Land Enviro Corp Pty Ltd v HTT Huntley Heritage Pty Ltd

[2012] NSWSC 382

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Land Enviro Corp Pty Limited v HTT Huntley Heritage Pty Limited [2012] NSWSC 382
Hearing dates:	6 February 2012 - 16 March 2012
Decision date:	20 April 2012
Jurisdiction:	Equity Division
Before:	Stevenson J
Decision:	The Third Amended Statement of Claim and the First and Second Cross Claims are dismissed.
Catchwords:	Trade and commerce - Trade practices - Misleading or deceptive conduct - Representations - Setting aside of consent order discontinuing proceedings - Damages for loss of opportunity to prosecute discontinued proceedings - Likelihood of success of discontinued proceedings - Fiduciary duties - Whether necessary to demonstrate ability to pursue opportunity appropriated by errant fiduciary - Laches - Entitlement to rescission - Necessity of knowledge of legal right to rescind - Affirmation - Restitutio in integrum - Intervention third party rights - Agency
Legislation Cited:	Fair Trading Act 1987 Trade Practices Act 1974 (Cth) Uniform Civil Procedure Rules 2005
Cases Cited:	Alati v Kruger (1955) 94 CLR 216 Boyns v Lackey (1958) SR (NSW) 395 Bullabidgee Pty Limited v McCleary [2010] NSWSC 145 Coast Estates Pty Limited v Melevende [1955] VR 433 Colonial Mutual Life Assurance Society Limited v The Producers and Citizens Cooperative Assurance Company of Australia Limited (1931) 46 CLR 41 Connectland Pty Ltd v Cardno Forbes Rigby Pty Ltd [2011] NSWCA 391 Consul Development Pty Limited v DPC Estates Pty Limited (1975) 132 CLR 373 Crabtree - Vickers Pty Limited v Australian Direct Mail Advertising & Addressing Co Pty Limited (1975) 133 CLR 72 Digi-Tech (Australia) Limited v Brand [2004] NSWCA 58 Ernest v Vivian (1863) 33 LJ (Ch) 513 Freeman and Lockyer v Buckhurst Park Properties (Mangal) Limited [1964] 2 QB 480 Harvey v Phillips (1956) 95 CLR 235 Henjo Investments Pty Limited v Collins Marrickville Pty Limited (1998) 39 FCR 546 Johnson v Perez (1988) 166 CLR 351 Land Enviro Corp Pty Ltd v HTT Huntley Heritage Pty Ltd (2008) 72 NSWLR 160 Land Enviro Corp Pty Ltd v HTT Huntley Heritage Pty Ltd [2012] NSWSC 177 Marks v GIO Australia Holdings Limited (1998) 196 CLR 494 Molotu Pty Limited v Solar Power Limited (1989) 6 BPR 13,460 Nikolaou v Papasavas, Phillips & Co (1989) 166 CLR 394 O'Connor v S.P. Bray Limited (1936) 36 SR (NSW) 248 O'Connor v S.P. Bray Limited (1937) 56 CLR 464 Pacific Carriers Limited v BNP Paribas (2004) 218 CLR 451 Perpetual Trustees Australia Ltd v Heperu Pty Ltd & Ors [No 2] (2009) 78 NSWLR 190 Pririe v Richardson [1927] 1 KB 448 Re Hoffman: Ex parte Worrell v Schilling (1989) 85 ALR 145 Sargent v ASL Developments Limited (1974) 131 CLR 634 Singh v Ginelle Pty Ltd [2010] NSWCA 310 Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691 Steve Masselos & Co v Young [2011] NSWCA 352 Streeter v Western Areas Exploration Pty Limited (2011) 278 ALR 291 Tenji v Henneberry & Associates Pty Limited (2000) 98 FCR 324 Tiplady v Gold Coast Carlton Pty Limited (1984) 8 FCR 438 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Tyco (Australia) Pty Ltd t/as ADT Security v Signature Security Group Pty Ltd [2009] FCA 1029 Warman International Limited v Dwyer (1995) 182 CLR 544 Watson v Foxman (1995) 49 NSWLR 315 Wentworth v Rogers (No 5) (1986) 6 NSWLR 534 Wright v TNT Management Pty Ltd (1989) 15 NSWLR 679
Texts Cited:	Carter Peden Tolhurst, Contract Law in Australia, 5th ed (2007) Concise Oxford Dictionary 11th ed Macquarie Dictionary 3rd ed Seddon and Ellinghouse, Cheshire and Fifoot's Law of Contract, 9th Australia ed (2008) Spencer Bower and Handley, Res Judicata (2009)
Category:	Principal judgment
Parties:	Land Enviro Corp Pty Limited (First Plaintiff) Sam Zdrilic (Second Plaintiff) Amy Zdrilic (Third Plaintiff) Amy Holdings Pty Limited (Fourth Plaintiff) HTT Huntley Heritage Pty Limited (First Defendant) Robert Renshall (Second Defendant) David Hickie (Third Defendant) Sentel Pty Limited (Fourth Defendant) Devubo Pty Limited (Fifth Defendant) Vocifa Pty Limited (Sixth Defendant) Michael Ansell (Seventh Defendant)
Representation:	Counsel: T M Jucovic QC and S A Wells (Plaintiffs) M L D Einfeld QC and M Sneddon (First, Second and Fifth Defendants) G A F Connolly (Third and Sixth Defendants) Solicitors: Kemp Strang (Plaintiffs) Middletons (First, Second and Fifth Defendants) Bartier Perry (Third and Sixth Defendants)
File Number(s):	SC 2007/254173
Publication restriction:	Nil

Judgment

Introduction

1. These proceedings are, essentially, concerned with three matters.

1. The first matter is whether the plaintiffs have rescinded or are entitled to have set aside agreements entitled "Heads of Agreement" dated 13 May 2004 ("the Heads of Agreement") and "Deed of Non-Dilution and Merger" dated 27 August 2004 ("the Non-Dilution Deed").

1. All parties to these proceedings were parties to the Heads of Agreement, except for the seventh defendant. All parties to these proceedings were parties to the Non-Dilution Deed.

1. The second matter is whether an order made by the Court on 6 September 2004 dismissing proceedings number 5396 of 2001 (the "2001 Proceedings") should be set aside.

1. The first plaintiff in these proceedings, Land Enviro Corp Pty Limited ("LEC"), brought the 2001 Proceedings against, amongst others, the first defendant in these proceedings, HTT Huntley Heritage Pty Limited ("HTT"), the third and seventh defendants in these proceedings, Mr David Hickie ("Mr Hickie") and Mr Michael Ansell ("Mr Ansell") and a Mr Bruce Hulley ("Mr Hulley").

1. The third matter is whether, assuming the plaintiffs are entitled to some or all of such relief, they are entitled to damages.

1. The question of damages directs attention to the likely outcome of the 2001 Proceedings, assuming the order for dismissal of 6 September 2004 had not been made.

The parties - the plaintiffs

1. The first plaintiff is LEC.

1. The second plaintiff is Sam Zdrilic ("Mr Zdrilic"). Mr Zdrilic is a director of LEC and Amy Holdings Pty Limited ("Amy Holdings"). Mr Zdrilic is also an alternate director of HTT.

1. The third plaintiff is Amy Zdrilic ("Mrs Zdrilic"), the second plaintiff's wife. Mrs Zdrilic is a director of LEC and Amy Holdings.

1. The fourth plaintiff is Amy Holdings. Amy Holdings is a holder of 1/3 of the issued shares in Sentel Pty Limited ("Sentel").

1. In the proceedings Mr T M Jucovic QC appeared with Mr S A Wells for the plaintiffs.

The parties - the defendants

1. The first defendant is HTT. HTT is the trustee of the Huntley Trust. HTT, as trustee of the Huntley Trust, is the owner of the land described below.

1. The second defendant is Robert Renshall ("Mr Renshall"). Mr Renshall is a director of HTT, as well as Sentel and the fifth defendant, Devubo Pty Limited ("Devubo"). Mr Renshall is also a director and shareholder of Renequip Pty Limited ("Renequip") and Enviro Management Service Pty Limited ("Enviro"). Both Renequip and Enviro hold units in the Huntley Trust.

1. In the proceedings, Mr M L D Einfeld QC appeared with Mr Mark Sneddon for HTT, Mr Renshall and Devubo. I shall refer to those parties as the "HTT Defendants".

1. The third defendant is Mr Hickie. Mr Hickie is a previous director of LEC and HTT. Mr Hickie is a director of Sentel and the sixth defendant, Vocifa Pty Limited ("Vocifa").

1. In the proceedings Mr G A F Connolly appeared for Mr Hickie and Vocifa.

1. The fourth defendant is Sentel. Sentel is a company incorporated to give effect to the matters agreed in the Heads of Agreement and in the Non-Dilution Deed. Sentel holds 27.5 per cent of the shares in HTT, and of the units in the Huntley Trust. The Zdrilic, Renshall and Hickie interests have an equal shareholding in Sentel through Amy Holdings, Devubo and Vocifa respectively.

1. The seventh defendant is Mr Ansell. Mr Ansell, as previously mentioned, is a party to the Non-Dilution Deed, but not to the Heads of Agreement. Mr Ansell was a defendant to and consented to the dismissal of the 2001 Proceedings.

1. Sentel and Mr Ansell were not represented in and played no role in the proceedings.

Mr Hulley

1. Mr Hulley was a former director of LEC and HTT. Mr Hulley died on 13 November 2010.

The pleadings

1. The plaintiffs move on a Third Amended Statement of Claim.

1. Defences have been filed to the Third Amended Statement of Claim by the HTT Defendants and by Mr Hickie and Vocifa.

1. The HTT Defendants, and Mr Hickie and Vocifa brought cross-claims against the plaintiffs seeking declaratory and other relief consequential upon the matters pleaded in their respective defences.

Background

The Land

1. The dispute concerns a disused coalmine ("the Land").

1. Prior to 29 June 1998, Powercoal Pty Limited ("Powercoal") was the owner of the Land.

1. The Land comprises of 18 separate contiguous parcels, covers an area of about 420 hectares and is situated approximately 20 kilometres southwest of Wollongong, near Dapto.

LEC contract with Powercoal

1. LEC was incorporated on 22 April 1998 for the purpose of acquiring the Land from Powercoal and undertaking rehabilitation and development of the Land.

1. At that time, the directors of LEC included Mr Zdrilic, Mr Hickie, Mr Hulley, and Mr Hulley's wife, Ms Cosima Hulley-Beck.

1. On 15 May 1998, Mr and Mrs Zdrilic and Mr Hulley (and other parties) entered into a Shareholders Agreement pursuant to which they agreed to participate in a joint venture project in order to acquire, rehabilitate and develop the Land (the Project).

1. On the same day, Mr Hulley entered into a Management Agreement, pursuant to which he was appointed general manager of LEC.

1. Between June and August 1998, Mr Zdrilic advanced approximately $2.237 million to LEC.

1. On 29 June 1998, LEC exchanged contracts with Powercoal to purchase the Land for $2.5 million and paid a deposit of $250,000 (the "LEC Contract").

1. Settlement of the LEC Contract was due to take place on 9 March 1999, following the giving of consent by the relevant Minister to the transfer of coal leases to LEC on 9 February 1999.

1. Settlement did not take place on 9 March 1999.

1. On 10 March 1999, Powercoal issued a Notice to Complete, calling for completion on 29 March 1999.

1. In the meantime, HTT was incorporated on 11 February 1999. Mr Hulley, Ms Hulley-Beck and Mr Hickie were appointed directors.

Mr Hulley's alleged role in creating difficulties for LEC

1. The plaintiffs claim that whilst Mr Hulley was the director of both LEC and HTT, he made financial demands on LEC, frustrated LEC's efforts to raise funds to complete the purchase of the Land from Powercoal, pursued finance in a manner designed to exclude LEC and withheld information from LEC.

1. In support of those propositions, the plaintiffs point to five letters that Mr Hulley sent Powercoal between 15 April and 7 May 1999. Three of those letters were sent on HTT letterhead. Two were sent on LEC letterhead. Mr Hulley signed each letter as a director of the relevant company.

1. On 15 April 1999, Mr Hulley sent a letter dated 15 April 1999 on HTT letterhead to Powercoal which advised Powercoal that HTT had been endeavouring, unsuccessfully, to "complete an acceptable arrangement" with LEC for funds to be loaned to LEC to enable it to complete the LEC Contract. The letter stated that HTT was ready, willing and able to "complete the Contract for Sale".

1. On 18 April 1999, Mr Hulley sent a letter dated 18 April 1999 on LEC letterhead to Powercoal which advised Powercoal that LEC had exhausted every possible course of action to organise funding, that a board meeting of LEC had been called to consider the appointment of an administrator and that in the event Powercoal issued a Notice of Termination of the LEC Contract, LEC had "no bona fide defence or sustainable argument against that course of action". According to the plaintiffs, this letter was sent without the knowledge or authorisation of the board of LEC.

1. On the same day (18 April 1999), Mr Hulley sent a letter dated 18 April 1999 on HTT letterhead to Powercoal advising that in the event that Powercoal did issue a Notice of Termination to LEC, then HTT requested the opportunity to acquire the Land and undertake the "Mine Rehabilitation Plan". The letter stated that the directors of HTT (Ms Hulley-Beck and Messrs Hulley and Hickie) gave their undertaking to Powercoal that they were prepared to execute a contract for sale of land in identical terms to the LEC Contract. The letter also indicated the preparedness of the directors of HTT to indemnify Powercoal against any claim or litigation initiated by LEC.

1. On 7 May 1999, Mr Hulley sent a letter dated 7 May 1999 on LEC letterhead to Powercoal stating that Mr Hulley was not able to indicate that LEC in its own right had the funds available to complete the purchase. According to the plaintiffs, this letter was sent without the knowledge or authorisation of the board of LEC.

1. On the same day (7 May 1999), Mr Hulley sent a letter on HTT letterhead to Powercoal making a non-binding offer to Powercoal for the provision of security and maintenance resources "whilst Powercoal considers its position".

1. LEC was not able to comply with Powercoal's Notice to Complete.

1. On 7 May 1999, Powercoal terminated the LEC Contract.

Events taking place after termination of Powercoal Contract

1. On 21 May 1999, Mr Zdrilic and LEC's then solicitor, Mr Allan Brown, attended a meeting with representatives of Powercoal in the hope of persuading Powercoal to extend the time for LEC to complete the LEC Contract.

1. As Mr Zdrilic was unable to provide Powercoal with evidence of LEC's ability to finance the purchase of the Land or its rehabilitation, Powercoal refused to take the matter further.

1. Mr Zdrilic accepted that, at the meeting of 21 May 1999, he had unsuccessfully sought an indulgence from Powercoal. From that time, Mr Zdrilic agreed Powercoal was entitled to sell the Land to whomever it wished.

1. Mr Zdrilic gave the following evidence:-

Q:	"So far as Powercoal was concerned, you believed at that time that was the end of it, that was as far as you could take it with Powercoal; correct?
A:	If Powercoal were not prepared to give us an extension of time for me to put in order what needs to be put in order, then we have to face the facts and that was the end of it.
Q:	And Powercoal wasn't prepared to give you that extension, was it, when you went to see them?
A:	That's a fair assessment."

1. Mr Zdrilic also accepted that, at that time, LEC did not have the funds to complete the Contract. Furthermore, Mr Zdrilic accepted that he did not have the funds to advance to LEC to enable it to complete the purchase.

1. On 1 June 1999 Mr Zdrilic appointed Mr Michael Jones as receiver and manager of LEC under a Deed of Charge that LEC gave Mr Zdrilic on 19 June 1998.

1. LEC's position, so far as concerns the funding of the purchase of the Land, was summarised in two letters written by LEC's solicitor, Mr Brown, on 3 and 4 June 1999.

1. On 3 June 1999, Mr Brown wrote to Mr Jones stating that:-

"LEC is not in a position to seek alternative funding and proceed with the purchase".

1. On 4 June 1999, Mr Brown wrote to the Office of State Revenue stating that he was the solicitor for the receiver and manager of LEC and that:-

"I am also able to confirm the Receiver's advice that he does not under any circumstances propose proceeding with the purchase. LEC does not have the funds to complete the purchase nor has it been able to arrange funds for that purpose. That is the reason the contract is terminated. There is also a large deficiency between monies owed by LEC and monies available to meet its debts. There is absolutely no doubt the transfer will never be lodged for registration."

HTT contract with Powercoal

1. As mentioned above, HTT was incorporated on 11 February 1999. Mr Hulley, Ms Hulley-Beck and Mr Hickie were appointed directors. At that time they were each also directors of LEC.

1. On 10 May 1999, three days after Powercoal terminated the 29 June 1998 contract with LEC, Mr Hulley, Ms Hulley-Beck and Mr Hickie resigned as directors of LEC.

1. On 16 September 1999, Mr Brown reported to Mr Jones (the receiver of LEC) that:-

"Graham Hughes of Howards advised me that he had heard that Hulley had 'disappeared off the face of the earth'. On the other hand he had also been told that he is very close to doing a deal on Huntley Mines which would see him cashed up considerably."

1. Mr Zdrilic saw this letter but dismissed it as mere rumour.

1. On 20 December 1999 Mr Renshall was appointed a director of HTT.

1. Some six months later, on 11 April 2000, HTT exchanged contracts with Powercoal to purchase the Land for $2.5 million. This was the same amount for which LEC had contracted to purchase the property on 29 June 1998.

1. That contract was completed on 17 October 2000. HTT became, and remains, the registered proprietor of the Land.

The 2001 Proceedings

1. LEC commenced the 2001 Proceedings by Summons filed on 6 November 2001.

1. None of the defendants to the current proceedings were named as defendants to the 2001 Proceedings at this stage.

1. In November 2001 the defendants to the 2001 Proceedings were Mr Hulley, Huntley Operations Pty Limited (a company associated with Mr Hulley), and Permanent Trustee Australia Pty Limited (a mortgagee of the Land).

1. Amongst the relief then sought in the 2001 Proceedings was a declaration that the title to certain residential property (which had no connection to the Land) was held in trust for LEC (subject to the mortgage of Permanent Trustee Australia Pty Limited).

1. Sometime in early 2002 Mr Zdrilic heard, for the first time, that HTT had purchased the Land.

1. On 21 March 2002, a Statement of Claim was filed in the 2001 Proceedings. This pleaded, amongst other things, that HTT had become the registered proprietor of the Land on 17 October 2000, but did not seek any relief against HTT.

1. On 11 December 2002, LEC filed an Amended Statement of Claim in the 2001 Proceedings in which HTT was joined as a defendant for the first time. Mr Hickie and Mr Ansell were also joined as defendants.

1. By that Statement of Claim, for the first time, LEC sought, amongst other relief, a declaration that the Land was held by HTT on constructive trust for LEC.

1. The basis upon which that relief was sought was that:-

(a)   after the LEC Contract was terminated, HTT had, with knowledge, made use of information and opportunities which Mr Hulley and Mr Hickie had acquired as directors of LEC;

(b)   HTT had received the benefit of the Land in circumstances where it knew of Mr Hulley's and/or Mr Hickie's breaches of fiduciary and statutory duties to LEC; and

(c)   HTT had acquired legal ownership of the Land with notice of LEC's "continuing equitable interest" in the Land and with notice of alleged breaches by Mr Hulley and Mr Hickie.

1. HTT did not file a defence in the 2001 Proceedings. No affidavits were filed in the 2001 Proceedings and there was no discovery between LEC and HTT.

1. By Notice of Motion dated 11 March 2003, HTT sought an order that LEC provide security for costs of the proceedings in an amount of approximately $230,000. Other defendants made similar applications for security.

1. In August 2003, LEC received advice from Counsel that because LEC was in receivership, it was likely that it would be ordered to provide security for costs.

1. On 11 September 2003, LEC instructed its then solicitor to offer some $82,500 for security, on a staged basis.

1. It appears that this aspect of the proceedings was overtaken by settlement discussions. Certainly, the security for costs applications were never dealt with by the Court. The likely effect of the security for costs applications is considered further below in the context of the HTT Defendants' submissions as to the likely fate of the 2001 Proceedings.

1. Ultimately, the 2001 Proceedings were settled by the relevant parties entering into the Heads of Agreement and the Non-Dilution Deed and by consenting to dismissal of the 2001 Proceedings.

Negotiations to settle the 2001 Proceedings

1. On 10 September 2003, HTT's then solicitor, Mr Brian Gillard ("Mr Gillard"), wrote to LEC's then solicitor, Mr Derek Hilliard ("Mr Hilliard"), suggesting that a meeting take place between the parties to see:-

"...whether a suitable arrangement can be agreed to resolve the issues between them".

1. There then commenced discussions between Mr Zdrilic and Mr Renshall (who had been appointed a director of HTT on 20 December 1999) to endeavour to settle the 2001 Proceedings.

1. The broad basis of discussions that ensued was the possibility of Mr Zdrilic, Mr Renshall and Mr Hickie resolving their differences (and the 2001 Proceedings) by entering into a joint venture, in which each of them would have an interest, in relation to the further rehabilitation and redevelopment of the Land.

The representations

1. The plaintiffs claim that between 29 January 2004 and 27 August 2004 HTT made a series of seventeen representations. Many of the representations were allegedly made by Mr Renshall in conversations with Mr Zdrilic. The plaintiffs claim that in reliance on these representations, they entered into the Heads of Agreement, the Non-Dilution Deed and agreed to dismissal of the 2001 Proceedings.

1. The plaintiffs claim that at the time of making the representations, HTT and Mr Renshall, or either of them, acted as agent for Mr Renshall's company, Devubo, and as agent for Mr Hickie and his company, Vocifa.

1. Alternatively, the plaintiffs claim that HTT made the representations and that Mr Renshall was "involved" in the misleading or deceptive conduct said to arise from them within the meaning of the Trade Practices Act 1974 (Cth), s 75B ("the Act").

1. The plaintiffs claim that the representations were made at a time when HTT was involved in dealings with a New Zealand company, IBIS Investment Bank ("IBIS") and a related company, Investment Protection Cover Inc ("IPC"), as trustee for the IPC Joint Venture Trust.

1. On 15 March 2004, HTT and IPC entered into an agreement called "Heads of Agreement" ("the IPC Heads of Agreement") pursuant to which it was agreed that IPC would purchase at least 51 per cent of the shares in HTT and the units in the Huntley Trust and pay out HTT's loans. It was further agreed that after the acquisition by IPC of those shares and units, IPC would be responsible for and provide all working capital in respect of the Project.

1. Broadly speaking, the negotiations between Mr Zdrilic and Mr Renshall had, as their object, the settlement of the 2001 Proceedings and also the removal of a caveat that LEC had lodged on the title of the Land on 23 April 2003 ("the Caveat").

1. The idea was that the Zdrilic interests would participate in the Project by having an equal shareholding (with the Renshall and Hickie) interests in Sentel. Sentel would, in turn, hold a 27.5 per cent interest in HTT and the Huntley Trust.

1. The proposed structure can be illustrated as follows:-

1. As I have mentioned, the plaintiffs claim that in reliance on the representations, they entered into, inter alia, the Heads of Agreement.

1. The Heads of Agreement recited that:-

"The parties to these Heads of Agreement have agreed to resolve their disputes on the basis set out herein which essentially involves the formation of a new company to be known as Sentel Pty Limited ('Sentel') in which they or their nominees will equally hold together with the smaller shareholders the issued share capital and Sentel in turn will recognise their loans and hold approximately 34.75% of the issued capital of HTT and approximately 34.75% of the units in the Huntley Trust and LEC will withdraw the Caveat and otherwise surrender its claim against HTT and Hickie".

1. The Heads of Agreement, in order to become effective, required a number of transactions to be entered into. A settlement of those transactions was contemplated.

1. A significant obligation in Heads of Agreement was found in clause 4.7 which stated:-

"HTT shall obtain sufficient finance from a new funder (estimated at but not limited to approximately $12 million) to payout [existing mortgagees] and any other creditor holding security over the Huntley Mine, and to purchase the complimentary [sic] land (...) and to prepay 6 months interest on the loans from the new funder."

1. Clause 4.8 of the Heads of Agreement stated:-

"The parties acknowledge that HTT will or is likely to require further debt and/or equity funding to complete the rehabilitation of the Huntley Mine (and the complimentary [sic] land) and to complete the development of that land for the best possible return..."

1. A final settlement of the transactions took place on 27 August 2004. On that date the Non-Dilution Deed was executed and Short Minutes of Order providing for the dismissal of the 2001 Proceedings were signed. A Withdrawal of the Caveat was also handed over. The events leading to, and occurring on and after the 27 August 2004 settlement are considered in detail below.

1. By reason of the Non-Dilution deed, Sentel's equity in HTT and the Huntley Trust became 27.5 per cent, rather than a slightly higher percentage contemplated earlier.

The particular representations

1. The seventeen representations fall into four broad categories.

Representations as to the availability of finance and the financial position of IPC

1. The plaintiffs claim the representations made were that:-

(a)   IPC was of financial substance;

(b)   IPC would become a joint venture partner with HTT, with the controlling interest in HHT;

(c)   IPC would purchase at least 51 per cent of shares and units in HTT and the Huntley Trust;

(d)   IPC would provide finance to payout existing mortgages over the Land; and

(e)   IPC would provide substantial sums required to effect the Project.

Representations as to restrictions imposed by IPC

1. The plaintiffs claim that Mr Renshall and HTT represented that IPC would not agree that:-

(a)   Mr Zdrilic have the right of veto at HTT board meetings;

(b)   Mr Zdrilic be a director of HTT at all; and

(c)   HTT provide security to Mr Zdrilic in respect of a loan Mr Zdrilic had made to LEC.

Representations as to Mr Renshall's interest in the Huntley Trust

1. The plaintiffs relied upon representations alleged to be made by HTT as to the extent to which units controlled by Mr Renshall in the Huntley Trust were available to be transferred to Sentel. In closing submissions this aspect of the claim was not pressed.

Representations as at IPC representation on the board of HTT

1. The plaintiffs also claimed that HTT represented that Mr Christopher Frederick ("Mr Frederick") and Mr Ken Tugrul ("Mr Tugrul"), who became directors of HTT after the 27 August 2004 settlement, were nominated by IPC to represent it on the HTT board. In closing submissions, this aspect of the claim was also not pressed.

Alleged falsity of the representations

1. The plaintiffs claim that each of the representations were false and were made by Mr Renshall fraudulently. It is alleged that Mr Renshall, and thus HTT, knew the representations were false and untrue, or made the representations recklessly, not caring whether they were true or false.

1. The plaintiffs allege that, by making the representations, HTT engaged in conduct that was misleading or deceptive for the purposes of the Act.

1. The plaintiffs also allege that HTT and Mr Renshall had a duty to LEC and to Mr Zdrilic to take care in the making of the representations and that HTT and Mr Renshall acted in breach of that duty.

Subsequent events

1. On 6 September 2004 orders dismissing the 2001 Proceedings were made.

1. On 16 September 2004 HTT terminated the IPC Heads of Agreement.

1. The plaintiffs claim that, notwithstanding HTT's termination of the IPC Heads of Agreement, HTT continued to deal with Mr Zdrilic, up to March 2005, as if the IPC deal was still on foot.

1. Mr Zdrilic claims that on 8 March 2005, he learned, for the first time that the arrangements between IPC and HTT had "collapsed" on 15 September 2004.

1. Mr Zdrilic claims that he, thereafter, requested further information, sought to renegotiate security from HTT, in respect of the loan owed to him by LEC, and sought to become a director of HTT.

1. On 11 October 2006 LEC lodged a further caveat on the title of the Land.

1. On 26 March 2007 the plaintiffs commenced these proceedings.

1. The plaintiffs claim that by taking the steps referred to in the two preceding paragraphs, they rescinded both the Heads of Agreements and the Non-Dilution Deed, and seek declarations to that effect.

HTT's work on the Project since 2003

1. Between 2003 to the present date, HTT has worked on the Project.

1. HTT has, amongst others things, conducted a landfill business whereby contaminated tailings damns have been filled with landfills from other sites for a fee.

1. HTT obtained development approval on 3 December 2010 for a 18 hole golf course, sold coal on the Land, sold coal leases for a fee and a royalty of $US1 per tonne to be paid in the future upon extraction of coal.

1. It was HTT's intention to construct individual residences and sell them after completion.

1. According to evidence served by HTT in the proceedings, the rehabilitation of the Land is now 85 per cent complete and it is expected that the landfill operation will be completed sometime in 2012.

1. In 2011, HTT submitted a revised planning proposal for rezoning of 179 hectares of the Land to allow for a low-density residential development of 438 lots surrounding the golf course.

1. Wollongong City Council approved that planning proposal on 12 December 2011. The proposal was then sent to the Department of Planning for approval by the relevant Minister.

1. However, as is revealed in an affidavit sworn by Mr Renshall on 22 December 2011, problems have emerged in relation to the Project.

1. In that affidavit, Mr Renshall said that:-

(a)   in February 2007, Suncorp-Metway Limited ("Suncorp") granted HTT debt funding, secured by first mortgage over the Land, of $17.9 million for 3 years;

(b)   funding was used by HTT to refinance some of the costs of acquiring the Land and carrying out landfill operations on the Land to remediate the property;

(c)   in late 2010, Suncorp advised HTT that it was exiting the property finance market and that HTT would need to find alternate finance;

(d)   since 2010 HTT has tried, unsuccessfully, to obtain refinance;

(e)   the Suncorp facility expires on 31 March 2012;

(f)   if Suncorp refuses to extend the facility, and HTT cannot refinance, the Land will have to be sold;

(g)   HTT does not have the financial resources to undertake the development of a golf course and residential development on the Land;

(h)   HTT currently intends to sell the Land if and when it is rezoned for residential development;

(i) in that regard the planning proposal approved by Wollongong City Council on 12 December 2011 is to be sent to the Department of Planning for consideration by the Minister for Planning and Infrastructure;

(j)   even if HTT is able to secure an extension of the Suncorp loan (or refinance that loan) when land filling is completed, it will be unable to make interest payments and the Land will have to be sold to repay the debt; and

(k)   HTT has not sought or obtained funding in respect of the potential residential and golf course development of the Land.

Relief claimed

1. The plaintiffs claim declarations that the Heads of Agreement and the Non-Dilution Deed have been rescinded by reason of the service of the Caveat lodged by LEC on the title of the Land on 11 October 2006, or alternatively by service of the Statement of Claim in these proceedings on 26 March 2007.

1. Alternatively, the plaintiffs seek orders pursuant to the s 87(2) of the Act setting those agreements aside.

1. The plaintiffs also seek to set aside an order dismissing the 2001 Proceedings made on 6 September 2004.

1. The plaintiffs also claim damages.

1. By reason of the order made by Barrett J in these proceedings in Land Enviro Corp Pty Ltd and Others v HTT Huntley Heritage Pty Ltd and Others (2008) 72 NSWLR 160, the damages that the plaintiffs are able to claim in these proceeds are those they have suffered by reason of their entering into the Heads of Agreement and the Non-Dilution Deed and, the consent given by them to the dismissal of the 2001 Proceedings.

The plaintiffs' witnesses

1. The plaintiffs called two witnesses: Mr Zdrilic and Mr Hilliard.

Mr Hilliard

1. At all relevant times, Mr Hilliard was a partner of the law firm TressCox (previously Tress Cocks & Maddox until 2004). Mr Hilliard assumed conduct of the 2001 Proceedings in August 2003. He acted for the plaintiffs throughout the negotiations to settle the 2001 Proceedings including in relation to the entry by the plaintiffs into the Heads of Agreement and the Non-Dilution Deed and in relation to the dismissal of the 2001 Proceedings on 6 September 2004.

1. Mr Hilliard was admitted as a solicitor in 1977. In 1995 he was given specialist accreditation by the Law Society of New South Wales in the area of "commercial litigation - insolvency".

1. Thus, at the time he starting acting in the 2001 Proceedings, he was an experienced solicitor.

1. Mr Hilliard kept diary entries in relation to his many dealings with Mr Zdrilic and with other parties, particularly Mr Gillard, the solicitor then acting for the HTT Defendants.

1. I have no hesitation in accepting the accuracy and reliability of Mr Hilliard's diary entries. Indeed, Mr Einfeld accepted that they were "unimpeachable".

1. Mr Hilliard was cross-examined for approximately two days, over a three-day period.

1. Overall, I thought Mr Hilliard gave his evidence honestly and openly in the face of a vigorous cross-examination.

1. However, in my opinion, the cross-examination established that, at least on one occasion, Mr Hilliard's account of a conversation with Mr Zdrilic, to the extent it went further than Mr Hilliard's diary entries, was not completely reliable.

1. In cross-examination, particular attention was placed on Mr Hilliard's account of a conversation he had with Mr Zdrilic on 13 February 2004 in which, according to his affidavit, Mr Zdrilic made reference to a "big funder (...) coming along". Those words are significant, as they are ones Mr Zdrilic attributed on a number of occasions to Mr Renshall, in particular in connection with the Second Representation (discussed below), which, according to Mr Zdrilic, was made at around this time.

1. There is no indication in Mr Hilliard's diary note of any such words being used; the diary note simply referred to "refinance". In that, and other respects, Mr Hilliard ultimately agreed that he had "filled in the blanks" created by the "cryptic recording of words and phrases" in his diary note, but "not from direct recollection of what was said at the time".

1. However, by and large, I found Mr Hilliard's evidence of his recollection of events reliable. In particular, as will emerge below, I accept his account of important events occurring during the 27 August 2004 meeting.

Mr Zdrilic

1. To a large extent, the plaintiffs' claims depend on the evidence of Mr Zdrilic.

1. Many of the representations relied on by the plaintiffs were allegedly made orally by Mr Renshall to Mr Zdrilic.

1. In relation to two critical representations (the Second Representation, allegedly in around February 2004, that "the big funder will take control of the project as they will put a lot of money in", and the Seventeenth Representations, allegedly made at the 27 August 2004 meeting as to monies to be advanced by the "new funder" shortly thereafter) Mr Zdrilic did not assert his recollection was assisted by any contemporaneous note.

1. In relation to other representations, Mr Zdrilic referred to notes he said he made at or around the time of the relevant conversations. Some of those notes have the appearance of contemporaneity. Others look more like notes made after the conversation as a summary of what was said, or at least of what Mr Zdrilic took from the conversation.

1. Mr Zdrilic accepted that some of his diary notes reflected his own "gloss" or "thoughts" about what had been said or his "best understanding or impression" of what was said.

1. Mr Zdrilic has had a long involvement in the matters the subject of this litigation. His involvement dates back to, at least, his entry into the 21 April 1998 Heads of Agreement.

1. It is clear from the evidence that Mr Zdrilic has invested a good deal of money, a good deal of time and a good deal of his energy into the matters with which these proceedings are concerned. He has also engaged in two significant pieces of litigation, including the present litigation, in his pursuit of a remedy in respect of the wrongs of which he complains.

1. The HTT Defendants submitted that:-

"[Mr Zdrilic's notes] were written by a man looking at matters through 'rose-coloured glasses'. The Huntley project became Mr Zdrilic's passion. (...) His enthusiasm for the project was over-riding. As a matter of probability, the Court may properly regard Mr Zdrilic as a person who largely heard what he wanted to hear. His file notes should be seen in that light".

1. I consider there is substance in this submission.

1. I also bear in mind what McLelland CJ in Eq said of the fallibility of memory in Watson v Foxman (1995) 49 NSWLR 315, at 319:-

"[H]uman memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience."

1. Mr Zdrilic was cross-examined for five full days. Mr Zdrilic's recollection of events was thoroughly and painstakingly tested in the course of that cross-examination.

1. Having observed Mr Zdrilic carefully during his cross-examination, I do not believe that he gave any answer to a question that he knew to be false.

1. However he did demonstrate an inclination to assert the improbable, and deny the obvious.

1. For example, Mr Zdrilic deposed that on 20 December 2003 he said to Mr Renshall that, as at 12 March 2004, the amount owed to him by LEC "will be $5,481,723" and that another "big amount" of monies owing to him "is the $400,000 I paid to acquire an additional 10% equity".

1. In cross-examination, Mr Zdrilic was asked how, as at 20 December 2003, he was able to calculate that his loan, with interest, would be $5,481,723 as at 12 March 2004.

1. Mr Zdrilic asserted that he had a "worksheet" at home that enabled him to do this calculation.

1. His attention was drawn to a note that he sent Mr Renshall on 10 February 2004 which contained a number of calculations. Those calculations included that his "main loan and accrued interest" was $5,481,723 and that the amount concerned with "purchase from Chris Bates 10% in LEC" was $400,000.

1. Nonetheless, Mr Zdrilic maintained that he had done the calculation on 20 December 2003 and, further, denied discussing that figure with Mr Renshall on 10 February 2004.

1. It is obvious that the figures came from Mr Zdrilic's 10 February 2004 note to Mr Renshall and that he used that note to reconstruct the 20 December 2003 conversation.

1. Another example arises in relation to the Second Representation.

1. In his affidavit evidence, Mr Zdrilic said this occurred "sometime between 18 February and early March 2004" when Mr Renshall allegedly telephoned Mr Zdrilic and said "the big funder will take control of the project as I will put a lot of money in". Consistently with Mr Zdrilic's affidavit evidence, this representation is pleaded as having occurred "between 18 February 2004 and early March 2004".

1. However, in cross-examination, Mr Zdrilic asserted, for the first time, that he could now "pinpoint" 28 February 2004 as the date upon which this conversation took place. Mr Zdrilic said he was able to do this because he could recall that he rang Mr Renshall immediately after receiving a letter dated 27 February 2003 from HTT's then solicitor, Mr Gillard. Mr Zdrilic said he did not like what he had read in Mr Gillard's letter and "I got in touch with Mr Renshall the next day. I think it was a Saturday". 28 February 2004 was indeed a Saturday.

1. But, elsewhere in his affidavit evidence Mr Zdrilic had given a detailed account of the conversation that he claimed to have with Mr Renshall on Saturday 28 February 2004. In that account Mr Zdrilic certainly mentions protesting to Mr Renshall about Mr Gillard's letter. But he made no mention, in that account of the conversation, of any statement to the effect that "the big funder will take control of the project etc".

1. Mr Zdrilic said that he had recalled that the "big funder" conversation took place on 28 February 2004 "when I was doing one of my affidavits" and that the reason he had not specified 28 February 2004 (rather than "between 18 February 2004 and early March 2004") was that:-

"I think this was mentioned in my much much earlier affidavit and I put it that way and I thought, again, changing one affidavit to the next didn't look right to me to change it, so I was telling the story any way and I decided to leave it as it is".

1. The "much much earlier affidavit" to which Mr Zdrilic referred was one he swore in an interlocutory application in these proceedings.

1. I think it clear that, in fact, Mr Zdrilic had no recollection that the "big funder" conversation took place on 28 February 2004 (as opposed to some other date in the range pleaded). His account as to how he could "pinpoint" the date as being 28 February 2004 is not possible to reconcile with his evidence as to the conversation he did have with Mr Renshall on that day.

1. In the context of the case as a whole, nothing turns on whether this conversation took place on February 2004 or between 18 February 2004 and early March 2004.

1. However, Mr Zdrilic's insistence that he could "pinpoint" the date is illustrative of his inclination to make assertions where his memory did not justify the assertion.

1. A further example arises from an email Mr Zdrilic sent to Mr Renshall on 21 July 2004 in which he said:-

"Now that it appears the funder will not be available at the time when all these things were supposed to take place we must go back to what was envisaged at the very beginning and that is that Zdrilic, Hickie and Renshall or if you prefer Zdrilic and Renshall as directors of HTT with unanimous decisions made." (emphasis added).

1. As will emerge later in this judgment, this email is of some significance in the case.

1. In his affidavit evidence, Mr Zdrilic said that, the day after the email was sent, he had a conversation with Mr Renshall in which he said:-

"However, the important thing is that as the funder is not available as yet, we need to change the constitution of HTT to make sure that no decision at board level or member level can be made without my agreement." (emphasis added).

1. It seems to me that Mr Zdrilic's email makes clear that he was speaking prospectively and was lamenting the fact that it appeared that the funder "will not" be available "at the time when all these things were supposed to take place".

1. However, in his account of his conversation with Mr Renshall there had been a subtle, but significant, change to what he alleges he was saying. Thus, in the conversation, his evidence was that he was merely speaking of funds being "not available as yet".

1. Mr Renshall denied having a conversation to this effect with Mr Zdrilic. I think it likely, as Mr Einfeld put to Mr Zdrilic, that Mr Zdrilic reconstructed the 22 July 2004 conversation based upon his 21 July 2004 email. In doing so he has, perhaps subliminally, embroidered his recollection to change his comment as to the lack of availability of funds being prospective to being merely a statement of the then current position.

1. There were other examples like this.

1. My conclusion is that, although I did not regard Mr Zdrilic as a dishonest witness, the manner in which he gave his evidence leads me to the conclusion that I should treat his evidence with great care.

The HTT Defendants' witnesses

1. The HTT Defendants called four witnesses: Mr Renshall, Mr Moir, Mr Frederick and Mr Gillard.

Mr Renshall

1. Mr Renshall was cross-examined for more than three days.

1. In closing submissions, no attack was made on Mr Renshall's credit.

1. I thought Mr Renshall gave his evidence openly and honestly, although it emerged during the cross-examination that Mr Renshall's recollection of many events during the relevant period was poor.

1. The cross-examination also revealed that, in relation to some conversations that Mr Renshall denied in his affidavit evidence, the true state of his recollection was that he simply could not say whether the conversations took place or not.

Other witnesses called

1. The HTT Defendants also called Mr James Moir (a solicitor then employed at Swaab Attorneys, who acted for IBIC and IPC), and Mr Chris F (referred to above).

1. No criticism was made of the manner in which these two witnesses gave their evidence. I thought they were both trying to give the best of their recollection in a disinterested manner. I accept their evidence.

1. The HTT Defendants also called Mr Gillard who, as I have said, was acting in their interests during 2004 (and, indeed, in these proceedings for a time). As I will discuss below in relation to the events of 27 August 2004, I have concerns about some of the evidence Mr Gillard gave.

Mr Hickie and Vocfia

1. Although Mr Hickie swore an affidavit in the proceedings, he was not called as a witness.

Some relevant legal principles

1. Before turning to a detailed consideration of the facts, I shall set out some of the legal principles which are relevant to the issues to be determined in the proceedings.

1. To a large extent, my summary of the principles derives from the submissions of the parties.

Representations as to future matters

1. Most of the representations that are pressed are representations as to future matters.

1. Where representations are made as to a future matter, the plaintiffs rely upon the provisions of s 51A of the Act. Section 51A was at the relevant time in the following terms:-

"(1) For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.

(2) For the purposes of the application of subsection (1) in relation to a proceedings concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not have had reasonable grounds for making the representation.

(3) Subsection (1) shall be deemed not to limit by implication the meaning of a reference in this Division to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead."

1. The approach of the court in relation to this section is discussed in Digi-Tech (Australia) Limited v Brand [2004] NSWCA 58 at [91]-[93] and [107]. At [93] the Court quoted the following statement made by McHugh JA in Wright v TNT Management Pty Ltd (1989) 15 NSWLR 679 and described it as having "self-evident" force:-

"S[ection] 51A must be taken to have abolished the distinction between a promise and a representation with respect to a future event. A promise to do something in the future is to be regarded as a representation that it will be performed. It will be deemed misleading, therefore, unless the corporation proves that it had reasonable grounds for making the promise."

1. Section 51A(2) imposes a burden upon HTT to adduce evidence that it had reasonable grounds for making the representations. What is reasonable imports an objective criteria.

1. The Fair Trading Act (1987) is pleaded against Mr Renshall and Mr Hickie. Section 41 of the Fair Trading Act is in different terms in that it expressly reverses the onus of proof and leads to the same result in the case against them.

1. Section 41 is in the following terms:-

"(1) For the purposes of this Part, where a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the person does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.

(2) The onus of establishing that a person had reasonable grounds for making a representation referred to in subsection (1) is on the person."

Rescission - generally

1. The plaintiffs claim that they have rescinded the Heads of Agreement and the Non-Dilution Deed by, first, service of the Caveat lodged on the title of the Land on 11 October 2006 and, second and alternatively, by service of the Statement of Claim in these proceedings on 21 March 2007.

1. The plaintiffs claim to be entitled to rescind those agreements by reason of the alleged fact that they were induced to enter into those agreements by the representations pleaded.

1. As I have mentioned, the plaintiffs claim that the representations were false, were made by Mr Renshall fraudulently, were misleading or deceptive and were made in breach of a duty to take care.

1. There was no dispute before me that, all other things being equal, if the plaintiffs were able to make out the falsity of the representations, and reliance upon them leading to entry into the Heads of Agreement and the Non-Dilution Deed, that there would be an entitlement to rescission.

1. In addition to challenging whether the representations had been made in the terms alleged, the defendants contended that the plaintiffs had not relied on any representation made by HTT when entering into the relevant agreements and that the representations were not, in any event, causative of any loss.

1. The HTT Defendants contended that, in the alternative, assuming that a right to rescission had arisen, such right had been lost by reason of the plaintiffs' affirmation of the agreements.

1. There is an issue in the proceedings as to whether the HTT Defendants have pleaded affirmation. I shall return to this question later in these reasons.

1. In that regard, an issue has arisen as to whether, in the case of fraud, it was necessary that the plaintiffs know of their legal right to rescind (as opposed to the facts giving rise to that right) before losing a right to rescind by reason of affirmation (there being no suggestion that the plaintiffs were aware of such a legal right until shortly before they purported to rescind).

Rescission - affirmation - generally

1. There was no dispute between the parties as to the general principle applicable. That principle is summarised in Carter et al, Contract Law in Australia, 5th ed (2007) at 18-47/18-48:-

"Following a representor's misrepresentation, the decision to rescind rests with the representee. Because the decision to rescind is a matter of choice (election), the representee is perfectly entitled to elect to affirm the contract. The rule is that once such an election has taken place, rescission ceases to be available: affirmation is a bar to rescission. The basis of the rule is that 'rescission' and 'affirmation' are mutually exclusive rights: it is a condition of the enjoyment of either one that the other be abandoned.

Affirmation may be express or implied. The former occurs when there is a conscious choice by the representee to affirm the contract. The latter occurs when the choice is inferred on the basis of what the representee has said and done. In essence, the basis for inferring (or imputing) affirmations is a finding that the representee has behaved in a way which is consistent only with an election in favour of affirmation having been made.

Analysis of the restriction requires a consideration of the elements of affirmation. As in the case of rescission, an election must be made in clear and unequivocal terms, and so an election to rescind or to affirm will not be found unless there are clear and unequivocal words or conduct. The representee must also have sufficient knowledge to make the election. (...)

The question of election does not arise until the party misled acquires knowledge that the representation was false. The representee is entitled to believe the representation, at least until there is some cause for suspicion, and usually beyond that stage. Accordingly, mere partial information giving some cause for suspicion will not suffice, and a right to rescind may exist notwithstanding the lapse of a considerable time since the making of the contract." (citations omitted)

Rescission - knowledge of a legal right to rescind

1. The decision of the Full Court of the Supreme Court of Victoria in Coast Estates Pty Limited v Melevende [1955] VR 433 is authority for the proposition that, where a misrepresentation is fraudulent, it is necessary that the defrauded parties should have known of the right to rescind before affirmation will arise.

1. In that case Sholl J said:-

"In my opinion, the law is this. Assuming that rescission is still possible...and that the defrauded party fully knows, or possibly and correctly assumes, the falsity of the representations which induced the contract then...

...if the defrauded party does not know that he has a legal right to rescind, he is not bound by acts which on the face of them are referable only to an intention to affirm the contract, unless those acts are 'adverse to' the opposite party, i.e., unless they involve something to the other party's prejudice or detriment, as, e.g., if the defrauded party goes into possession of property sold to him by the contract, or accepts some other benefit thereunder. This is a form of estoppel, for the other party has in such a case acted to his prejudice upon a representation, made by the defrauded party's conduct, that the latter is going on with the contract. The law does not require the representor in such a case to inquire of the representee whether he knows his legal rights."

1. This correctness of this conclusion has been doubted by the authors of Contract Law in Australia (at 15-48) although not by Seddon and Ellinghouse, Cheshire and Fifoot's Law of Contract, 9th ed (2008) at 11.50.

1. In the earlier case of O'Connor v S.P. Bray Limited (1936) 36 SR (NSW) 248 at 262 Jordan CJ concluded that knowledge of the legal consequences of facts was not necessary in order that there be affirmation. That decision was reversed by the High Court (in O'Connor v S.P. Bray Limited (1937) 56 CLR 464) but this proposition was not doubted.

1. Mr Jucovic pointed out that O'Connor v Bray Limited was a case involving damages for personal injuries (not a fraud case) and that what Sir Frederick Jordan said was obiter.

1. Nonetheless, as Pincus J said in Re Hoffman: Ex parte Worrell v Schilling (1989) 85 ALR 145 at 151, it is "weighty authority".

1. The matter was discussed by Mason J in Sargent v ASL Developments Limited (1974) 131 CLR 634 at 658. His Honour said:-

"If a party to a contract, aware of a breach going to the root of the contract, or of other circumstances entitling him to terminate the contract, or of other circumstances entitling him to terminate the contract, though unaware of the existence of the right to terminate the contract, exercises rights under the contract, he must be held to have made a binding election to affirm. Such conduct is justifiable only on the footing that an election has been made to affirm the contract; the conduct is adverse to the other party and may therefore be considered unequivocal in its effect. The justification for imputing to the affirming party a binding election in these circumstances, though he be unaware of his alternative right, is that, having a knowledge of the facts sufficient to alert him to the possibility of the existence of his alternative right, he has acted adversely to the other party and that, by so doing, he has induced the other party to believe that performance of the contract is insisted upon. It is with these considerations in mind that the law attributes to the party the making of a choice, though he be ignorant of his alternative right. For reasons stated earlier the affirming party cannot be permitted to change his position once he has elected.

Whether any distinction should be drawn between this class of case and fraudulent misrepresentation (...) need not be determined. However, it should be kept firmly in mind that the doctrine of election is of general application and that no good purpose is to be served by drawing distinctions in its various applications unless considerations of justice make it necessary or expedient so to do."

1. In Re Hoffman Pincus J considered the above authorities and concluded at 151-152:-

"In my respectful opinion, the question whether knowledge of the actual right to rescind is essential in fraud cases is still open, as was said in Sargent's case ... Although it is true that the authorities are at variance, the better view appears to be that (as was the case, in the opinion of Jordan CJ, in 1936) the weight of authority favours the existence of the general rule that, where knowledge is necessary to make an election effective, it is knowledge of the facts giving rise to the right to elect, not knowledge of the right itself, which must be proved. For a number of reasons I prefer to apply that principle, even in a fraud case: it accords with the general rule as to the relevance of knowledge of the law, it removes the necessity of an awkward examination, in many cases, of what legal advice has been received, it has the virtue of simplicity alluded to in the passage quoted from Sargent's case (...) and, lastly, it does not altogether deprive the defrauded party of his remedy, as damages remain available."

1. I agree with Pincus J that the better view is that that knowledge of a legal right to rescind is not necessary, even in a fraud case, provided that the knowledge of the party otherwise entitled to rescind, of the facts giving rise to that right is so clear that an election not to rescind is manifest.

1. It appears to me that this view more closely accords to the matters that Mason J in Sargent said "should be kept firmly in mind".

1. This view also accords with that expressed by Young J (as his Honour then was) in Molotu Pty Limited v Solar Power Limited (1989) 6 BPR 13,460 at 97,475 and by the Full Court of the Federal Court in Tiplady v Gold Coast Carlton Pty Limited (1984) 8 FCR 438 at 451.

Rescission - restitutio in integrum

1. There was no dispute between the parties about the following principles, which are usefully summarised in Cheshire and Fifoot's Law of Contract at 11.53:-

"...it is a prerequisite of rescission for misrepresentation that the parties can be returned, at least substantially, to the status quo prior to the contract. This is done by the making of such orders as are necessary to achieve substantial restitution (...) The common law requires precise restitution but equity only requires substantial restitution (...)"

1. The leading case is Alati v Kruger (1955) 94 CLR 216.

1. Where the parties cannot be returned, substantially, to their pre-contractual position, restitutio in integrum is not possible and a purported rescission will be invalid, notwithstanding what would otherwise have been the representee's right to rescind.

Rescission - intervention of third party rights

1. The HTT Defendants also submit that the plaintiffs are not entitled to rescind because the rights of third parties have intervened.

1. The plaintiffs did not dispute that rescission would not be available if this was so, as a matter of fact, but submitted that, again, the defendants had not pleaded this as a defence to the claim that the relevant agreements had been rescinded. I shall return to this below.

Setting aside consent orders

1. The plaintiffs identify four independent grounds upon which consent orders can be set aside.

1. There was no dispute before me as to these principles. I shall summarise them briefly.

Inherent power - fraud

1. First, the court has an inherent power to set aside a judgment or order that is procured by fraud: Wentworth v Rogers (No 5) (1986) 6 NSWLR 534. In that case, Kirby P described (at 538B) proceedings brought to set aside a judgment for fraud as being "equitable in origin and nature".

Inherent power - consent orders

1. Secondly, the Supreme Court also has an inherent power to set aside a judgment or order entered by consent, without the requirement for a showing of fraud.

1. In Harvey v Phillips (1956) 95 CLR 235 at 243-244, the High Court said the following:-

"The question whether the compromise is to be set aside depends upon the existence of a ground which would suffice to render a simple contract void or voidable or to entitle the party to equitable relief against it, grounds for example such as illegality, misrepresentation, non-disclosure of a material fact where disclosure is required, duress, mistake, undue influence, abuse of confidence or the like. The rule appears rather from positive statements of the grounds that suffice (cf. Halsbury's Laws of England, vol. 26, 2nd ed., pp. 84, 85); but there is a dictum of Lindley L.J. which is distinct enough: '. . . nor have I the slightest doubt that a consent order can be impeached, not only on the ground of fraud but upon any grounds which invalidate the agreement it expresses in a more formal way than usual . . . To my mind the only question is whether the agreement on which the consent order was based can be invalidated or not. Of course if that agreement cannot be invalidated the consent order is good': Huddersfield Banking Co. Ltd. v. Henry Lister & Son Ltd." (emphasis added)

1. The Supreme Court's inherent power to set aside a judgment entered by consent is exercisable by reference to the principles as laid down in Harvey v Phillips: Singh v Ginelle Pty Ltd [2010] NSWCA 310, per Campbell JA at [35] (Beazley JA and Handley AJA agreeing). This power was also referred to by Handley JA in his judgment in Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691 at 696G to 697C. In his text, Spencer Bower and Handley, Res Judicata (2009), his Honour at p 244 [17.04] cited this decision (and Harvey v Phillips) as authority for the proposition that a judgment:-

"... entered by consent (...) can be set aside on any ground, including fraud, on which a court can set aside a contract." (at 192)

1. I have been referred to the decision in Perpetual Trustees Australia Ltd v Heperu Pty Ltd & Ors [No 2] (2009) 78 NSWLR 190. That case concerned an application to set aside a judgment that had been entered after a hearing on the merits. The application was based on additional or fresh evidence that had become available, based on which allegations of misrepresentations prior to and at the trial had been made. It was not contended that the misrepresentations were fraudulent.

1. The Court of Appeal (Allsop P, Campbell JA and Handley AJA) made reference to the Court's power to set aside a judgment procured by fraud (discussed above) and continued:-

"There is no support in the decided cases for holding that perfected orders can be set aside for innocent misrepresentation."

1. The plaintiffs submit, and I accept, that that statement must be read in the context of that case, in which there had been a judgment after a hearing on the merits. I do not think the Court intended to express a principle applicable to consent orders (perfected or otherwise), because, as demonstrated above, the decided cases do support the proposition that consent orders can be set aside for innocent misrepresentation - on the basis of the equitable jurisdiction to set aside contracts for innocent misrepresentation. Some of those cases were decided by Campbell JA and Handley AJA.

1. The Court of Appeal (Macfarlan and Whealy JJA) in Connectland Pty Ltd v Cardno Forbes Rigby Pty Ltd [2011] NSWCA 391 at [5] has recently referred to Harvey v Phillips in dismissing an application for leave to appeal against a consent judgment said to have been induced by a misrepresentation. The Court concluded at [6] that the applicant did not have an arguable case that the representation relied on was erroneous. It was not suggested by the Court that the applicant would need to show fraud to succeed in the appeal.

1. Consequently I accept that, fraud, and more particularly fraudulent misrepresentation, is not required to be shown in order to enliven the inherent power described in Harvey v Phillips. The passage from that case extracted above reveals that it is the status of the agreement which determines the status of a consent order reflecting or manifesting that agreement. As Lindley LJ observed in the Huddersfield Banking case referred to by the High Court in Harvey v Phillips, the consent order is simply a formal manifestation of the agreement.

1. The relevant principle does not discriminate between the means by which the agreement may be invalidated. The material consideration is whether or not the agreement is to be invalidated. Once it is, then the consent is liable to be set aside.

1. It follows that if the Heads of Agreement and the Non-Dilution Deed are invalidated by force of an order made under s 87(2) of the Act, then the consent orders filed in Court on 6 September 2004 would also be set aside.

Rule 36.15(1)

1. Thirdly, the Court has power under r 36.15(1) of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") to set aside a judgment or an order if it is shown that it was given, entered or made irregularly, illegally or against good faith.

1. In Perpetual Trustees Australia Limited v Heperu Pty Limited & Ors [No 2], the Court said at [16] that the focus of the rule is on the giving, entry or making of the judgment or order.

1. What is required for the application of the "against good faith" limb in r 36.15(1) of the UCPR, is some impeachment of the intention or behaviour of a person who procured a consent order, at the time it is made.

1. The plaintiffs seek to impeach the behaviour of the defendants as involving conduct in contravention of s 52 of the Act in connection with the making of the Heads of Agreement, the Non-Dilution Deed and their formal embodiment in the consent orders of 6 September 2004.

Rule 36.15(2)

1. Fourthly, an order may also be set aside if the parties to the proceedings consent: UCPR, r 36.15(2). Section 80 of the Act authorises the Court to direct things to be done: Tyco (Australia) Pty Ltd t/as ADT Security v Signature Security Group Pty Ltd [2009] FCA 1029.

1. The plaintiffs contend that pursuant to s 80 and s 87 of the Act, the defendants to these proceedings ought be restrained from relying upon, and the parties to the 2001 Proceedings be directed to consent to the setting aside of, the consent orders filed on 6 September 2004.

The availability of funds

1. Thirteen of the seventeen representations pleaded concern the availability of funds to HTT in relation to the Project.

1. Accordingly I will now consider the evidence concerning the availability of funds, and the state of knowledge that Mr Renshall and Mr Zdrilic had about that matter.

1. In the course of considering this evidence, I shall also consider the representations pleaded in relation to this subject and generally.

The position in mid 2003

1. I have referred above to the Caveat lodged by LEC on the title of the Land on 23 April 2003. The interest in the Land claimed by the Caveat was described as "Constructive Trust".

1. Mr Renshall said that the Caveat "rendered Huntley virtually incapable of refinancing".

1. In mid 2003 this was a problem because HTT was in default in relation to two of its secured creditors.

1. One of those secured creditors was Greater Pacific Capital Limited ("GPC").

1. On 24 May 2003 GPC sent HTT a notice stating that HTT's $2 million facility limit had been exceeded, that the outstanding balance as at 22 April 2003 was $2,233,565 and requesting action to "restore this facility" by repaying capitalised interest of $418,617 and paying an amount of $700,000 in reduction of the principal.

1. On 29 May 2003 another secured creditor of HTT, the Commonwealth Bank of Australia ("CBA") made a demand for repayment by 30 June 2003 of loan facilities totalling $2,973,164.

1. It will be recalled that, at this time, the 2001 Proceedings were pending.

1. On 12 August 2003 there was a discussion between Mr Gillard and Mr Hilliard about HTT's need to refinance the CBA and GPC debts. On that date Mr Hilliard made a note that "details of new financier" were to be provided.

1. I have referred above to Mr Gillard's letter of 10 September 2003 suggesting a meeting to endeavour to resolve the 2001 Proceedings. That letter also stated that HTT had been taking steps for refinancing of its loans "with various lenders".

1. On 18 October 2003 Mr Zdrilic met with Mr Renshall. According to Mr Zdrilic, this was the occasion on which the question of a "big funder" having an involvement in the Project was first discussed.

1. Mr Zdrilic claims Mr Renshall said:-

"I am working on getting a DA for 500 blocks, a golf course, a hotel on top of the property at the foot of the escarpment and other things. I have held talks with a big funder who will take equity in the project".

1. Mr Renshall denied saying the words attributed to him and said that what he said was:-

"I am in contact with some people to refinance the project, look both at debt and equity".

1. Mr Zdrilic made a note of this meeting that made reference to Mr Renshall "working on getting a DA for 500 blocks". The note made no reference to a "big funder".

1. In cross-examination Mr Zdrilic accepted that, at this stage, the existence of a "big funder" was not important to him and that his focus was more on Mr Renshall's mention of 500 blocks. He said "that hit my mind, I knew that was huge". He asserted that Mr Renshall had mentioned the "big funder" in passing.

1. Mr Zdrilic said he had a further conversation with Mr Renshall on 28 November 2003 in which Mr Renshall said:-

"I will get a big equity funder to take a stake by buying all the little shareholders. I will form a new company and put you and I and one or two others in it plus our loans and interest".

1. Mr Renshall denied saying this. He said he said something to the effect:-

"The task at hand is to finalise a debt and equity facility in order to progress the project. That may require both debt and equity and will involve purchasing some of the units of the smaller investors. (...) It will be handy to have a big brother come in and take equity in the project".

1. Mr Zdrilic made a note of this conversation as follows:-

"He will form new co & put me & him + one or two in it + our loans incl interest. He will get big equity funder to take a stake by buying all the little shareholders".

1. Mr Zdrilic's note refers to a "meeting" with Mr Renshall at the Harbour View Hotel in North Sydney. The form of Mr Zdrilic's note suggests it was not written during this "meeting".

1. The note makes clear that whatever Mr Renshall said about funding for the Project, he was speaking prospectively.

1. Mr Zdrilic accepted that this was so and agreed that it was quite possible that, at this stage, Mr Renshall "might still be in a state of negotiation with the funder".

1. Mr Zdrilic accepted that if Mr Renshall was speaking in terms that he "will get a big equity funder" it must follow that he did not already have one.

29 January 2004 - the First Representation

1. The first of the seventeen representations pleaded by the plaintiffs ("the First Representation") concerned Mr Renshall's interest in the Huntley Trust and was allegedly made on 29 January 2004.

1. In closing submissions, the plaintiffs indicated that this representation was not pressed.

IBIS comes on the scene

1. On 30 January 2004 Mr James Hanna ("Mr Hanna"), writing "for the President" of IBIS wrote to Mr Renshall at HTT:-

"Thank you for meeting me on Tuesday and showing me around the site with Chris Frederick.

IBIS is interested in becoming your partner to develop the site. We would provide capital for the acquisition of a 51% interest in the project and provide working capital to cash flow the staged development of the project Infrastructure and Buildings".

1. The next day, 31 January 2004, IBIS wrote (again under Mr Hanna's signature) to Mr Renshall regarding "the sale of interest in Huntley Heritage development":-

"In order for us to enter into a Heads of Agreement with your company we need to complete Preliminary Due Diligence and in order to obtain Board preliminary approval to hire consultants we need from you the following Information and to arrange various meetings".

1. There was then set out information required including "your ideas on a joint venture structure".

1. At or around this time IBIS provided Mr Renshall with a bundle of documents entitled IBIS "Financial Projections" and the document entitled IBIS "Business Profile".

1. The "Business Profile" described IBIS as a "small building society" the directors of which were planning to "rebirth it as a full trading bank in New Zealand with Overseas Branches in both Australia and the Cook Islands offering its customers and clients a wide range of 'face to face' and 'internet' Financial Services".

1. Amongst the "services" to be provided were "Superannuation Fund Management" services through an entity to be known as "MySuper". In that regard it was stated:-

"MySuper will offers Is [sic] Superannuation Management Trust. The Trust will grow its Funds Under Management (FUM) and Funds Under Advice (FUA) by acquiring Financial Planning, Financial Dealership, Accounting and Taxation Planning Businesses. FUM and FUA will be invested into a variety of programs operated by the IPC Investment Trust".

1. The "Financial Projections" set forth projected balance sheets and profit and loss statements for various entities and trusts.

1. There were projections for the "IPC Joint Venture Trust" which described that trust's "source of investment capital" as being debentures subscribed to by the MySuper Trust of some $758 million.

1. Mr Renshall said that he could not recall examining these documents carefully. He said he recognised that they were projections and were aspirational in nature.

1. The plaintiffs submitted:-

"The financial projections were of an extravagantly optimistic nature based upon an assumption that 'IBIS Investment Bankers' could prospectively increase its assets from a nil base to a approximately $724 million by June 2005 through a series of prospective ventures".

1. That appears to me to be a reasonable description of the document.

James Hanna

1. As mentioned, Mr Hanna signed both the 30 and 31 January 2004 letters from IBIS.

1. Mr Hanna signed the 30 January 2004 letter "for President" and the 31 January 2004 letter "IBIS Property Department".

1. There is, in evidence, a business card describing Mr Hanna as a "principal" of IBIS.

1. Mr Frederick gave evidence that Mr Hanna had introduced himself to Mr Frederick as the "President of IBIS Bank New Zealand" and that he gave Mr Frederick a business card that stated that position.

1. Unbeknown to the parties, Mr Hanna was then, and was at all relevant times, an undischarged bankrupt.

1. Mr Hanna was not called as a witness in the proceedings.

1. However, many other witnesses gave evidence of conversations with Mr Hanna.

1. That evidence was admitted only to prove what Mr Hanna said, and not as evidence of the truth of what Mr Hanna said.

Christopher Frederick

1. IBIS's letter of 30 January 2004 referred to a site meeting attended by Messrs Renshall, Hanna and Frederick.

1. Mr Frederick gave evidence in the proceedings. I have referred to him in my discussion about the credit of witnesses.

1. He said he was introduced to Mr Hanna in around January 2004 and that between then and September 2004 he worked under Mr Hanna's supervision "as a consultant of IBIS in attempting to establish business for IBIS in Australia".

1. Mr Frederick held units in the Huntley Trust.

1. On 27 August 2004, as part of the settlement effected that day, he became a director of HTT.

James Moir

1. IBIS's letter of 31 January 2004 referred to "our key personnel" as including Mr Frederick Swaab and Mr James Moir.

1. Mr Swaab was the principal of Swaab Attorneys. So far as the evidence reveals, he did not play a significant role in the events with which this case is concerned. He did not give evidence.

1. Mr Moir was an employee of Mr Swaab. Mr Moir gave evidence and I have referred to him above in my discussion of the credit of witnesses.

1. Mr Frederick introduced Mr Moir to Mr Hanna.

1. On 10 February 2004 IBIS (by Mr Hanna) retained Swaab Attorneys as its solicitors in Australia.

1. Mr Moir acted for IBIS (and IPC) until September 2004. During that time he also acted for HTT in relation to its search for finance.

The "Sunday meeting" 15 February 2004

1. On Sunday 15 February 2004, Mr Zdrilic and Mr Renshall had a meeting at which, according to Mr Zdrilic, the "true agreement" between them was reached.

1. Mr Zdrilic claimed the "true agreement" was that, as a part of the overall settlement of the 2001 Proceedings, he, Mr Renshall and Mr Hickie would each have a place on the board of HTT, and that decisions between the three men would have to be unanimous thus giving each, in effect, power of veto.

1. This alleged agreement is significant in a number of ways.

1. First, it is relevant to the alleged Third and Fourth Representations (which were to the effect that the "new funder" would not countenance Mr Zdrilic on the board of HTT: see below).

1. Secondly, as we shall see, it is relevant to Mr Zdrilic's reaction to the revelation in mid July, that no funding was in place at that time.

1. Mr Zdrilic gave an account of the conversation in his affidavit.

1. However, I consider a more reliable guide to what was said to be found in the email Mr Zdrilic sent to Mr Hilliard on the following day (16 February 2004), in which he referred to his conversation with Mr Renshall and said he had obtained "some more information for you to put in the 'draft'."

1. At that time, Mr Hilliard was preparing an earlier draft of what became the 13 May 2004 Heads of Agreement.

1. Relevantly, Mr Zdrilic's email read as follows:-

(1) "A new company will be formed to operate through a trust, and this company will have 3 shareholders, namely - Devubo Pty Limited ATF The Renshall Family Trust, Vocifa Pty Limited ATF The Hickie Family Trust and (a company still to be formed) ATF The Zdrilic Family Trust". [The "company still to be formed" was ultimately Amy Holdings].

(2) Each of the companies will hold one share each in the new company.

(3) The new company will hold 27.75% in [HTT] and the other 72.25% is owned by a number of smaller investors who could number a few dozen and I think most of these were found by Renshall as part of his getting an initial interest in the project.

(4) The new company will have 3 directors Robert Renshall, David Hickie and Sam Zdrilic - secretary can be Renshall. All decisions have to be unanimous.

(5) The new company will recognise $5.5m loan to Sam's new company (...)

(7) Because there are many small shareholders we need directors on the [HTT] board to be Renshall, Hickie and Zdrilic. I do not particularly wish to be on that board but I do not think there is any way to make sure that adverse decisions are made to my detriment [sic - presumably Mr Zdrilic meant to say "not to my detriment")]. Again the decisions need to be unanimous and secretary can be Renshall.

(8) Because the new company has only 27.75% shareholding there should be an agreement between the small shareholders and the 27.75% owners that no decision can be made at shareholder level without the agreement of the 27.75% shareholders or at least say 93% which basically means we all have to agree - not sure if this is possible.

(...) The important thing here from my point is to make sure that I am protected and that there is not something behind the scene where I can be adversely affected. Renshall has many small shareholder friends (...) In other words some sort of warranty needs to be given that there is not something there that I am not aware of that may impact on the agreement thereby adversely affecting me".

1. As I have mentioned, Mr Zdrilic gave an account of the 15 February 2004 meeting in his affidavit. However, it was different from his email in two important ways.

1. First, in the email Mr Zdrilic said that the board decisions of HTT "need to be unanimous". He did not assert in the email that Mr Renshall had agreed to this. In his affidavit account of the conversation Mr Zdrilic said that he had proposed unanimity and that Mr Renshall had simply said "yes that is fine".

1. The HTT Defendants submitted that:-

(a)   As part of the settlement of the 2001 Proceedings on 27 August 2004, Mr Hulley and Mr Ansell transferred to Sentel their shareholdings in HTT and their units in the Huntley Trust (held through their companies Sadar Nuristan Holdings Pty Ltd and Wyndham Capital Pty Ltd respectively);

(b)   Mr Hulley died in 2010 and neither his Estate nor Mr Ansell (formally a party) has participated in these proceedings. There is no evidence as to whether the former owners would voluntarily receive back their shares and units or as to how their shares or units might be cancelled or redeemed without disturbing the interests of other shareholders and unit holders;

(c)   Since the settlement of the 2001 Proceedings in 2004, a number of units in the Huntley Trust have been acquired by unrelated third parties with no interest in these proceedings and with no prior interest in the Huntley Land or the present dispute;

(d)   Those parties acquired their units after LEC had relinquished its claim to a constructive trust over the Land by way of its consent to the dismissal of the 2001 Proceedings; and

(e)   The rights of unit holders under the Trust Deed of the Huntley Trust to redemption of their units by way of appropriation of some of the Land (in particular, unit holders who acquired units in the Huntley Trust after 2004) would be prejudiced in the event that LEC were allowed to resurrect a claim over the Land by means of orders for rescission of the Heads of Agreement and Non-Dilution Deed or for the setting aside of the orders of 6 September 2004.

1. In response to paragraphs (a) and (b) of these submissions, the plaintiffs submit that there is no evidence that the companies associated with Mr Hulley and Mr Ansell would be adversely affected. It is submitted that any shares and units in HTT would be held by Sentel for their benefit and could be re-transferred to them. However, in my opinion, it is not the point that there is no evidence that their relevant companies would be adversely affected. The point is they are affected and that there is no evidence that the former owners of the units would wish to be restored to their position.

1. As to the HTT Defendants' arguments in (b) to (e), the plaintiffs argue that there is no pleading of a bone fide purchaser for value without notice and no evidence to show that the interest of these parties have been adversely affected.

1. Again, it seems to me this is not the point. Third parties have changed their position. They may or not be adversely affected. The fact that they are affected at all is a reason why rescission should not be allowed.

1. My conclusion is that the intervention of third party rights is a further reason to deny the plaintiffs rescission.

Damages

1. LEC and Mr and Mrs Zdrilic claim damages against HTT, Mr Renshall, Mr Hickie, Devubo and Vocifa.

1. The damages claimed are that:-

(a)   LEC has lost the opportunity of pursuing its claim in the 2001 Proceedings;

(b)   alternatively (and assuming that the Court did not grant rescission of the Heads of Agreement and the Non-Dilution Deed) LEC has lost the value of its causes of action against HTT and Mr Hickie arising under the facts pleaded in the 2001 Proceedings;

(c)   Mr and Mrs Zdrilic have suffered a reduction of their interest in the Project to 10 per cent via the 1/3 holding of Amy Holdings in Sentel;

(d)   Mr and Mrs Zdrilic have lost the value of the loan owed to them by LEC; and

(e)   Mr Zdrilic has lost the opportunity of being apart of the decision making process of HTT.

1. In view of the findings I have made, my conclusion is that none of the plaintiffs have suffered damage as a result of any conduct of the defendants.

1. However, extensive submissions were made by Mr Jucovic and by Mr Einfeld concerning the first and second heads of the damage claim, namely the loss suffered by LEC as a result of its inability to pursue the 2001 Proceedings.

1. I have come to the conclusion that the plaintiffs have not made out a basis to set aside the 6 September 2004 order pursuant to which the plaintiffs consented to the dismissal of the 2001 Proceedings. It follows, of course, that in my view, it was the plaintiffs' consent to the dismissal of those proceedings, not any conduct of the defendants, that has resulted in LEC losing the opportunity to pursue the 2001 Proceedings.

1. However, out of deference to the extensive submissions made by Mr Jucovic and Mr Einfeld about the value of LEC's lost opportunity, I shall address the issues raised by those submissions, albeit briefly.

The 2001 Proceedings - damages for loss of opportunity - generally

1. The damages (if any) suffered by LEC arising from the loss of opportunity to prosecute the 2001 Proceedings must be determined at the date when the 2001 Proceedings would have come on for hearing - that is the "notional date for hearing" of the 2001 Proceedings: Johnson v Perez (1988) 166 CLR 351 at 368; Nikolaou v Papasavas, Phillips & Co (1989) 166 CLR 394 at 403-404; Steve Masselos & Co v Young [2011] NSWCA 352 at [48-50].

1. In Nikolaou v Papasavas, Phillips & Co, Wilson, Dawson, Toohey and Gaudron JJ said at 404:-

"That loss would ordinarily be quantified by the trial judge taking a broad brush approach to the several matters that in a particular case may require to be resolved - the likely date when (...) the action would have come to trial, the evidence that would or should have been available to the plaintiff at that time, the relevant principles of law then governing the assessment of damages (...) in order to arrive at a figure representing the loss suffered by the plaintiff when his action against the defendant was dismissed."

Were the 2001 Proceedings bound to fail?

1. It will be recalled that, in the 2001 Proceedings, LEC claimed that HTT held the Land on constructive trust for LEC and claimed, amongst other relief, an account of profits.

1. As I set about in paragraph 71 above, the basis upon which that relief was sought was that:-

(a)   after the LEC Contract was terminated, HTT had, with knowledge, made use of information and opportunities which Mr Hulley and Mr Hickie had acquired as directors of LEC;

(b)   HTT had received the benefit of the Land in circumstances where it knew of Mr Hulley's and/or Mr Hickie's breaches of fiduciary and statutory duties to LEC; and

(c)   HTT had acquired legal ownership of the Land with notice of LEC's "continuing equitable interest" in the Land and with notice of alleged breaches by Mr Hulley and Mr Hickie.

1. The background to the 2001 Proceeding is set out early in this judgment, including:-

(a)   LEC's entry into the LEC Contract with Powercoal on 29 June 1998 (paragraphs 28 to 37 above);

(b)   Mr Hulley's alleged role in subverting LEC's interest under the LEC Contract (paragraphs 38 to 45 above);

(c)   Powercoal's termination of the LEC Contract (paragraph 46 above);

(d)   the statements made by LEC's then solicitor, Mr Brown, as to LEC's inability to fund the purchase from Powercoal (paragraphs 54 to 55 above);

(e)   the entry by HTT into the contract with Powercoal on 11 April 2000, and its completion on 17 October 2000 (paragraphs 56 to 62 above); and

(f)   the progress of the 2001 Proceedings (paragraphs 63 to 77 above).

1. Mr Einfeld submitted that the 2001 Proceedings were bound to fail for three reasons:-

(a)   first, the security for costs applications referred to in paragraphs in 73 to 75 above were bound to be successful, would have resulted in orders being made with which LEC could not comply and would bring the proceedings to an end;

(b)   second, a plea of laches was bound to made by HTT, and was bound to be successful; and

(c)   third, the claim against Mr Hulley, and thus against HTT, was bound to fail because Mr Hulley, the alleged errant fiduciary, had not caused HTT to acquire anything at LEC's expense for the reason that LEC could not and, Mr Einfeld submitted, did not wish to, pursue the purchase from Powercoal of the Land.

1. In addition, Mr Einfeld submitted that there was no evidence before the Court to enable the Court to come any conclusion as to what damages LEC would have recovered from HTT in the 2001 Proceedings assuming, contrary to his submissions, that those proceedings had gone to trial and would have been successful.

1. In these proceedings, the evidence relied upon by LEC to prove what damages it would have recovered in the 2001 Proceedings were the report of Dr Rodney Ferrier of 21 December 2010 and his subsequent report.

1. For the reasons set forth in my Judgment of 5 March 2012 ([2012] NSWSC 177) I rejected the tender of Dr Ferrier's report (and subsequent related reports).

1. I shall deal with each of Mr Einfeld's submissions in turn.

The security for costs applications

1. The various security for costs applications were listed for hearing before a Master on 22 and 23 September 2003. It appears that the applications were not prosecuted because settlement discussions commenced, leading ultimately to the dismissal of the 2001 Proceedings on 6 September 2004.

1. On 22 September 2003, the applications for security by Mr Hulley and Mr Ansell were dismissed. The applications by HTT and Mr Hickie remained on foot.

1. Mr Einfeld submitted that it was likely that the remaining applications would have been determined by around May 2004, and that neither LEC nor Mr Zdrilic were in a position to meet any security for costs orders at that time.

1. However, there is no reason to think that the security applications would have been dealt with during the pendency of settlement discussions. It seems to me probable that the security for costs applications would only have been pressed if and when settlement discussions broke down and LEC resumed prosecution of the 2001 Proceedings.

1. It does not seem likely that would have occurred much before August 2004 and that it is probable, therefore, that any security for costs applications would have been dealt with some time during the financial year ended 30 June 2005.

1. The evidence reveals that, at least towards the end of that financial year, Mr Zdrilic had available to him sufficient funds to meet any security for costs application.

1. Even if the security application had been brought on before such funds were available to Mr Zdrilic, the likely result would have been that the 2001 Proceedings would have been stayed (rather than dismissed). Any such stay would have been removed upon payment of the security ordered.

1. The evidence does make clear, in my opinion, that Mr Zdrilic would have caused LEC to prosecute the 2001 Proceedings to the full extent that Mr Zdrilic's financial position allowed.

1. I therefore conclude that the probabilities are that, although the security applications may have caused some delay in the 2001 Proceedings, they would not have brought them to an end.

Laches

1. Mr Einfeld submitted that, alternatively, the 2001 Proceedings would have failed because the defendants would have pleaded laches and that such pleading was bound to defeat the claim.

1. Powercoal terminated the LEC Contract on 7 May 1999. HTT contracted with Powercoal to purchase the Property on 11 April 2000. That contract was completed on 17 October 2000. LEC commenced the 2001 Proceedings on 6 November 2001. In January 2002 Mr Zdrilic became aware of the purchase by HTT of the Land. LEC joined HTT as a defendant to the 2001 Proceedings on 11 December 2002. Throughout this period Mr Zdrilic understood that HTT was undertaking work to rehabilitate the Land at considerable expense.

1. In these circumstances Mr Einfeld referred me to the observations of Murphy JA in Streeter v Western Areas Exploration Pty Limited (2011) 278 ALR 291 at [635]:-

"The doctrine of laches comprehends two themes. One is delay implying not just quiescence, but rather acquiescence and assent, and the other is delay involving prejudicial change of circumstances."

1. Mr Einfeld placed particular emphasis on the second strand and drew my attention to the remarks of Kindersley VC in Ernest v Vivian (1863) 33 LJ (Ch) 513 at 517 (cited with approval by Hardie J in Boyns v Lackey (1958) SR (NSW) 395 at 403-404 and by Murphy JA in Streeter at [644]):-

"Now, if a person has a just right to mines of which he is not in possession, against those who are in possession of and working them, and if he claims to be the rightful owner (the person in possession being aware of his rights or supposed rights), if such owner, not being prevented by fraud or concealment stands by for a long period of time whilst those in possession are working the mines, this Court will not lend him assistance (...) it is not equitable to allow him to wait until it is ascertained that the persons in possession have succeeded or may have been ruined, and if the subject result in profit, to ask him to put that in his pocket, if in loss, to repudiate the loss."

1. Mr Einfeld argued that the words of Kindersley VC are an apt description of Mr Zdrilic's conduct in this case.

1. On the other hand Mr Jucovic pointed to material that shows that Mr Renshall and HTT were expecting Mr Zdrilic to make a claim in respect of the Land from as early as January 2000.

1. Mr Jucovic also pointed out that LEC did not obtain access to Mr Hulley's five letters of April and May 1999 (referred to in paragraphs 39 to 44 above) until they were produced on discovery in the 2001 Proceedings towards the end of 2002. Mr Jucovic submitted that it was the production of those letters that led to the 11 December 2002 amendment joining HTT to the 2001 Proceedings. A reading of the Amended Statement of Claim on 11 December 2002 reveals that, indeed, the five letters are central to the plea against HTT.

1. In these circumstances, it appears to me that, at this remove, I am not able to come to any final view about the likely outcome of a laches plea in the 2001 Proceedings. I certainly cannot come to the conclusion that such a plea was bound to succeed.

Pleadings

1. I should note that Mr Jucovic protested that the defendants have not pleaded that the 2001 Proceedings were bound to fail because of the security for costs applications, or by reason of laches. Again, Mr Jucovic relied on in UCPR r 14.14.

1. Although it is not necessary for me to express any view about this matter, it seems to me that these matters should have come as no surprise to the plaintiffs. The plaintiffs' claim was that LEC had, by reason of the events of 2004 and, in particular, the dismissal of the 2001 Proceedings on 6 September 2004, lost the opportunity to prosecute the 2001 Proceedings. In those circumstances I would have thought that it obvious that the plaintiffs had to prove that LEC could have, and would have prosecuted the 2001 Proceedings to trial and would have achieved success at that trial. In those circumstances it should have been obvious to the plaintiffs that the defendants would raise arguments such as these by way of answer.

The merits of the 2001 Proceedings

1. Mr Einfeld submitted that, leaving aside the "procedural" matters referred to above, as a matter of substance, the 2001 Proceedings were bound to fail because the errant fiduciary, Mr Hulley, had not caused HTT to acquire any benefit at LEC's expense for the reason that LEC could not, and did not wish to acquire the interest in the Land ultimately obtained by HTT.

1. In support of this argument Mr Einfeld relied upon the statement made by the High Court in Warman International Limited v Dwyer (1995) 182 CLR 544 at 557 that a fiduciary must account for what has been acquired "at the expense of the trust".

1. Mr Einfeld relied upon the fact that LEC was not able to raise funds to complete the LEC Contract and pointed to the evidence which I have outlined at paragraphs 47 to 55 above and in particular, Mr Zdrilic's evidence that he accepted that from 21 May 1999 Powercoal was entitled to sell the Land to whoever it wished. Mr Einfeld also relied on the letters of Mr Brown of 3 and 4 June 1999 in which Mr Brown said that LEC was not in position to fund the purchase.

1. However, it appears to me that this submission does not reflect a fair reading of what the High Court said in Warman International Limited v Dwyer.

1. The relevant principle was stated at 562:-

"...it is firmly established that the liability of a fiduciary to account for a profit or gain made in breach of fiduciary duty does not depend upon the person to whom that obligation is owed suffering a loss or injury; and it is ordinarily immaterial to the fiduciary's liability to account that the person to whom the fiduciary obligation is owed could not have earned that profit or gain. The courts have always insisted on compliance by fiduciaries with strict and rigorous standards with a view to ensuring that they do not expose themselves to a conflict of interest and duty. The point is that that fiduciary is not entitled to make a profit out of, or by reason of, a fiduciary position without the knowledge and assent of the person to whom the fiduciary duty is owed". (citations omitted)

1. Earlier, at 557, the Court stated:-

"It has been suggested that the liability of the fiduciary to account for a profit made in breach of the fiduciary duty should be determined by reference to the concept of unjust enrichment, namely, whether the profit is made at the expense of the person to whom the fiduciary duty is owed, and to the honestly and bona fides of the fiduciary. But the authorities in Australia and England deny that the liability of a fiduciary to account depends upon detriment to the plaintiff or to the dishonestly and bona fides of the fiduciary" (citations omitted).

1. Further, the Court drew attention to the remarks of Gibbs J in Consul Development Pty Limited v DPC Estates Pty Limited (1975) 132 CLR 373 at 394 where His Honour stated:-

"Where the rule applies, the liability of the person in the fiduciary position does not depend on the fact that the person to whom the duty is owed has suffered injury or loss".

1. The passage in Warman upon which Mr Einfeld relied followed from this passage and was in the following terms:-

"The stringent that the fiduciary cannot profit from his trust is said to have two purposes: (1) that the fiduciary must account for what has been acquired at the expense of the trust, and (2) to ensure the fiduciaries generally conduct themselves 'at a level higher than that trodden by the crowd'." (at 557; emphasis added; citation omitted).

1. However, as Mr Jucovic submitted, the latter statement is not a statement of the rule, but rather of the purpose of the rule.

1. That is made clear by a passage which appears in the Judgment immediately following that upon which Mr Einfeld relied:-

"Thus, it is no defence that the plaintiff was unwilling, unlikely or unable to make the profits for which an account is taken..." (at 558; citations omitted).

1. In those circumstances, in my opinion, it would not have been necessary for LEC to prove, in the 2001 Proceedings, that it could have itself acquired the Land, or made profit from its development, provided it could show that, as it pleaded, Mr Hulley, in breach of his fiduciary obligations to LEC, caused HTT to do so at its profit.

1. I am not able to reach any firm conclusion as to whether, on the merits of the case, LEC would have succeeded in the 2001 Proceedings. No submissions were addressed to me on that question. What I can say is that, in my opinion, they were not bound to fail.

Amount recoverable in the 2001 Proceedings

1. As I have mentioned, the plaintiffs sought to prove what damages LEC would have recovered in the 2001 Proceedings by tendering reports of Dr Ferrier.

1. For the reasons set forth in my Judgment in these proceedings on 5 March 2012 ([2012] NSWSC 177) I rejected the tender of Dr Ferrier's reports.

1. In light of that development, the plaintiffs sought to establish what financial recompense LEC would have recovered in the 2001 Proceedings by a calculation of "HTT's financial gains of owning and exploiting the Land" for the financial years 30 June 2000 to 30 June 2011. The analysis compared "cost to date" with "net asset value" for each financial year and described the difference between those figures as being the "financial gain to date".

1. However, as Mr Einfeld pointed out, the calculation depended upon a dramatic increase in the "net asset value" of HTT from $2.861 million for the year ended 30 June 2003 to $22.95 million for the year ended 30 June 2004.

1. That increase was based on nothing more than a "Directors Valuation" of the Land at $21 million as at 30 June 2004 (compared to a valuation of $3.3 million for the financial year ended 30 June 2003, described as "Freehold land - at cost").

1. There is no evidence before me to justify that "Directors Valuation". The figure probably came from a valuation performed by Mr John Dignan on 18 August 2003. However that valuation has only been admitted as evidence of the fact that Mr Dignan expressed the opinion set forth in it and not evidence of value. The HTT Defendants served an affidavit by Mr Dignan seeking to prove the valuation, but did not read it. The plaintiffs foreshadowed themselves reading Mr Dignan's affidavit but, in the face of objection, did not do so.

1. Therefore, a fundamental plank of the plaintiffs' calculation is absent.

1. It follows that the basis of the plaintiffs' calculations as to HTT's "financial gains" from the Project has not been made out.

1. There is no other evidence before me as to what account of profits or other financial remedy LEC would have recovered in the 2001 Proceedings and thus no material upon which I could base any assessment as to the value of the chance lost to LEC as a result of the dismissal of those proceedings on 6 September 2004.

Agency - Mr Hickie/Vocifa

1. I have mentioned earlier that the plaintiffs claim that HTT and Mr Renshall made the pleaded representations as agent for Mr Hickie and Vocifa.

1. In view of my conclusions as to the substance of the plaintiffs' claim, it is not necessary for me to express any opinion about this matter.

1. However, and again in deference to the submissions made on this issue, I shall deal with it, although again, briefly.

1. In the written submissions the plaintiffs stated:-

"The plaintiffs do not contend that Mr Renshall and HTT were the agents of Mr Hickie and Vocifa generally or for all purposes. They accept that the agency had its limits. However, even if the authority of Mr Renshall and HTT was limited to acting as a conduit - communicating information for and on behalf of Mr Hickie and Vocifa - as submitted by them, that would be enough to fix them with the legal responsibility for the representations of HTT and Mr Renshall."

1. The plaintiffs particularised the claim of agency against Mr Hickie and Vocifa as follows:-

(a) "At all material times, Renshall was a director and shareholder of Devubo and represented it in the negotiations with LEC and Zdrilic;

(b) HTT and Renshall conducted the negotiations with LEC and Zdrilic on behalf of Hickie and Vocifa;

(c) In the course of the negotiations, Renshall represented that he represented Hickie and his interests in the negotiations;

(d) Further:

(i) the negotiations involved Hickie ceasing to be a director of HTT, becoming a co-director with Renshall and Zdrilic in a new company, transferring his 12.5% interest in the Huntley Trust (12.5% of units in the Trust were held by Vocifa) to the new company and the fixing of the amount of loan funds owed by HTT to Hickie and/or Vocifa;

(ii) Renshall conducted all negotiations with LEC and/or Zdrilic in relation to the matters set out in (i) above;

(iii) Devubo, Hickie and Vocifa entered into the Heads of Agreement dated 13 May 2004 and the Deed of Non-Dilution and Merger on 27 August 2004 on terms negotiated between Renshall and LEC and/or Zdrilic;

(iv) Hickie was at all material times a director and shareholder of Vocifa, which company held Hickie's interests in HTT's project."

1. As to particular (c), Mr Jucovic accepted that a representation by Mr Renshall of his asserted authority to negotiate on behalf of Mr Hickie would not be sufficient to establish agency. Any such representation would have to come, expressly or implicitly, from Mr Hickie: Freeman and Lockyer v Buckhurst Park Properties (Mangal) Limited [1964] 2 QB 480 at 503: Pacific Carriers Limited v BNP Paribas (2004) 218 CLR 451 at [36].

1. The only evidence of any representation by Mr Renshall emerged in the course of Mr Connolly's cross-examination of Mr Zdrilic when he said:-

"I am not sure that he used the word agent but he said to me many times, when we didn't agree on a certain point, he said 'I will come back to you I will have to check with David Hickie'."

1. The substance of the plaintiffs' case against Mr Hickie was that Mr Hickie had a direct interest in the negotiations that Mr Renshall was conducting with Mr Zdrilic and yet it was Mr Renshall, not Mr Hickie, that conducted those negotiations with Mr Zdrilic.

1. Thus, it was argued, as Mr Hickie did not involve himself in those negotiations, he must be taken to have authorised Mr Renshall to make the representations of which complaint is made.

1. The plaintiffs relied upon what was said by Gavan Duffy CJ and Starke J in Colonial Mutual Life Assurance Society Limited v The Producers and Citizens Cooperative Assurance Company of Australia Limited (1931) 46 CLR 41 at 46-47:-

"We apprehend that one is liable for another's tortious act 'if he expressly directs him to do it or if he employs that other person as his agent and the act complained of is in the scope of the agent's authority'. It is not necessary that the particular act should have been authorized; it is enough that the agent should have been put in a position to do the class of acts complained of. And if an unlawful act done by an agent be within the scope of his authority, it is immaterial that the principal directed the agent not to do it." (citations omitted).

1. There was debate before me as to the point at which Mr Hickie's "position" had been negotiated. Mr Connolly argued that that position had been reached by 6 February 2004 as, by then, the draft Heads of Agreement provided all that Mr Hickie wished to achieve, namely that:-

(a)   the Renshall, Zdrilic and Hickie interests in HTT be placed in the new entity (to be Sentel);

(b)   Mr Zdrilic would cease to prosecute the 2001 Proceedings (in which Mr Hickie was a defendant); and

(c)   the proposed holding entity would acknowledge the loans of each of Messrs Renshall, Zdrilic and Hickie.

1. Mr Connolly submitted that negotiations thereafter simply refined those fundamental matters and, significantly, led to a result that Mr Hickie most certainly did not want, namely Mr Zdrilic's position as an alternate director of HTT.

1. Whether or not Mr Hickie's "position" had been achieved by 6 February 2004, it seems to me that the most that can be said is that Mr Hickie was content to allow Mr Renshall to put to Mr Zdrilic his position in relation to the various elements which, ultimately, found their way into the Heads of Agreement.

1. In that regard I see force in the submission that Mr Hickie put Mr Renshall in a position from which it was reasonable for Mr Zdrilic to infer that Mr Renshall had Mr Hickie's authority to negotiate such terms; see Crabtree -Vickers Pty Limited v Australian Direct Mail Advertising & Addressing Co Pty Limited (1975) 133 CLR 72 at 78.

1. But there is no suggestion that Mr Hickie had any involvement in the dealings with any proposed funder. There is no evidence that Mr Hickie was involved in the negotiations between HTT and Mr Renshall and IBIS/IPC or that Mr Zdrilic thought Mr Hickie had any such involvement.

1. In those circumstances, I cannot see how Mr Zdrilic could reasonably have inferred that the representations allegedly made to him by Mr Renshall concerning the availability of funds (as opposed to negotiation of the terms of the Heads of Agreement) were made on behalf of Mr Hickie.

1. For that reason, my opinion is that HTT and Mr Renshall were not acting as Mr Hickie's agent for relevant purposes, that is to say for the purposes of making the representations as to the availability of funds.

1. Certainly, so far as concerns the critical events of 25, 26 and 27 August 2004, apart from being present at the meeting of 27 August 2004 (although only for part of the meeting), there is no suggestion that Mr Hickie had the slightest involvement in HTT's discussions with potential funders or in the formulation of whatever opinions and representations were passed on to Mr Zdrilic during that period.

The result

1. The result is that, in my opinion, the plaintiffs' claims fail.

1. I am not satisfied that the representations pleaded induced the plaintiffs to enter the Heads of Agreement, or the Non-Dilution Deed, or to consent to the dismissal of the 2001 Proceedings.

1. I am therefore not satisfied that the plaintiffs were, or are, entitled to rescind either the Heads of Agreement or the Non-Dilution Deed, or to have the orders of 6 September 2004 set aside.

1. Even if the plaintiffs were, on 27 August 2004 or later, entitled to rescind the Heads of Agreement and/or the Non-Dilution Deed, any such right has been lost because the plaintiffs have affirmed the agreements, because restitution in integrum is not possible, and because the rights of third parties have intruded.

1. The Third Amended Statement of Claim should be dismissed.

1. It follows that the issues in the cross-claims do not arise for consideration. They should be dismissed.

1. Prima facie, costs must follow the event.

1. I will hear submissions from the parties as to the precise orders that should be made.

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Amendments

05 February 2014 - Paragraph numbering error

Amended paragraphs: 131 and 132

Decision last updated: 06 February 2014