft letter to QGMS as the lender should be deleted and in substitution the name of the plaintiff should be inserted. The defendant did not demur to this course and ultimately Christopher Skase signed a letter dated 31 January 1989 (vide ex.7) obviously prepared from the draft provided by the defendant's accountants, in which the name of the lender was expressed to be Kodogo Pty Ltd.
The circumstances in which the draft was prepared and exactly who prepared the letter signed by Mr Skase recording the terms of the loans were hotly contested. I am persuaded upon the whole of the evidence that in fact the defendant took the draft letter prepared for him by his accountant to the Qintex Group offices where he gave it to Mr Burden. It is clear that the draft presented to Mr Burden originated in the office of Arthur Anderson & Co., the defendant's accountants, towards the end of January 1989. (Vide document 24 ex.1).
That draft letter was obviously written upon the instructions of and based upon the information given by the defendant to his accountant. It clearly refers to QGMS as the company responsible for the loans given to the defendant as part of his salary structure. It was written before the defendant had attempted to draw down any money under the $300,000 loan facility made available to him upon his last salary package review.
According to the defendant he simply handed that draft letter to Mr Burden. Some time later he received, either by hand or by post, ex.7 which is obviously a letter prepared from the terms of the draft letter prepared by the defendant's accountants. There were some alterations made to the draft to produce what has become ex.7.
It was contended strongly on behalf of the plaintiff that in fact the terms of ex.7 signed by Christopher Skase were the work of the defendant. The suggestion is that in fact Mr Burden informed the defendant that Kodogo was to be treated as the lender, not merely of the moneys lent since May 1989, but also in respect of all the moneys that had ever been lent to the defendant - long before Kodogo first emerged in the Qintex Group in connection with the defendant's salary package. The defendant on the other hand says that he had nothing to do with typing the alterations made to the draft (document 24 ex.1) to produce ex.7. The problem for the defendant in this respect is of his own making. On occasions when he has given evidence on various inquiries into the demise of the Qintex Group and, indeed, in affidavit material filed in this court in this action, he has stated that he took the draft letter he gave to Mr Burden back to his accountants for alteration when he was advised that Kodogo was to replace QGMS. Indeed it was suggested that not merely did he replace the name of the lender QGMS with Kodogo Pty Ltd, but that he also made other alterations contained in ex.7 and in particular the alteration "from the date of termination of employment by Qintex Group Management Services Pty Ltd" in lieu of "from the date of termination of your employment".
Upon the whole of the material, I am not persuaded that the defendant did make any alterations to the draft letter prepared for him by his accountants. I have come to the conclusion that the inconsistencies in his evidence concerning the change of the name of the lender from QGMS to Kodogo are based simply on a faulty reconstruction on his part of a detail which had no significance to him either at the time the draft was prepared and ex.7 was received in January 1989, or at the time he was asked questions about it on prior occasions, or indeed the way the pleading then stood, at the time he made his affidavit filed in this court. In coming to this conclusion I give weight to the evidence of Mr Cottier employed at the time with Arthur Anderson & Co. as to the circumstances of the preparation of the letter and the fact that there was no amendment made in his office to his knowledge and also to the evidence of Mr Burden's typist and the typist who was employed as the defendant's secretary. Looking at all that evidence, it seems to me the probability is that any alterations made to the draft letter prepared by Mr Cottier from Arthur Anderson & Co. to produce the terms of ex.7 were effected by some person other than the defendant. I think on the probabilities they were prepared and made by or under the authority of Mr Burden and/or Mr Skase.
I infer that for reasons, which obviously seemed good to somebody in the Qintex Group at the time, it was decided that Kodogo was to be treated as the part of the company structure to be responsible for the interest free loans advanced to the defendant as part of his salary package. Because the defendant was in fact at all material times (after the first month of his employment) employed by QGMS, I think it more than likely that somebody in the executive section of the Qintex Group (not necessarily, but probably Mr Skase) altered in the draft that part of the letter relating to termination of employment by QGMS.
I remain quite unpersuaded by the contention of the defendant that his understanding was that he was not in a strict sense employed by QGMS but rather by a more undefined group of companies known as the "Qintex Group". Undoubtedly it was within the contemplation of all parties concerned that the benefit of the services of the defendant should be available to different members of the Qintex Group as required. Indeed, the draft letter prepared by Mr Cottier is amended so that ex.7 specifically refers to the defendant as "a member of the Qintex Group executive team".
The discussions between the defendant and Mr Skase clearly involved the defendant working for the "Qintex Group". It is equally clear however that it was never intended that he should work in any capacity except General Manager of its resorts interest. There were many subsidiary or associated companies and trusts involved in the "Qintex Group" and it must clearly have been in the contemplation of both the defendant and Mr Skase during their initial discussions that the defendant would be employed by an entity acting on behalf of the "Qintex Group".
At the time of the discussions, and indeed at the commencement of employment of the defendant, QGMS did not operate under that name. Apparently it had been a shelf company registered in August 1986 but acquired its Qintex title on 9 February 1987.
In initial discussions leading to his employment, it had been agreed that the "replacement loans" would be "repayable on death or departure". Perhaps understandably both Mr Skase and the defendant had in contemplation departure from those entities in the Qintex Group involved in resort development. It does not follow however that it was a term of the employment agreement as varied towards the end of 1988 (as recorded in ex.7) that in the absence of further agreement, "departure" should connote departure from a position created by a receiver of what had been an entity in the Qintex Group when that Group generally was in the process of being wound up.
The plain fact is that the structure of the Qintex Group was such that the executives of various parts of it were all employed by QGMS. The financial structure was so arranged that the various companies and presumably trusts being part of the Qintex Group paid very heavy "service fees" to QGMS in return for employees of that company providing the services necessary to make the development and profit producing parts of the Group work successfully.
In my view, the advent of Kodogo Pty Ltd towards the end of the period during which the defendant was employed by the Qintex Group prior to its collapse towards the end of 1989, had nothing to do with the creation of the obligations imposed upon some part of the Qintex Group - in my view QGMS - to provide to the defendant as part of his salary package the interest free loans which are the subject of this action.
I am of the view that to the extent to which the handing of the draft letter (document 24 ex.1) to Mr Burden in January 1989 was capable of constituting "an offer" by the defendant to QGMS, such offer was never accepted. It was never accepted because not merely were there alterations made to it - although in my view they were not of great significance as far as the substance of the alleged offer was concerned, although the contrary is contended for in this action - but more importantly the offer made to QGMS was never accepted by that company. To the extent that it was capable of "acceptance" by anybody, it could only have been accepted by Kodogo Pty Ltd. It seems to me difficult to contend that an offer made to QGMS could be accepted by the plaintiff. Even if the letter, which is ex.7, purporting to "confirm the package of loans" to the defendant "as a member of the Qintex Group executive team" could be regarded as a counter offer and not merely as something confirming an arrangement already made by QGMS, it seems to me that it would be fanciful to construe the failure of the defendant to demur or complain at the terms of the letter as an acceptance of Kodogo Pty Ltd as a substitute for QGMS with respect to the rights and obligations already in existence between him and QGMS.
In my view, ex.7 certainly cannot be construed as a loan agreement between the defendant and Kodogo Pty Ltd. It does not on its face even purport to be such an agreement. In fact it purports merely to confirm a package of loans. The only package of loans that had been agreed to and had indeed been either implemented or partly implemented was the package of loans that resulted from salary package agreements made between the defendant and QGMS well prior to 31 January 1989.
The plaintiff's contention is that the loans made on behalf of the Qintex Group to the defendant were so outrageous in their terms that Christopher Skase must have been acting in breach of the fiduciary duty he owed to the Qintex Group (QGMS) in making them and with his background and experience the defendant must have been aware that he was acting in breach of fiduciary duty. I adopt as the test for breach of fiduciary duty in this context what was said in Equiticorp Finance Ltd (in liquidation) v. The Bank of New Zealand (1993) 32 NSWLR 50 at p.146. Essentially the question is whether Mr Skase in making the agreements for loans in the present case exercised his power for the benefit of the company. When determining whether what was agreed was for the benefit of QGMS one looks at the place which that company occupied in the whole Qintex Group, keeping in mind that in essence it was a service company, the employees of which provided services for various parts of the Qintex company structure, with a view no doubt to generating income for QGMS which might be used via a trust for their remuneration in what was hoped to be a tax efficient way.
Looking at the picture generally then at the time these agreements were made the defendant was receiving a PAYE salary component from QGMS of $40,000 - $50,000 per annum, together with a tax free distribution of trust money in the sum of $70,000 - $129,000 per annum. During the course of the defendant's employment they increased substantially. (Vide document 23 ex.1).
There was a superannuation option provided as part of the defendant's salary package which could be varied annually.
What then was the benefit to the defendant of the three loan transactions while he remained employed by QGMS?.
It is convenient to define them separately -(A)$175,000 interest free loan, repayable 5 years after the defendant terminated services with the employer.
If his salary package loan was adjusted to reflect an interest rate of 6.5% per annum, then it "cost" him $11375 out of that package; if to reflect an interest rate of 7.3% per annum it "cost" $12,775, although he paid no income tax on that salary component.
Assuming a market interest rate of 15% per annum, that "interest free" loan to the defendant for taxation purposes was treated as a benefit of $26,250 per year to him while he remained and FBT tax was payable by the employer at 49% (say 50%) which was $13,125 per annum.
(B)$100,000 interest free loan, repayable 10 years after termination of services and not treated as notionally interest bearing at 7.3% as far as the annual salary package was concerned.
Again, accepting an interest rate of 15% per annum this loan has provided a benefit of $15,000 per annum to the defendant.
As far as the employer was concerned it would in effect pay the defendant that benefit plus FBT of $7,500 amounting all told to an annual detriment to the company of $22,500.
(C)With respect to the agreed loan of $300,000, using the 7.3% per annum interest rate, this would "cost" the defendant $21,900 out of his salary package and he would pay no income tax on that salary component. FBT of nearly $22,500 per annum would be payable by the employer. (50% of $45,000).
On the facts of this case, only $210,000 of that $300,000 was in fact advanced, which again using the 7.3% interest calculation, means that after the last advance in October 1989 it "cost" the defendant $15,330 out of his salary package and the employer was required to pay FBT of $15,750.
At the time the last of the agreements was made, therefore, and up until the time the defendant ceased employment under the agreement he had negotiated with Mr Skase, as varied from time to time, it had been agreed to make to him "interest free loans" which, while he was employed with the Qintex Group, would provide him with significant tax benefits with a corresponding detriment to his employer by reason of an FBT liability of up to $43,125 per annum.
Under the terms of the agreements attacked therefore the defendant got by way of "interest free loans" of $175,000 a right to an annual tax free benefit of $13,475 (the difference between $26,250 interest at 15% and $12,775 interest at 7.3%), plus a benefit of $15,000 per annum where the loan was truly interest free - i.e. a total annual benefit of $28,475. Having regard to the advance of $210,000 out of the $300,000 agreed to, the actual annual benefit he received under this loan prior to the collapse of Qintex was $16,170 per annum. (The difference between $31,500 interest at the rate of 15% and $15,330 interest at 7.3%). The total annual tax free benefit of this part of the salary package was $44,645.
With respect to the future benefits agreed to be enjoyed by the defendant upon termination of his services, it is clear that he was entitled to enjoy the loans of $475,000 for 5 years free of interest.
In fact, he enjoyed $385,000 actually advanced to him and he says that he is entitled to hold and enjoy this loan "interest free" for 5 years after termination of the employment.
With respect to the $100,000 lent to him, in lieu of the restrictive covenant payment to which I have referred, he was entitled to enjoy the benefit of that loan "interest free" for 10 years after cessation of employment.
The critical questions then to be determined are:
what at the date of termination of employment was the value to the defendant of the advantage of non payment of interest in the sum of $57,750 per annum for 5 years (i.e. $385,000 at a market rate of 15%)? Interest at a market rate of 10% per annum on that sum amounts to $38,500; and
what at that date was the value to him of non payment of interest in the sum of $15,000 per annum for 10 years (i.e. $100,000 at a market rate of 15%)? Interest at a market rate of 10% per annum on $100,000 amounts to $10,000.
In my view, upon termination of his employment it is unlikely that the defendant's former employer would be liable to pay fringe benefit tax on the interest benefit enjoyed by the defendant; although invited to do so, counsel did not address argument on this point. Without going into the taxation position in depth, it seems to me that once the relationship of employer and employee had ceased, it is likely that the benefit received by the defendant by way of an interest free loan would be taxable in his hands as an income benefit from his former employment.
According to the defendant he had a discussion with Mr Skase, or perhaps a number of discussions, between 19 December and 23 December 1988 concerning the $300,000 "interest free" loan that he sought. As I have indicated, however, the "interest free" nature of the loan was one where its provision as a benefit to the defendant was taken into account as one of the components of the overall "salary package", which was subject to annual review. In the words of the defendant, Mr Skase "had a concept of the total package and the options were to look at how the elements within it would be allocated". The FBT payable upon the ostensibly "interest free" $300,000 loan would be "charged to" the overall salary package in the normal way. I infer also from what later emerged that an interest rate of 7.3% would also be attributed as a charge against various components of the salary package - particularly the "tax free" entitlement to distribution from the trust resulting, inter alia, from the QGMS service company employment of the defendant as general manager of the Mirage Resorts section of the Qintex operation.
The $100,000 loan, which was "interest free" and paid as a "replacement" or as a substitute for the $100,000 restrictive covenant payment which had been offered by Lend Lease to him back in 1985/86, was obviously intended by both Mr Skase and the defendant to provide as far as possible a substitute for that offer of a kind acceptable to both the Qintex Group and the defendant. It is clear, in my view, that the provision of a loan "interest free" and not repayable for 10 years after termination of employment was less beneficial to the defendant than would have been a simple payment of a cash sum of $100,000 - subject to the question of whether that would have been taxable as a capital gain as raised by the defendant's accountants. What is clear is that at the end of 10 years the defendant would have to repay the $100,000 loan. The benefit to him was the advantage of not having to pay any interest on it while he remained employed by the lender, together with the advantage of retaining the money interest free for 10 years after he ceased to be employed.
The value of the interest free loans for periods of 5 and 10 years after termination of the defendant's employment may be estimated using the 15% tables and 10% tables as follows:
The present value of $57,750 (i.e. 15% of $385,000)
per annum for 5 years using the 15% tables is $57,750 x 3.3521 = $193,583
The present value of $38,500 (i.e. 10% of $385,000)
per annum for 5 years using the 10% tables is $38,500 x 3.79079 = $145,945
The present value of $15,000 (i.e. 15% of $100,000)
per annum for 10 years using the 15% tables is $15,000 x 5.0187 = $75,280
The present value of $10,000 (i.e. 10% of $100,000)
per annum for 10 years using the 10% tables is $10,000 x 6.14457 = $61,445
At the date of termination of employment therefore the value to the defendant (and detriment to his former employer) resulting from the "interest free loans" for the specified periods varied between $268,863 (using 15% interest tables) and $207,390 (using 10% interest tables).
As far as the benefit given to the defendant by virtue of the interest free loans is concerned, I am unpersuaded upon the evidence that they are so exorbitant, having regard to the income he was receiving, as to lead to the inevitable conclusion that Mr Skase was in breach of his fiduciary duty when he agreed to provide those loans as part of the remuneration package for the defendant. I am unpersuaded of that fact on the balance of probabilities keeping in mind the serious nature of the allegation. The interest free loans were the equivalent of a termination payment of about 1 year's salary.
Again I take judicial notice that the practice of making large termination payments to upper echelon executives or as it was colloquially termed giving them "a golden handshake" was also widely published and discussed (not always approvingly) in various business and financial publications and in the popular press in the 1980s. Comparisons were made between the quantum of the salaries and the quantum of the termination payments. No evidence was led on this topic and I proceed on the basis that the details of such payments published from time to time are not in evidence and I should not have regard to them if for no other reason than the matters reported from time to time may have been incorrectly reported. I assume however that such publications came to the knowledge of members of the public with sufficient interest in such matters to read about them.
The issue is not whether the interest free loans were over-generous - even to the extent of being foolishly so; it is whether they were of such a character as to be consistent only with a breach of fiduciary duty on the part of the defendant in accepting them as part of his remuneration package.
I am quite unpersuaded that the loans made to the defendant had such value as to inevitably lead an honest and reasonable man in the position of the defendant to conclude that Mr Skase must have been in breach of his fiduciary duty in agreeing to make them and in fact making them or causing them to be made. I am unpersuaded that the defendant did so conclude.
In fact, the defendant was employed by the Qintex Group for about 3 years before it went into liquidation. All the indications are that at the time agreement for the provision of the interest free loans was made and at the time the moneys were lent, it was within the defendant's contemplation and probably within the contemplation of other persons involved with the management of the Qintex Group that it would continue to function for a significant period of time.
Mr Van de Velde made it clear that there were a number of people in the Australian higher management echelons in the 1980s who were earning salaries much more lucrative than that earned by the defendant and apparently by his co-employee connected with the television arm of the Qintex Group.
No evidence was called as to what rate of inflation may have been predicted to continue at the time the loan agreements were made or at the time moneys were advanced or remained owing under them. Obviously, in the event of a falling interest rate the annual benefit of the loans to the defendant would reduce. Similarly, with a falling inflation rate, the obligation to make repayment of the moneys in 5 years and 10 years after termination of employment, respectively, would become more onerous than it might be if a high rate of inflation prevailed.
Consideration of these matters confirms my conclusion that the agreement to make the interest free loans in issue of itself has not been shown to have been made in breach of the fiduciary duty which Mr Skase owed to the company or companies on whose behalf he acted. It follows that I am unpersuaded that the defendant suspected, or had any reason to suspect, that the making of those loan arrangements involved any breach of fiduciary duty owed by Christopher Skase to the companies on whose behalf he acted.
It was towards the end of 1989 when questions were raised as to the internal management of the Qintex Group. Under the Qintex Group structure, QGMS charged high "service fees" to various members of the Qintex Group - including public listed companies and trusts - for the services performed by "employees" of that company. Some of the fees were calculated as a percentage of sums paid or recovered. For example, it was at least contemplated at some stage that the service company would charge a $30 m. fee for the part it played in achieving the sale of a 49% interest in the Mirage Resort Group to Japanese investors for the sum of $433 m.
This proposal led ultimately to the refusal of some directors of Qintex Australia Limited to approve such payment. As the result of dissension between Christopher Skase as Managing Director and other directors, the managers of various Qintex companies, whose operations produced the development profits for the group, ceased to be employed by QGMS and in an effort perhaps to postpone the inevitable disintegration of the Qintex empire it was resolved that Qintex Australia Limited should become the employer of those managers on terms specified in a resolution passed at a meeting of the directors of Qintex Australia Limited held on 18 November 1989. (Vide document 40 ex.1) At that meeting it was resolved, inter alia, that Qintex Australia Limited "assume as from 25 October 1989 responsibility for all the expenses and commitments relating to the Qintex head office at 12 Creek Street Brisbane". Until the passing of that resolution those responsibilities were borne by QGMS.
On the same date it was resolved that Qintex Australia Limited employed the defendant "on and from 1 October 1989 at a monthly remuneration of $22292." - i. e. $267,504 per annum.
Looked at globally, the benefit of the interest free loans was no more and indeed probably less than the equivalent of one year's salary at the date of termination of employment by QGMS.
Such a benefit, in my view might at the time have been thought to sit quite comfortably with the functions he performed as managing director of the resort area of the Qintex Group and the value of the development for which he was responsible particularly when viewed in the light of the annual benefit that he received by way of salary package. His salary package of course in addition to the PAYE salary component and the tax free payment from the trust component included also the value of the interest benefit he obtained by virtue of the "interest free loans" while he remained employed which at termination of his employment amounted to $44,645 i.e. the difference between interest at 15% and what he paid at 7.3% in respect of $385,000 of the loan moneys and the benefit of paying no interest whatever in respect of $100,000 lent in lieu of a restrictive covenant payment.
Having regard to the nature of the benefits provided, the plaintiff has failed to show that the agreement by Christopher Skase on behalf of QGMS to make the interest free loans repayable respectively 5 years and 10 years after the defendant's services terminated or the making of those interest free loans in fact amounted to any breach of fiduciary duty on his part.
I am unpersuaded that the defendant played any part in the financial control of the Qintex Group which seems to have been exercised by Mr Skase. I am satisfied that the defendant was approached by Mr Skase who was anxious to acquire his considerable ability and experience necessary for the successful development and sale of the Qintex resort interests, and that the whole of the defendant's efforts were devoted to achieve this end. There is no evidence that he entered into any arrangements with Mr Skase for the purpose of improperly obtaining for himself a benefit that he regarded as so outrageous as to amount to a fraud upon his employer or a breach of fiduciary duty on the part of Mr Skase.
On behalf of the defendant, assuming that the terms of the loan agreements may stand and not be avoided by virtue of breach of any fiduciary duty on the part of Mr Skase in negotiating that arrangement, it is contended that his employment terminated when he ceased to be employed by any company or organisation which was one of the Qintex Group. The defendant says that his employment ceased when he ceased to assist Mirage Resorts Gold Coast Port Douglas Australia which was the joint venture between Mirage Gold Coast Management PL and Mirage Port Douglas Management PL from which the defendant retired on 31 May 1991. This contention of the defendant is mirrored in the letter he wrote as Chief Executive of Mirage Resorts on 29 May 1991, which is document 45 of ex.1.
On the other hand, the plaintiff contends that his employment terminated for the purpose of the commencement of the running of the 5 and 10 year periods when his employment with QGMS ceased.
QGMS went into liquidation on 3 October 1990. However, it seems likely that at the very latest, having regard to the minutes of the meeting of the directors of Qintex held on 18 November 1989, the defendant ceased to be employed by QGMS on that date - i.e. 18 November 1989. It is unnecessary to come to any conclusion as to whether the defendant ceased to be employed by QGMS on 1 October 1989. While that seems to have been the intent of the Board of Qintex Australia Limited on 18 November 1989, it is not necessary to determine whether the retrospective effect intended for that resolution was necessarily achieved. However, it is contended on behalf of the plaintiff that it did have effect and that in essence the defendant ceased to be employed by QGMS on 1 October 1989. Another contention might be that he ceased on 3 October 1989.In determining this issue I have regard to the following contemporaneous documents -(1)The confirmation of the defendant's appointment of 6 November 1986 (document 6 ex.1) and in particular two references to "the Qintex Group".
The memorandum of the defendant dated 17 June 1987 relating to "replacement of restrictive covenant for John Tabart and Bob McFeeter" (document 16 ex.1) and the reference in that memorandum to "Qintex" to which I would attribute the meaning "Qintex Group" referred to in document 6.
The letter from QGMS to the defendant dated 22 December 1987. (Document 17 ex.1). By this stage the "salary package" was clearly one under the control of QGMS.
The draft letters prepared by the defendant's accountant in January 1989 (document under cover of that accountant's letter of 26 January 1989) (document 20 ex.1). These letters are clearly addressed to QGMS.
The memorandum from the defendant to John O'Reilly of 26 October 1989 (document 38 ex.1) where the information already provided relating to the defendant's appointment as director of Qintex Australia was thought to need the following sentence to be added:
"Remuneration in the form of salary benefits and trust distributions from Qintex Group Management Services as detailed in my letter of appointment as the Chief Executor of Mirage Resorts ..."
The minutes of the meeting of Qintex Australia Limited held on November 18, 1989 clearly refer to the defendant as being "formerly employed by Qintex Group Management Services Pty Ltd". The defendant in fact attended that meeting. It is interesting to note that the first resolution referred, inter alia, to the defendant as being formerly employed by QGMS Pty Ltd and also to the "terms and conditions including salary and other benefits as applied to those persons while employed by QGMS immediately prior to November 1, 1989".
There can be little doubt that it was QGMS which did in fact advance the $100,000 "replacement restrictive covenant" loan in March and October 1988. In this respect I refer to documents 19 and 20 in ex.1.
Upon the whole of the evidence I make the following findings:
At all material times prior to 1 October 1989 and perhaps as late as 18 November 1989 the defendant was employed by QGMS Pty Ltd as Chief Executive Officer of the Mirage Resorts Trust.
In all discussions, negotiations and agreements reached between the defendant and Christopher Skase, Mr Skase was negotiating the terms of employment and salary packages payable by QGMS to the defendant by virtue of that employment.
The agreements reached relating to the provision of "interest free" loans and the date when they became repayable by the defendant were made by Mr Skase in his capacity as Chairman of Directors and Authorised Agent of QGMS.
The agreement reached was that the loans in issue would be repayable within the specified periods after the defendant ceased work with QGMS.
The letter of 31 January 1989 signed by Christopher Skase as director of the plaintiff, which is ex.7 confirmed the agreement reached between him as Chairman of Directors of QGMS and the defendant towards the end of 1988. I reject the contention that that letter in any way substitutes the rights and obligations of the plaintiff under the loan agreements for those accrued and accruing to QGMS by reason of the agreements negotiated between the defendant and Christopher Skase in December 1988.
A document apparently located in the records of the plaintiff to my mind confirms that at least prior to February 1989 the relationship of lender and borrower in respect of the loans in issue was between QGMS and the defendant. That document is a cheque requisition form dated 13 February 1989 which purports to record a payment by the plaintiff to QGMS with respect to "Tfr loans to Kodogo". There is a reference "JET relocation" beside which is written in pencil "loan Tabart" with $275,000 recorded as the amount.
In my view, this document simply records an intra Qintex Group adjustment or alteration to the system or practice that had been in operation since the defendant became an employee of QGMS. I accept the evidence of the defendant that he was not in any way consulted about this and knew nothing about this "arrangement" between QGMS (his employer) and the plaintiff. Of course, one obvious result of this arrangement would be to have the plaintiff, at least in the books of the companies, put QGMS in funds to the extent of the loans that it had made to the defendant. Similarly at a later time a cheque was written by the plaintiff and given to QGMS in respect of the first $30,000 advance under the $300,000 home loan facility that it had made to the defendant before the plaintiff came onto the scene. The source of the funds transferred from the plaintiff to QGMS, or their ultimate destination when received by that member of the Qintex Group, was not investigated in the evidence.
In my view, there is no evidence that there was any effective assignment of the rights and obligations of QGMS in respect of the loans it had agreed to make and had made to the defendant by virtue of the plaintiff putting QGMS in funds to the extent of loans advanced by QGMS to the defendant if that was in fact done as the skimpy records suggest. Whatever legal consequences may have followed, it is my view that it was certainly not one of them that the rights which the defendant had against QGMS by virtue of the employment package negotiated between him and the chairman of directors of that company towards the end of 1988 were in any way altered. Accepting that $180,000 of the $210,000 drawn down from the $300,000 home loan facility was in fact advanced by the plaintiff to the defendant, it seems to me that the making of those payments ought be characterised as no more than the plaintiff as one of the Qintex Group under the authority of QGMS performing on its behalf its obligations to the defendant pursuant to the salary package it negotiated in December 1988. I would regard the plaintiff as acting as no more than banker or agent for QGMS in making payment of the loan which QGMS was obliged to make to the defendant. The "notional interest" deductible from the defendant's salary package was "deducted" by QGMS and not by the plaintiff who, upon the evidence, does not appear to have received any interest upon the loan before the cessation of the defendant's employment with QGMS.
I find that the defendant ceased to be employed by QGMS at the latest by 18 November 1989.
I find that he was obliged to make repayment of the sum of $385,000 lent to him during the course of his employment with QGMS in October or November 1994.
I find that he is obliged to pay to QGMS the sum of $100,000 lent to him during the course of his employment which terminated in October or November 1989 in or before October or November 1999. It is unnecessary to find definitively upon which precise date that termination of employment occurred.
The plaintiff commenced this action by writ of summons issued on 2 March 1992. It is clear therefore that when action was instituted the moneys which I have found to be presently owing by the defendant to QGMS were not in fact then owing to that company.
The part played by the plaintiff in the Qintex Group of companies is best explained by Mr Hosking an accountant employed at material times by QGMS in "an administrative role across group activities". Included in that role was the care of the finances of his particular area of interest. The part played by Kodogo when it eventually commenced to perform part of group activities under that name was summarised in the following extract of evidence:"So Mr Skase would say 'Well I want Kodogo to lend so much money to a particular company' and financial management would say 'Well we can do that but we will be terribly much in overdraft'. So he would say to Qintex Australia Limited 'Well give them 2 million dollars'. Is that the way things went? --- Generally yes.
That's the way things went and there was no loan agreement or memorandum or exchange of letters or anything like that to try to record what was going on? --- Generally not.
It was just purely those book entries and of course the drawing of cheques? ---Yes.
And the cheques would only tell you whatever was on the butts? --- And on the butts we have seen so far there is no explanation very much is there? --- That's correct."
A little latter in his evidence the following exchanges occurred:
"I mean Kodogo was not - any money Kodogo got it got from somebody else in the Group? --- That's right.
Any time somebody else from the Group wanted money they just took it from Kodogo? --- That tended to happen yes.
I mean Kodogo didn't have its own independent accounts investments or anything like that, did it? --- That's right.
So it really must have been considered for the benefit of the Group as a whole or some other members of the Group who had a more direct connection with the Maroochydore Shopping Centre than did Kodogo that Kodogo should make these loans to the shopkeepers? --- Yes.
As time went by what happened was that various non trading sorts of loans found their way into Kodogo? --- Yes.
I am not talking about the terms of them, I am talking about - they were if you like industrial loans if you like to call it that between employer and employee? ---Yes."
Even though Kodogo wasn't an employer? --- Yes.
It sort of swept up loans that were parts of packages arranged by Qintex Australia Limited for people who were going to work in the Group? --- Yes."
Then coming to deal more specifically with moneys received from Kodogo by the defendant as draw downs from the $300,000 loan facility in issue the following exchange occurred:
"Where did Kodogo get the money to put it on to Mr Tabart? --- The first loan came from Qintex Group Management Services but essentially that was funded out of the group anyway, out of Qintex Australia Limited.
What about the one that came from Kodogo? --- Usually out of Qintex Australia Limited or Qintex Australia Finance Pty Ltd.
One of those two would be the source of the funds? --- Yes.
That the cheques were written on? --- Out of the group the money would be transferred from the group company to that other entity so we could on pay the loan or whatever."
In my view, the defendant is not and never has been indebted to the plaintiff in respect of any of the loan moneys advanced by QGMS to him or moneys advanced by the plaintiff at the request of QGMS to satisfy its obligation to the defendant.
Even if the plaintiff were entitled to exercise the rights of QGMS as lender of money to the defendant (and in my view upon the evidence it is not, there being no assignment of rights proved and indeed QGMS not even being a party to this action), it is clear that the action was instituted more than two years before the defendant was required to repay any of the moneys lent to him by QGMS. Indeed, in respect of $100,000 of the claimed moneys lent, they will not be repayable for more than another 5 years.
There has not been established any relationship whatever between the plaintiff and the defendant upon which it could be contended a fiduciary duty was owed by the defendant to the plaintiff at any time before the plaintiff first advanced loan moneys to the defendant. Even at this time any duty owed by Mr Skase to the plaintiff would, in my view, be based upon the plaintiff's membership of and function performed as part of the Qintex Group of Companies. The existence or nature of any fiduciary duty owed by Mr Skase to the plaintiff at any material time has not been explored or argued. It seems quite unlikely that it would be such as to render the defendant liable to the plaintiff although not liable to QGMS as I have held. Any fiduciary duty which was owed by the defendant to anybody in connection with his employment by QGMS was owed by him with respect to that company, albeit in the context of its position in the overall Qintex Group structure. A breach of duty of the sort alleged in the writ of summons in this case against the defendant could have been raised by QGMS, but that company is not even a party to this action. While in the light of the long and complicated arguments addressed upon trial, I have dealt with questions of breach of fiduciary duty as between QGMS and Mr Skase and the defendant and as to the date when loans advanced by and on behalf of QGMS to the defendant become repayable, the findings which I have made will not of course have any legal effect on any issue yet to be resolved between QGMS and the defendant concerning matters raised in this action.
The defendant indicated that he was willing to repay the loans made by QGMS on their due date for repayment. There is no evidence that any demand has been made by or on behalf of QGMS since October - November 1994 for repayment to it or to the plaintiff on its behalf of the sum of $385,000. Whatever may be the effect of any absence of demand on the current liability of the defendant to QGMS no relief in this action has been sought by QGMS and therefore none is available to it.
I give judgment for the defendant.
I order the plaintiff to pay to the defendant his costs of and incidental to the action to be taxed.
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