Llewellyn v Derrick Uniti Corporation Pty Ltd v Llewellyn

SUPREME COURT OF VICTORIA

CORPORATIONS

Do not Send for Reporting

Not Restricted

No. 5009 of 1997

RICHARD KENNEDY LLEWELLYN

and
RICHARD K LLEWELLYN & ASSOCIATES PTY LTD
Applicants

and

STEPHEN DERRICK AND ORS

Respondents
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BY COUNTERCLAIM

UNITI CORPORATION PTY LTD
Applicant by Counterclaim

and

RICHARD KENNEDY LLEWELLYN AND ANOR

Respondents by Counterclaim

JUDGE:	Hansen J.
WHERE HELD	Melbourne
DATES OF HEARING:	21-23, 27-30 April 1998
DATE OF JUDGMENT:	25 September 1998
MEDIA NEUTRAL CITATION	[1998] VSC74

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CORPORATIONS - Trustee of a unit trust - Business carried on by - Internal disputes - Duties of directors - Oppression of minority shareholder - Relief to be granted - Whether extends to winding up the trust - Corporations Law, ss.260, 461.

CONTRACT - Agreement by three principals to establish a business and conduct it by a corporate trustee under a unit trust - Term that remuneration payable out of success fees in proportion of unit holding and otherwise no remuneration for personal effort - Principals are the directors of the trustee - Informal winding up of business following breakdown of relations - Whether term as to remuneration applicable.

TRUST AND TRUSTEES - Unit trust - Directors fiduciary duties - Duty of trustee to unitholders - Directors .turning business prospects of trust to their personal advantage - Constructive trust - Directors retaining moneys as remuneration for personal effort contrary to underlying agreement - Account.

APPEARANCES:	Counsel	Solicitors
For the applicants and respondents to counterclaim	Mr R. McK. Robson QC with Mr S.G. O’Bryan	Coadys
For the first to fifth respondents	Mr P.J. Bick	Dunhill Madden Butler
For the sixth respondent and applicant by counterclaim	Mr J. O’Bryan	Abbott Stillman & Wilson

HIS HONOUR:

This litigation was commenced by a notice of motion filed on 11 April 1997 by Richard Kennedy Llewellyn (“Llewellyn”) and Richard K. Llewellyn & Associates Pty Ltd (“RKLA”) against six respondents. The respondents are Stephen Derrick, William John Gleeson, Eco Systems Pty Ltd (“Eco”), W.J. Gleeson Pty Ltd (“Gleeson Pty Ltd”), Technology Resources Australia Pty Ltd (“TRA”) and Uniti Corporation Pty Ltd (“Uniti”). By counterclaim Uniti seeks relief against Llewellyn and Nextec Corporation Pty Ltd (“Nextec”).

The case arises out of the failure of a business relationship between the three individuals Llewellyn, Derrick and Gleeson. They came to conduct their business venture by way of a unit trust. Uniti was the trustee of the unit trust. It was incorporated on 9 March 1994 for that purpose, with three issued shares held as to one each by Llewellyn, Derrick and Gleeson who were also the directors. The units in the trust were held as follows: as to 30 units each by RKLA and Eco and as to 20 units by Gleeson Pty Ltd. These corporations were owned or controlled by Llewellyn, Derrick and Gleeson respectively.

Nextec was incorporated by Llewellyn on 4 January 1996. The directors are Llewellyn and Ilmars Martin Draudins who hold the 10 issued shares as to seven and three shares respectively.

TRA was acquired by Derrick and Gleeson in December 1995. It had been incorporated in June 1995, presumably as a shelf company. They are the directors and hold the two issued shares as to one share each.

The notice of motion sought relief in relation to Uniti under s.260 of the Corporations Law. That is, Llewellyn alleged that as a shareholder in Uniti he had been subjected to oppression in the conduct of its affairs. By amendment at trial the relief he claimed was somewhat changed, and I refer to it below. By the same notice of motion RKLA sought as against Uniti that it be replaced as trustee of the Uniti unit trust.

A statement of claim was endorsed on the notice of motion. A summons for directions and a summons seeking interlocutory injunctive relief against the defendants came on before me on 2 May 1997. The latter summons was dismissed on Derrick, Gleeson and TRA giving certain undertakings as to non-disposal of assets of the Uniti unit trust and directions were made for the conduct of the proceeding. Orders were made for pleadings, the endorsement on the notice of motion to stand as the statement of claim, a defence and any counterclaim by 19 May 1997 and a reply and a defence to any counterclaim by 2 June 1997. The first to fifth respondents filed their defence on 19 May and an amended defence on 2 June. On 20 June I ordered that certain paragraphs of the amended defence be struck out. On 25 July I gave the applicants leave to amend the statement of claim and gave directions for further pleadings. On 4 August an amended statement of claim was filed, followed by the defence of the first to fifth respondents.

On 7 October Uniti, which hitherto had not taken an active role, filed an appearance. Earlier, on 3 October, Uniti had filed a defence and counterclaim against Llewellyn and Nextec. On 10 October I gave Uniti leave to serve its defence and counterclaim out of time and ordered that the defence and counterclaim already delivered be deemed to have been filed and served in accordance with the rules. I also gave Uniti leave to file an amended counterclaim by 17 October. On 27 October Uniti delivered an amended defence and counterclaim.

On 14 November I gave the applicants leave to file an amended statement of claim. On 28 November I ordered by consent that Uniti have leave to file an amended counterclaim and that was duly filed on 15 December, followed by a defence on 4 February 1998 and a reply on 11 March. On 6 March 1998 I made a number of orders including fixing the proceeding for trial on 20 April. The final step concerning the pleadings is that, as mentioned above, the prayer for relief in the statement of claim was amended at trial.

Evidence was given in the case as follows: for the applicants by Llewellyn and Alfred Milgrom who is chairman of Beam International Ltd (“Beam”) and for the first to fifth respondents by Derrick and Gleeson. No person was called to give evidence in the case of the sixth respondent, Uniti, counsel for whom relied upon the evidence given by Derrick and Gleeson and documentary evidence. In addition to the oral evidence, several books of documents and some other exhibits were tendered.

The witness statements of Llewellyn and Derrick were long and detailed. Gleeson’s was not as long. Cross-examination of these witnesses was also lengthy. On the other hand Milgrom’s witness statement was short and the transcript of his evidence occupies only some eight pages.

In the result I had ample opportunity to observe the witnesses and form assessments of them. There are some issues of credit. As it turns out it is not necessary to separately refer to or deal with Milgrom’s evidence in this judgment.

I also had the benefit of comprehensive opening and closing addresses by counsel.

I propose now to refer to sufficient facts to provide an overview of the circumstances in which the case comes about, to set out the issues and then deal with them.

An Overview

Llewellyn, Derrick and Gleeson worked as consultants providing advice to business. Each did so through their respective companies, RKLA, Eco and Gleeson Pty Ltd. Derrick and Gleeson were also involved in a body called Strategic Industry Research Foundation (“SIRF”) as managing director and on the secretarial side respectively. Gleeson is an accountant by profession and was experienced as such including in the role of company secretary. SIRF was established by the Victorian Government, the Australian Academy of Technological Sciences and Engineering and the CSIRO and undertook the funding of projects in areas which included research and development syndication in conjunction with a number of financial packagers. At its meeting in December 1993 the board of SIRF determined to appoint a new managing director. Derrick remained as managing director until 8 February 1994. His resignation from the position was announced following the meeting in December 1993.

In December 1993, following the announcement of Derrick’s resignation as managing director, he and Llewellyn commenced discussions which ultimately led to them forming Uniti with Gleeson. Derrick told Llewellyn of the direction of his plans and thinking, which was (putting it simply) to provide business and funding advice to companies in areas typically interested in research and development projects into their respective technology requirements. At the time the Commonwealth Government had programs to support investment in such projects. Llewellyn expressed interest in working with Derrick and they had discussions. In the course of this, they met with one Richard Gibson of Bain & Company (“Bain”) and discussed whether the latter would be interested in supporting and working with them in their proposed venture.

Later, in January 1994, Derrick spoke to Gleeson and interested him in the proposal. Llewellyn ultimately agreed on Gleeson being included in the venture but on the basis of a minority position. As between Llewellyn and Derrick there was to be equality as the principals of the new business while Gleeson would be company secretary and manage administration. The resolution of this issue is reflected in the number of units held by the unit holding entities in the Uniti unit trust. Apart from that equity difference, each was a director of Uniti with no limitation on Gleeson’s power or authority in that behalf. When Uniti was formed, Llewellyn and Derrick were appointed as managing directors.

The contact with Bain was important because in the matter of research and development syndication projects it was necessary to have an entity “that acted as financial packagers of these structures” (per Derrick). Bain was approached because Llewellyn knew Gibson in business and because it was undertaking such syndicates with SIRF. By 3 March 1994 the discussions had advanced to the stage that Gibson wrote to Derrick with an enclosed draft Referral and Services Agreement covering the relationship between Bain and Uniti. The covering letter stated that Uniti would be entitled to certain fees and Bain would provide working capital expenses in the form of advances against future fees to be earned by Uniti. The proposal was to advance, against future commissions, $60,000 for initial set-up costs and approximately $10,000 per month to cover operating expenses. This was “to put Uniti in a net cash neutral position (excluding the cost of the services of the principals)”.

On 30 March 1994 the agreement was entered into. It was signed by Gibson for Bain and by Llewellyn and Derrick for Uniti. In addition, Llewellyn and Derrick signed a guarantee of Uniti’s obligations. The agreement recited that Bain is a packager of research and development syndications (“R&D syndications”) for investors and research companies and in that role formulates, develops and raises funds for a range of research and development projects (“R&D projects”). It further recited that Uniti has a number of contacts with researchers and also has extensive experience and expertise in assisting researchers to develop R&D projects and prepare business plans for R&D syndications. The parties were to work on the basis that Uniti would develop prospects and refer prospective clients to Bain and provide the services more particularly set out in the agreement. Those services related to the development of the R&D program and co-preparation of syndicate funding offers to researchers based on budgeted cash flows, assistance to research personnel and putting together data and dealing with the Department of Industry Technology and Regional Development (“DITARD”), and to assist researchers to develop project parameters, business plans, reports and submissions. By another clause (cl. 5) Uniti agreed to provide “an established contact list.... of known R&D Projects and Researchers that are prospects for R&D Syndication or other fund raising activities, and will also provide up-dates of this contact list on request”. This reference is sufficient to indicate, in outline, the nature and purpose of the relationship and role of Uniti and Bain. The agreement (by cl. 7) stated that the relationship was not a joint venture or partnership and that neither was the principal or agent of the other.

I have moved ahead and should return to the position as it was developing between Llewellyn, Derrick and Gleeson. Drafts of a business plan were produced in the course of their discussions. The last business plan produced seems to be that dated 24 February 1994. It commences with an Executive Summary in which it is stated that:

“Uniti has been established by three business associates to fill an important gap in the Australia market. Uniti will provide technology oriented organisations with comprehensive business and strategic planning services; strong corporate and government networks throughout Australasia and access to significant funds, combined with selected international research, development and technology transfer linkages. Target industries for Uniti are those with high growth prospects in this region - particularly aerospace and automotive; energy; food processing; marine; mineral processing; related service industries and telecommunications.”

The Summary went on to refer to Derrick, Llewellyn and Gleeson as the “founding partners”.

The three men progressed the proposal during a considerable number of meetings which went into March 1994. Derrick said the business plan was never finalised for several principal reasons, namely, uncertainty as to the amount of time that would be spent on R&D syndication versus management consulting and other activities meant that no such division could be formally stated thus it was agreed the balance would be market and fee (actual and potential) driven; the arrangement with Bain was not finalised until 30 March 1994; and the unpredictability of fee revenue rendered uncertain the matter of capital and other contributions. Nevertheless I find that the business plan dated 24 February 1994 is a reliable statement of what the parties set out upon.

In February the parties decided that the business would be structured on a unit trust with a corporate trustee. They also reserved the name Uniti.

On 24 February 1994 Derrick wrote to two firms of solicitors seeking quotations for legal services in relation to the establishment of Uniti and on-going advice. A tender was accepted from Messrs Coadys who are the solicitors for Llewellyn and RKLA in this proceeding. Coadys duly prepared the memorandum and articles of association for Uniti which, as mentioned, was incorporated on 9 March 1994. Coadys also prepared the deed of trust for the unit trust and it was executed, dated 11 March 1994, by Uniti as trustee and the three unit holders, RKLA, Eco and Gleeson Pty Ltd.

The advance of funds by Bain was important to the parties. Uniti had no immediate business (although Llewellyn says that he brought his existing clients in and Derrick refers to like contributions) and had to develop fee revenue. In the meantime the Bain advances provided working capital. The parties agreed to cover their personal expenses from their own sources and obtain reimbursement from the funds advanced by Bain. It was further agreed that remuneration come, not from such funds, but from Uniti’s net surpluses to be earned from success fees and distributed through the unit trust. Later, in April 1994, Uniti obtained a $50,000 financing facility from the National Australia Bank, made up as to $25,000 by way of overdraft and as to the balance by three credit card facilities (one for each director) with an aggregate credit limit of $25,000. This facility was secured by a mortgage debenture granted by Uniti and directors’ guarantees.

Business activity commenced in March 1994, initially from Llewellyn’s office in Melbourne, and then from other premises.

In the period up to the time in 1995 when disputes commenced between the parties, the following is a brief resume of the conduct of the business. In that period, indeed beyond 1995, no salaries were paid to the three principals. Apart from expense reimbursement, and with the exception of advances on future distributions there were no actual distributions to them.

Many potential clients were contacted with a view to obtaining R&D syndication work and other corporate funding advice and assistance. According to Derrick, Uniti obtained mandates (or agreements) from more than 30 clients to seek R&D syndication funding, or other forms of funding such as equity or government grants. The R&D syndication work performed by Uniti included assisting companies in the preparation of business plans and other documents for an application to the Industry Research & Development Board (“the IRDB”) established by the Commonwealth Government. The IRDB had the function of approving syndicated funding under the Income Tax Assessment Act. Uniti’s R&D work was undertaken on the basis of a success fee, such fee being payable after completion of the approval process and settlement of the transaction. The first successful R&D syndication application settled on 15 September 1995. In this and in later such cases Bain retained Uniti’s fee by way of repayment of advances. As a result, Derrick states, Uniti did not actually receive a fee until February 1996. In total, between April 1994 and December 1996, Bain advanced $906,997.

Llewellyn said, and I accept, that over a period of years he had developed a business strategy for R&D syndications and that he adapted and developed the strategy and methodology, with assistance, for Uniti requirements and prepared a manual of operations for assessing, preparing and lodging applications including document templates.

In the latter half of 1995 the relationship between Llewellyn and Derrick soured. Obviously they fell out. Derrick says that Llewellyn’s performance became significantly less than his and what he expected from “the other principal” and he referred to Llewellyn having “extended lunches”, inappropriate drinking and certain behaviour in the office. Llewellyn says he did pull his weight and that he was under some personal difficulties and did not accept the criticisms of him. In view of the way that counsel conducted the case and the issues which they left for determination it is not necessary to go further into these matters or to make findings thereon. The fact is that Llewellyn and Derrick fell out and it led to the split I am about to mention.

First, however, it should be noted that in or about September 1995 the Government announced potential changes to the policy concerning R&D syndication. The cut-off date for lodging applications under the then regime was 23 November 1995. This resulted in an increase in effort to complete and lodge applications for approval by that date. It is said that by late November 1995, 28 substantially completed applications had been lodged with the IRDB and one other was nearing completion. As I understand the situation, that application had been lodged by the end of January 1996. Derrick says that 11 applications were lodged on 22 November. There were other prospective syndicates under preparation but not sufficiently advanced to lodge. The difficulty - and this was the reason for the rush to complete and lodge - was that the outstanding prospects may not be able to proceed under the new guidelines when they were settled. As it turned out the government published new guidelines on 23 November. They changed the way R&D syndication would be handled. The new regime thus introduced related to Uniti’s core business and thus introduced a further matter of concern for the directors. Later a new system called R & D Start was introduced which I refer to below.

The pressure of work that was required at this time exacerbated the problem that Derrick had with Llewellyn because, Derrick says, he was doing far more work than Llewellyn. It was also a time when Bain were applying pressure in relation to the amount of the outstanding advances. It is not surprising that matters came to a head in late November.

On 23 November Llewellyn and Derrick agreed to have a meeting on the following day. Llewellyn produced a draft agenda which related to business matters. When he received the agenda Derrick told Llewellyn there were more fundamental issues to be dealt with and at the meeting on 24 November he told Llewellyn (in summary) that he did not intend to continue in business together on the basis that had been agreed. After discussion Derrick said he would write to Llewellyn and Gleeson.

On Saturday, 25 November Derrick wrote to Llewellyn and Gleeson. He confirmed that he would not continue operating the Uniti business as currently structured. He said that his decision was firm and effective from 24 November. His letter went on to make proposals as to the completion of work, how clients should be dealt with and other matters. Gleeson sent to Llewellyn and Derrick a proposal to sell his interest in Uniti. The three met on Saturday afternoon and left to consider their options. That night Derrick sent Llewellyn an offer to purchase his interest in Uniti.

On Sunday 26 November there were discussions and a meeting in the afternoon. By this stage Llewellyn had rejected Derrick's offer, had stated that he was preparing an offer to acquire the shares and units of Eco and Gleeson Pty. Ltd., and that until the ownership of the trust was resolved they should continue to operate the business as before. He also rejected Gleeson's offer. At the meeting Gleeson produced an agenda and suggested that the proposals it contained be discussed. It is evident that Derrick and Gleeson had spoken privately and had determined to proceed as stated in the proposals which were:-

“That SD [Stephen Derrick] be appointed, effective from this day (at a daily rate to be agreed by this Board after his (sic.) submits a budget and on other terms and conditions that may be agreed) as Executive Manager of all the 29 nominated syndicates (28 lodged plus National Forge). The role will include formal liaison with Bain, Macquarie and BT, full authority within the to be approved budget, arrangement of Uniti office and facilities and control of all Uniti records, until the earlier of completion of all settlements or transfer of all units to either ESPL [Eco] or RKLAPL [RKLA].”
“Expenses of Uniti Unit Trust to be immediately minimised consistent with proposed intentions of the owners.”

In the discussion at the meeting, Llewellyn said he agreed with the concept of reduced cost but was against the resolutions and left. Derrick and Gleeson endorsed their agreement with each resolution on a copy of the agenda, wrote thereon that Llewellyn had voted against the first resolution and agreed with the second resolution but had declined to sign the “minutes”, and sent a copy by facsimile to Llewellyn.

On 27 November Gleeson provided Llewellyn and Derrick with a cash forecast for Uniti, an asset list and an estimate of resources necessary to complete the 29 listed projects. This was on the basis of work continuing, including involvement by Llewellyn, on the new basis in the above resolution. On the same day Llewellyn sent Derrick and Gleeson an offer to acquire their interests. That offer was rejected on 28 November.

Central to Llewellyn’s offer was that he (or RKLA) take over the conduct of the 29 syndicates. By that time the first three syndicates had been completed; for that reason his offer referred to completing syndicates numbered 4-28 with the possible addition of National Forge (as 29) if it is submitted by 27 December. The fundamental question which the parties were having to address was who would have the conduct of the syndicate applications 1-29, and on what terms inter se and how and on what terms would the business be wound down in relation to other clients.

By this time Derrick and Gleeson were receiving legal advice. On 28 November Derrick sent Llewellyn notice of a directors’ meeting for 1 December 1995 and a meeting of unit holders on 11 December 1995. In a covering letter Derrick stated that he hoped “that the proposal set out in these papers may resolve what otherwise appears to be an extremely difficult or impossible situation”.

The notice of the directors’ meeting proposed as the business for discussion the following, that Uniti convene a meeting of unit holders to consider the resolutions set out in the attached notice of meeting, and:

“2That Richard K. Llewellyn, presently a director of the company is hereby removed from the office of managing director and from the time at which this resolution is passed ceases to have the authority of the board of directors of the company to carry out any executive activity for and on behalf of the company, except that any other director may engage Richard K. Llewellyn as a consultant to assist the company in relation to any particular project on terms to be agreed in writing prior to the effective time of any such engagement.
3.The executive authority of the Board is hereby delegated jointly to the directors of the company other than Richard K. Llewellyn.
4.Until such time as a meeting of unitholders is convened to consider the resolutions set out in the notice of meeting of unitholders attached, the company shall continue to actively pursue the projects numbered 1 - 28 in the attachment to the Notice of Meeting of Uniti holders and in relation to the projects numbered 29 - 56 in that list of projects, shall continue to service those projects to the extent necessary to ensure that future pursuit of those projects by the company is not prejudiced if a meeting of unitholders decides to actively pursue those projects.
5.Any existing chairman of the board of directors of the company is hereby removed from that office and Stephen Derrick is hereby appointed chairman of the board of directors of the company to hold office until the directors of the company otherwise determine.”

The attached notice of meeting of unitholders proposed the following resolutions:

“1.The unitholders hereby acknowledge that the current business of the Trust conducted by the Trustee consists of the projects known within the company by the names set out against numbers 1 - 28 in the attached list and that the currently projected future projects conducted by the business will come from among the projects listed in that list against the numbers 29 - 56.
2.The unitholders direct the trustee to actively pursue conclusion and distribution of profits (if any) from the projects listed against numbers 1 - 28 in that list.
3.The unitholders acknowledge that there is currently a dispute as to the future conduct of that business between the unitholders. In order to avoid that dispute, the unitholders hereby direct the trustee not to pursue the projects listed against numbers 29 - 56 on that list and acknowledge that any of the unitholders or any interests associated with any of the unitholders may pursue any of those projects either to the exclusion of other unitholders or associates if the unitholders and their associates agree or otherwise in competition with other unitholders or associates.”

It is apparent from the terms of these notices, and it is the fact, that Derrick and Gleeson had determined on a course of using their voting power to effectively remove Llewellyn from the management of Uniti and the conduct of its business except as they desired and with the qualification concerning matters 29 (or 30) - 56.

On 29 November Llewellyn sent another set of proposals. He did not receive a response.

On 1 December the three met. Llewellyn said he would not attend the directors’ meeting as they had pre-determined the matter. The meeting was held in his absence and the resolutions were duly passed. The three met later that day and again had discussions. Llewellyn would not agree with their decisions at the meeting. Agreement was not reached. Later that day Derrick sent Llewellyn a letter which enclosed “our standard Joint Marketing and Project Funding Mandate and Non-Disclosure Agreement, which will allow you to operate under the Uniti arrangements as proposed”. The arrangements referred to must have been those specified in the two notices of meeting. The letter stated that this would not restrict Llewellyn’s ability to operate independently (except where Uniti is obliged to consult with packagers in respect of existing relationships) and would not require him to share success fees earned with Derrick and Gleeson. The letter also stated that Llewellyn could not use Uniti intellectual property until formal agreements were in place. Llewellyn did not sign the agreement.

Llewellyn received a second letter from Derrick on 1 December. The letter advised him of the directors’ meeting held that day and of the resolutions. It also referred to a number of matters including as to how to continue matters with Bain. Among other things the letter advised Llewellyn that to protect “Uniti’s intellectual property and assets” the security arrangements for the office had been changed and requested the return of Llewellyn’s after hours access card. This was part of the scheme to remove Llewellyn from the business and to place any future involvement of Llewellyn on a different footing.

On 3 December Llewellyn sent a response and sought legal advice. On 4 December Gleeson told Llewellyn by facsimile that he should speak to Derrick if he wished to visit the office to collect personal affairs and other items referred to in the previous letter, and that he would have to sign the affiliate agreement before he would receive client files on which he had been working. In the event Llewellyn attended at the office and collected some files although he says that he did not receive all that he should have.

By 7 December Llewellyn had obtained legal advice and he wrote to Derrick and Gleeson accordingly. It is a four page letter and I only refer to some of it. He protested at what had been done to him, said he had remedies but accepted the situation. In part the letter stated:

“You appreciate, as your correspondence indicates, that the effect of your actions is to release me from the responsibility to perform executive activities on behalf of Uniti, except those which I agree with you to undertake and which are not frustrated by further action on your behalf. By ‘frustrate’ I include any conduct in the nature of putting into issue with clients, funding providers, regulators or others, my capacity to fully and properly represent Uniti generally or in specific matters.
The corollary of this fact is (as you have recognised) that I am no longer to be restricted from undertaking commercial activities which may conflict with the business undertaking of Uniti. In this regard, I see my position as that of the normal non-executive director of a company and will conduct myself accordingly in relation to business of the company which is brought to my attention or in which I am involved and will avoid future conflict with my other business activities.
Despite your actions, I remain committed to the successful conclusion of the syndicates at hand and other business in which I become involved on behalf of Uniti. I am available to assist clients as needed, as I remain committed to the success of a business in which I retain a 37.5% equity.
There should be no misunderstanding but that I will be pursuing, independently of Uniti, activities with many organisations including the following entities (except activities in respect to which such parties have existing contractual commitment with Uniti):

Beam

Practel

Panfida

Wallace

Wingarra/Yunghans

Ajax/NCL

Mat-Man

Aurora

Crisisware

Sterlite

MRI

Adsteam/David Jones

SES

Village

Lateral Concepts

DSTO/Optronics

Goodman Fielder

On the other hand, I anticipate that you will honour your responsibilities as executive directors of Uniti and continue to represent its interests to the exclusion of any conflict with its affairs.”

Derrick and Gleeson replied by letter on 8 December. In part the letter stated:

“If, as seems likely, the resolutions proposed for the unitholders meeting next Monday are passed, the business of Uniti will consist of the projects numbered 1-29 in the list attached to the papers circulated for the meeting. In relation to other business previously pursued or conducted by Uniti, each of us will be in a position to pursue that business. There is however an important qualification to this situation.
All directors of the company, whether executive or non executive are under similar duties not to undertake activities which bring their other interests into conflict with the interests of the company. In the current context, we take this duty to mean that each of the three of us must not pursue any of the opportunities identified in Items 30 and subsequent of those lists in a manner which might prejudice the ongoing business of Uniti and in particular its ability to derive the profit from that ongoing business which we presently expect to achieve. We hope that you choose to remain a director of the company and so continue to have an involvement in completing these achievements.
Thank you for your offer to assist in relation to the 29 projects. We will bear this offer in mind and as these matters proceed will more than likely seek your assistance.
Your facsimile indicates that you will pursue a number of projects which you have listed. Thank you for providing us with this information. In relation to MRI, we expect that you will continue to consult with both of us and with Macquarie concerning any contact with this client in order to ensure that the relationship with Macquarie is not prejudiced. The same approach is appropriate in respect of SES and Ajax/NCL, but with contact occurring through Bain. In addition, both SES and Ajax/NCL have projects in the 29 projects which are to remain in the business of Uniti and accordingly additional care should be taken in pursuing future business.”

On 11 December Llewellyn wrote in response. He concluded by saying that he would not attend the unitholders meeting and he enclosed a proxy vote against each proposed resolution. Finally, he suggested mediation of the dispute. Derrick and Gleeson proceeded with the meeting and the resolutions were passed on their votes. Later that day they wrote to Llewellyn. Their letter noted that as the resolutions were not passed by unitholders holding at least 75% of the units on issue they could not constitute directions to the trustee for the purposes of cl.42 of the deed of trust. The actual percentage in favour was 62.5%. The letter then stated that:

“The failure of these proposals does however leave the Trustee with a difficult decision. Clearly two unitholders wish to have the Trustee restrict its current business to projects which are finalised and in relation to which fees are relatively ascertainable. The third unitholder opposes this action, but is clearly intending to compete with the Trustee in seeking future business.
This leaves the Trustee in an all but impossible situation, so far as future business is concerned. It must compete with at least one of its own unitholders. This unitholder is associated with one of its directors and this director (unless that director chooses to be excluded from relevant decision making processes) has access to information which may assist the relevant unitholder in competing with the business of the Trust.”

To deal with the problem the letter suggested a meeting for 13 December and enclosed an agenda which proposed the following resolution:

“Having regard to the stated intentions of the various unitholders including relevant correspondence, Uniti Unit Trust be conducted solely for the purposes of completing the existing business at hand and that the Trustee support such a position on the basis of the expressed view of the majority of the unitholders provided the actions of unitholders and associated persons do not compromise the successful completion of existing business in a business like and cost effective manner, in which case the Trustee will review its position and alternative courses of action.”

On 12 December Llewellyn replied with comments upon the letter of 11 December. He said that he did not intend to prejudice the position of Uniti (meaning, as he said in evidence) that all matters 29 (or 30) - 56 were open for competition, that he was aware of conflict of interest, that he intended to comply with his duties as a director and requested copies of documents he needed “to assist our clients to complete their projects successfully”.

Derrick and Gleeson proceeded with the directors’ meeting on 13 December and passed the resolution quoted above. Llewellyn did not attend. Later that day Derrick and Gleeson sent Llewellyn a letter. They asserted that in dealing with Uniti clients on his own letterhead Llewellyn had a conflict of interest and that he was not entitled to contact any Uniti client involved in projects 1-29, other than through Uniti and them. Notice of a directors’ meeting on 21 December was enclosed.

On 14 December Derrick wrote to Bain, confirming that due to a dispute between unitholders, Uniti will limit its activities, from 31 December, to completion of existing business which included certain specified syndicates in process or syndicates lodged in conjunction with Bain. Derrick gave Llewellyn a copy of the letter.

Llewellyn replied on 15 December and that reply produced a response from Derrick and Gleeson on 19 December.

Llewellyn attended the meeting on 21 December. Conflict of interest in dealing with “clients” was still a live point. The dispute was not resolved.

On 22 December Llewellyn received minutes of the meeting and a letter from Derrick and Gleeson with an attached notice of meeting for 18 January 1996. On the matter of conflict of interest the letter referred to Llewellyn dealing with Uniti “clients” on his letterhead, denied that Derrick and Gleeson had a conflict as they had used Uniti letterhead and invited Llewellyn to put forward a proposal as to how to deal with Uniti’s “potential business”. Llewellyn said that he had explained that clients contacted him direct and he did not have Uniti letterhead to use. The agenda for the next meeting included as an item for consideration, the remuneration of executive and non-executive directors. This was the first time that such a proposal for directors’ remuneration had been raised.

It was also on 22 December that, according to the records of the Australian Securities Commission (“ASC”), Derrick and Gleeson became directors of TRA. Doubtless some pre-planning occurred with this move. Derrick said in evidence that they acquired TRA in mid-December for the purpose of having their own vehicle by which to continue together in the technology funding business. As with Uniti, TRA is the trustee of a unit trust. The trust is called the TRA unit trust. The unitholders are Eco as to 60 units and Gleeson Pty Ltd as to 40 units. On 22 December TRA wrote to a number of former and potential clients of Uniti to advise them that Derrick and Gleeson had formed a new company, TRA, to provide strategic advice and access to finance for companies undertaking new technology developments. The letter referred to them having operated as Uniti with their “former partner” Llewellyn who “is no longer with Uniti” but would remain as a non-executive while work in progress is completed. The letter stated that Derrick would continue as managing director and Gleeson as director and secretary who would ensure completion of all projects. The letter concluded by saying:

“I fully expect that TRA will be at least as successful in 1996 and we look forward to working with you again.”

Of course the reference to 1996 being “at least as successful” a year and to “working with you again” could only have been references to the prior year of Uniti and to work done with Uniti.

Derrick said in evidence that while he and Gleeson continued to handle Uniti work no business of Uniti was taken by TRA. He said that TRA’s business was generated by way of fresh contacts with former and prospective clients. It should however be noted that the address of TRA was Uniti’s address and that was the address stated on the TRA letterhead. I find that TRA communicated with all businesses and persons whom Derrick and Gleeson thought had potential for work and that the net included Uniti clients and others. In this regard they had the advantage of a pool of names possessed by Uniti. I find too that Llewellyn was not asked to consent to the use of the information held by Uniti or the approach by TRA. That approach sought to take advantage of Uniti’s business connections.

On 1 January 1996 Llewellyn asked Gleeson for certain standard Uniti documents and client files, the latter to enable him to provide support as required. Some information but not client files was provided.

On 2 January Gleeson asked the National Australia Bank to cancel Uniti’s overdraft facility of $50,000 immediately. The account was then in credit. The letter stated that Uniti had lodged 30 syndicates.

It was at this stage, on 4 January to be exact, that Llewellyn and Draudins had Nextec incorporated. I find that Llewellyn took this course after and as a consequence of his exclusion from the Uniti business. Draudins was a business associate who had no connection with Uniti. Nextec was formed to provide corporate advice and funding, with the focus being on the capital requirements of companies. Llewellyn said in evidence that in approaching a client who had given a mandate to Uniti he took care not to interfere with that mandate or the business of Uniti. Nevertheless he too approached Uniti clients.

The correspondence from this time is carefully written with a view to advance and protect each respective interest. It was inevitably a situation of conflict of interest when the split occurred and there were unresolved issues as to completion of work and how and in what circumstances Uniti clients may be canvassed for work by the “partners” new businesses TRA and Nextec. Thus the ongoing correspondence contains allegations and counter-allegations and denials. But no settlement occurred and the differences rolled on, each side being concerned (or so it was said) with the conduct of the other. The solicitor’s correspondence commenced in January 1996.

The parties met at a board meeting on 30 January and discussed the matter but without resolution. That was followed by further correspondence in which the parties sought to achieve a settlement. There is contention between the parties as to whether a settlement was reached on 9 February. It is contended by Llewellyn that a settlement was reached, but that is denied. The agreement is said to be contained in a written settlement offer from Derrick and Gleeson to which Llewellyn added some words to cl.2 and at the end wrote “Accepted subject to final drafting of the settlement agreement or letter that faithfully represents the words and intent of this document and our discussions leading to this document”. Llewellyn signed and dated the document and sent it by facsimile to Gleeson. There is an issue whether he only sent back the second page of the document. I find that he sent back both pages. The offer (or agreement) was directed to a final settlement of all matters. Thus, it proposed a method of dealing with all the work and financial matters.

Unfortunately attempts to document the agreement failed to produce a signed agreement. I do not refer to the attempts and the correspondence but they continued to 9 April on which day Derrick and Gleeson wrote to Llewellyn. Their letter commented on certain aspects of the settlement and concluded by saying:

“Pending the finalisation of the Settlement Deed, we again acknowledge your acceptance of our Settlement Offer of 9 February 1996.”

On 16 April Llewellyn responded with a letter which concluded with a statement that he looked “forward to your early response endeavouring to resolve this matter as soon as possible”. The response to this letter was a letter dated 22 April from Derrick and Gleeson which concluded as follows:

“Again we state, pending the finalisation of the Settlement Deed, we acknowledge your acceptance of our Settlement Offer of 9 February 1996.”

In the next month or so there was further correspondence. To this Llewellyn wrote on 24 June. He commented on certain aspects of the settlement. Inter alia, under the heading “Settlement” he said:

“It is clear from your comments that you have no intention of seeking a reasonable legally documented settlement. It is also obvious that we cannot agree terms in discussion or in writing. Yet you continue to reject the only practical alternatives available such as mediation or meetings with advisers present. Therefore there is no alternative but to let the February 9 agreement stand.”

He concluded the letter with the statement that he looked forward “to your agreement”.

In response, on 25 June, Gleeson sent a facsimile to Llewellyn in which he said, inter alia:

“We have always stated that it was our intention to act in accordance with your offer of 9 February. We now note your advice that the signed 9 February document is unconditionally acceptable to you.”

As things turned out, the parties did not conclude and sign a settlement agreement. Further, as time went by the work required to complete the funding applications became greater and more time consuming for Derrick and Gleeson who were handling them. In a letter dated 5 July Derrick and Gleeson said that this, and the time that had passed, meant that a change in the 9 February arrangements “is both necessary and desirable”. They also made allegations of a conflict of interest which, they said, Llewellyn had in dealing with Beam (and others) via Nextec, and they sought information as to the dealings and the basis of them. Llewellyn had told them at a meeting on 27 June that the matter of Beam and Nextec was none of their business. Derrick and Gleeson claimed that Uniti had an interest in the outcome of the Beam work as Llewellyn was, it was claimed, using the Uniti work already completed to earn a further fee with Beam. Accordingly, any success fee should be shared. This claim is the subject of Uniti’s counterclaim. Llewellyn denies Uniti’s claim .The minutes of a directors meeting on 9 January 1997 record Llewellyn’s view as being that Uniti had no entitlement to the Beam fee because it was earned under a mandate that Beam gave some four months after his departure.

The next point to note is that Derrick and Gleeson sought remuneration in respect of their work in bringing the syndicate applications to completion. I put that in a simple way not overlooking how the system changed and what they did. The issue is referred to at meetings of the three men but the payment of such remuneration was never agreed at any meeting or in correspondence between them. Llewellyn took the line that the issue was dealt with by the 9 February agreement. Further, there were discussions between the parties, for it was a bone of continuing contention by Derrick and Gleeson, but they could not reach agreement on the issue. Ultimately, what Derrick and Gleeson did, and which is challenged in this proceeding by Llewellyn, was done without notice.

On 5 March 1997 Llewellyn advised Derrick and Gleeson by letter that he had “no alternative but to seek to have the courts appoint someone independent and impartial to manage the Trust and who will act in accordance with the law and the agreements in place”. This was followed by further correspondence including a letter dated 14 March 1997 from Llewellyn’s solicitor which, inter alia, said it was “improper for the controlling directors to withhold distribution as a leverage to forcing agreement on points of contention outlined in your recent correspondence”, and concluded by saying that Llewellyn would proceed with action to wind up the trust “as soon as possible, leaving collections and the remaining activities in the hands of an independent court appointed liquidator”. Derrick wrote in response on 17 March denying that there was a withholding of distribution and commenting on various issues. Later that day there was a meeting at the office of Coadys. The meeting concluded without agreement but on the basis that Derrick and Gleeson would respond to an offer of Llewellyn on the next day, 18 March. Notice had previously been given of a directors’ meeting to be held that day but Llewellyn decided not to attend the meeting in the circumstances.

Derrick and Gleeson did not respond on 18 March. Accordingly, on 19 March Llewellyn made an open offer, failing a suitable answer to which he would, his letter of offer said, proceed to seek a winding up of the trust and the trustee.

On 21 March Derrick and Gleeson wrote to Coadys and advised that the trust was solvent and had on-going commercial issues to deal with, and that until matters of uncertainty in relation to discussions with Bain were resolved, they were not inclined to advance or distribute any funds to unitholders. They threatened damages if Llewellyn took winding up proceedings. The matter concerning Bain related to payment of a fee or, more particularly, to a struggle involving Bain in which Llewellyn on the one hand and Derrick and Gleeson on the other were in much contention, Llewellyn wanting the payment to be made direct to the unitholders.

Unfortunately the matter was not resolved. Then, on 3 April Llewellyn was informed by Bain that, notwithstanding Llewellyn’s request for a direct payment of the fee to the unitholders, Bain had paid $524,000 to Uniti. Llewellyn then ascertained that most of the money had been withdrawn from Uniti’s bank account. But no amount had been paid to him. He immediately told his solicitor who sought from Gleeson an explanation failing which he threatened to go to the police or the Supreme Court for an injunction to preserve the fund. At about 7.55 pm shortly before Llewellyn and his solicitor were to appear before a judge to seek a restraining order, Llewellyn received a letter at his home. The letter was dated 2 April 1997 (that is, the day before) and enclosed minutes of meetings of directors held on 9 January 1997 and 18 March 1997 and a cheque for $163,002.50 consisting of an advance on distributions of $163,500.00 representing Llewellyn’s entitlement as a unitholder of 37.5% less the sale of a mobile telephone ($497.50). The letter suggested a directors’ meeting for 15 April. In the circumstances an injunction was not granted.

Unbeknown to Llewellyn, Derrick and Gleeson had proceeded with the directors meeting on 18 March and resolved that Uniti pay TRA an amount for consulting fees of $300,000. The minutes record that Uniti had received an invoice from TRA for that amount representing 10 days’ work per month by each of Derrick and Gleeson since 13 December 1995. In the same item the minutes continued with the statement:

“It was noted that the distribution to Unitholders in the current financial year, after taking into account that charge, is expected to be in excess of $1m, which reflects the value and reasonableness of the charge for the contribution by S. Derrick and W.J. Gleeson in managing the portfolio and, in so doing, to increasing distributions to Unitholders, and which is consistent with understandings reached with the Unitholders.”

The significance of this payment of $300,000 is that it came off the top, as it were, and thereby diminished the amount to be paid to the unitholders according to their proportionate entitlement.

I should also mention that on 3 April at about 6.00 pm Derrick sent Llewellyn’s solicitor a letter by facsimile in which he referred to the latter’s conversation with Gleeson and advised that Derrick and Gleeson had appointed a solicitor “to handle these matters”. There was then correspondence between the solicitors. Derrick and Gleeson retained the $300,000. Llewellyn commenced the litigation on 11 April 1997.

For his part Llewellyn also performed work in the finalisation of several Uniti projects, and there was an issue as to the sharing of fees earned by him or Nextec, in particular the Beam fee. Only the Beam fee is now put in issue and requires determination in this proceeding. Llewellyn also complained that he had suffered loss by reason of delay in making distributions in the trust.

Although there are many facts and events along the way that I have not mentioned (but which I do not overlook) the above is, I think, sufficient to provide an overview of the circumstances in which the case has arisen.

I now turn to the issues as they are stated in the pleadings.

The Issues in the Pleadings

In their final form the pleadings are extensive and raise a number of issues. It is not necessary to set out all of the points taken in the pleadings. There are several reasons why that is so. I have already made some reference to the nature of the matters raised for resolution. Further, as I mention below, counsel identified the essential points on which a decision is required, and they did not bind themselves to the pleadings in the conduct of the case. Subject to that the pleadings may be summarised as follows.

The statement of claim put the case on several bases: first, the initial agreement made in February/March 1994 by which the parties agreed to enter on their venture and which included a term that there be no salaries or fees paid to the directors or their companies in respect of services performed and that the only remuneration be by the sharing of net profits in accordance with the unit holding; second, the 9 February 1996 document constituted an agreement which dealt with remuneration and distribution of profit; third, a breach of trust by Uniti in paying the $300,000 fee to TRA and in permitting work to be directed to TRA; fourth, breach of their duty as directors of Uniti by Derrick and Gleeson, in particular concerning the $300,000 payment and the diversion of work. On each basis the applicants seek, essentially, repayment of the $300,000 and of the R & D Start fees earned by TRA from work that was (it is alleged) diverted from Uniti. The relief sought includes winding up the trust and Uniti, replacement of Uniti as trustee, the purchase of Llewellyn’s shares, repayment of the $300,000 to then be distributed to the unitholders, repayment of R & D Start fees received by TRA, interest, any necessary account, and damages for breach of agreement and pursuant to s. 1324 (10) of the Law.

The defences may also be referred to in a summary way. While the first to fifth respondents made some admissions they denied the claims. As to the matter of the agreement however, in his closing address their counsel said that the agreement of the parties to establish the venture “substantially” covered what the applicants alleged. I can say now that I find that the parties did agree as the applicants allege.

There is then a counterclaim by Uniti. Counsel abandoned the claim in it concerning Ajax Fasteners. That confined the counterclaim to the matter of the Beam fee which was alleged to have been Uniti work which Llewellyn directed to Nextec. Uniti sought recovery of the fee on the basis of a breach by Llewellyn of his duties as a director. Nextec was said to have become a constructive trustee of the fee and the relief sought was a declaration to that effect and payment of the benefit to Uniti.

The Issues Left for Determination

In the course of their addresses counsel gave better definition to the issues that require determination. Counsel for the applicants put their case as follows.

To start with, counsel for the applicants opened the case on the basis that Llewellyn, Derrick and Gleeson, whom he described as having been partners, had effectively agreed to wind up the business and had in effect done so save for three unresolved matters: whether the $300,00 was income of Uniti and was wrongly appropriated by Derrick and Gleeson to their benefit by medium of their company TRA; whether Derrick and Gleeson wrongly diverted to themselves R & D Start moneys when those moneys truly belonged to Uniti; and whether Llewellyn wrongly diverted the Beam fee to himself or his company Nextec. Counsel emphasised that the question at issue was not one of breach of the agreement, which he said was a partnership agreement but how certain matters should have been dealt with on the winding up after the partners fell out. Thus, counsel submitted, that there was no need to make any finding as to whether any of the partners were at fault in terminating the partnership. Counsel submitted that the parties rights concerning these three matters were governed by the 9 February agreement, alternatively the initial agreement, alternatively by the principles of law concerning trusts and related duties. In final address the counsel for the applicants re-ordered these three bases of resolution; he commenced with the initial agreement as providing the answers.

At the commencement of his final address counsel for the first to fifth respondents observed that I could not determine the case “in accordance with the strict pleadings” because “the matter has been litigated on a variety of bases, most of them pleaded in some form or other; some of them weren’t “ but “ the relevant issues have been fully litigated whether they are in the pleadings or not”. I commend counsel for that approach. The parties were divided by strong personal feelings. Indeed one would have thought the case was otherwise readily settleable. But that was not for these parties who engaged in a deal of special pleading and justification in describing what had happened. Counsel are to be commended in confining the issues.

I have already found that the parties did enter into an initial agreement as the applicants allege. For reasons which I am not required by the parties to determine the business relationship between the parties broke down in late November 1995. Derrick would not work with Llewellyn. I have already concluded that by 1 December Derrick and Gleeson had set out on a course of removing Llewellyn from the management and conduct of Uniti’s business. Whatever be the rights and wrongs, which I am not required to deal with, the three “partners” (being the relationship so aptly referred to by Derrick in his letters of 22 December 1995 to former and potential clients of Uniti), accepted that their venture was at an end and had to be wound up. The problem for them was, how and on what terms was it to be wound up? One thing was clear, that in the absence of a contrary agreement the entitlements to remuneration and to receive a distribution of profits were as specified in the initial agreement and reflected in the beneficial interest in the trust.

The parties attempted to reach agreement on these matters over a period of many months. Doubtless their mutual mistrust hampered this process. In my view too, Derrick and Gleeson sought to advantage themselves, in business terms, by continuing and carrying to successful completion as much as possible of Uniti’s work and what came or might come from it. This was, so far as possible, to be to the exclusion of Llewellyn. TRA’s letter of 22 December 1995 to former and potential clients of Uniti is evidence of this approach in its reference to an expectation that TRA would be at least as successful in 1996, and to working with the person in the future.

It is plain that to the extent the parties carried the winding up of the venture and business into effect, and as they have done in some respects, they have dealt with the relevant matters. But there is a very critical issue as to whether they ever agreed on a variation to the initial agreement as to the proportionate entitlement to receive a distribution of profits and on the matter of the payment of salaries. It is axiomatic that unless varied their rights inter se will continue to be governed by their original arrangement, unless there is some principle of law or equity to the contrary.

In my view, neither in what happened at the break up in or about December 1995 nor subsequently did the parties by their words or conduct agree on a variation of that original arrangement. What they said and did must be taken as a whole. They were seeking to advance to agreed terms of a winding up. They might have been thought to be advancing along that path down to and including the offer of 9 February and Llewellyn’s response thereto. Unfortunately, however, the settlement agreement had to be put in writing and that writing (according to Llewellyn’s stipulation) had to faithfully represent the words and intent of the document he signed and the discussions. Those words and that intent were not specified by Llewellyn in writing when he wrote that stipulation on the offer. And, as time went by and discussions dragged on, it became apparent that the parties could not bring themselves to agree on terms. They never got to that stage, and never signed a final agreement. In my view, notwithstanding the different ways in which the parties referred to and relied upon the 9 February offer as being an agreement, it did not represent an agreement which may provide a basis for determining the issues in this case.

I do not overlook Llewellyn’s statement on 24 June 1996 that there was no alternative but to let the 9 February agreement stand. It is impossible to know what that means. In other words, what was to stand? Was it to include the previously referred to “intent” and “discussions”? Further, Llewellyn later said “we cannot agree terms in discussion or writing”. When Llewellyn said that he wished the 9 February agreement to stand did he mean that it was to operate as though his hand written notes at the end thereof were deleted and as though the terms of the 9 February offer were to be the total and all inclusive repository of the settlement between the parties? This would seem to be the correct construction as he concluded the letter with the statement he looked forward “to your agreement”. Yet in the same letter Llewellyn raised other matters which required the agreement of the parties.

I have already referred to Gleeson’s letter in response, dated 25 June. In that letter, after stating that Derrick and Gleeson had always intended to act in accordance with Llewellyn’s offer, it noted an apparent advice from Llewellyn that the offer of 9 February “is unconditionally acceptable to you”. It was submitted by counsel for the applicants that this language showed that the parties were then on common ground. He meant that in the sense of a binding and enforceable agreement. But that letter of 25 June and other contemporaneous documents of the parties in June and July and subsequently (and earlier leading up to June) reveal that there were other matters not agreed which were connected with matters that were dealt with in the 9 February document. The 9 February document was intended to be a final settlement that included a final release accordingly. Unfortunately, however, it was all too apparent that in June - July 1996 the parties were agitating a number of issues on which they had to agree before they could release one another. In particular the parties were in contention on the area so central to the 9 February document, namely, the proportionate entitlement of profits and the right to salary. For these reasons it is clear in my view that the terms of that document are not determinative of the issues in this case. This accords with the submission of counsel for the first to fifth respondents that the parties did not agree to or accept the terms of the 9 February document. In his submission he referred to a number of matters that the parties had not agreed upon and which tell against a conclusion that on 25 June the parties agreed upon a final settlement.

Counsel for the first to fifth respondents submitted that the initial agreement had come to an end by consent. While the parties arrived at the position that they would (or could) not continue in their business relationship and that the venture had to be wound up, it is too sweeping a proposition that the initial agreement “came to an end”. It did so to the extent agreed, initially and from time to time in the course of the winding up. But the plate was not wiped clean, as it were. As counsel for the applicants pointed out, the venture existed in a framework of rights and obligations inter se and they included rights and obligations which had accrued. Rights and obligation which have accrued remain in force unless they are varied by agreement or operation of law. See McDonald v. Dennys Lascelles Ltd (1933) 48 CLR 457 at 476 - 477. When the parties brought the agreement to an end they were discharged from future performance but as to past performance and performance in the future in the completion of the business commitments to enable an orderly winding up, their rights and obligations remain governed by the initial agreement save to the extent the parties might otherwise agree. I find that the parties proceeded on that basis. They never agreed to abandon their initial agreement in so far as it, and the documents which effectuated it, provided for their proportionment entitlements and the principle of no salary being payable.

I now deal with the claim concerning the $300,000 payment to TRA. The only specific point pleaded in the defence on this aspect was that the payment was made pursuant to a resolution of the directors of Uniti at a meeting held on 18 March 1997. I have already quoted the terms of the resolution. The $300,000.00 was the amount of an invoice from TRA dated 18 March 1997. The invoice was for professional fees described as -

Professional Charges re Services performed by
S Derrick and W J Gleeson
Charge per day: W Gleeson - $800, S Derrick - $1,200, Total $2,000
15 months (Mid Dec 95 - Mid Mar 97) x 10 days (8 hrs pd) x $2,000 $300,000.00

The minutes of the meeting of 18 March 1997 state that the meeting commenced at 9.00 a.m. and concluded at 12.30 p.m. As I have mentioned, the parties had met in the afternoon of the previous day and, when they broke up, it was for Derrick and Gleeson to respond to an offer. As I have also mentioned, in the circumstances Llewellyn decided not to attend the directors’ meeting on 18 March.

Prior to the raising and paying of this invoice Derrick and Gleeson had been seeking Llewellyn’s agreement to their being remunerated for their time and effort in bringing to fruition R & D syndication applications that were accepted as being Uniti projects. That is, projects in respect of which Uniti was entitled to the fee payable on completion. As I said the initial agreement did not permit payment of remuneration such as the $300,000 fee. Derrick and Gleeson required authority. Naturally, they sought it from Llewellyn, but he would not give it. The question is whether the payment by Uniti was a valid payment?

Uniti is a trustee of a unit trust. Derrick and Gleeson are directors of the trustee, and they and Llewellyn (or, rather, their companies) are the beneficiaries of the trust. The invoice is in respect of work which Derrick and Gleeson performed, it is said as employees of TRA, for Uniti. The agreement between Derrick, Gleeson and Llewellyn which is the foundation of their venture and the trust is that none of them receive such remuneration. The effect of the payment is the very negation of that agreement. Derrick and Gleeson have either directly or in the name of their company, TRA, procured for their benefit an invoice to the trustee and then as directors of Uniti resolved it be paid and caused the payment to be made. Not only have they profited from their position as directors of the trustee but they have procured a payment in contravention of the relevant agreement. The result is that the trustee has been caused to prefer the interest of two directors, who control two of the three beneficial interests against the other director and beneficial interest, and, as I say, in direct contravention of a fundamental term governing the business relationship of the three inter se. The trustee had knowledge of that, and that the term was one agreed for the better advancement of the venture conducted pursuant to the trust. For their part, of course, Derrick and Gleeson were under a fiduciary duty as directors to exercise their powers for proper, permitted and lawful purposes, and not for the benefit of themselves or their interest at the expense of the trust. It is sufficient to refer to Ford and Lee, Principles of the Law of Trusts, 3rd ed., paras.9110 and 17150; Jacobs’ Law of Trusts in Australia, 5th ed, para 1733.

Counsel for the applicants base the claim upon an alternative basis, namely, that TRA was a constructive trustee of the amount of $300,000 and liable to account for it as such. It is submitted that it became such a trustee on the basis that it was the recipient of trust property paid in circumstances of breach of fiduciary duty. Reliance was placed upon the well known principle in Barnes v. Addy (1874) L.R. 9 Ch. App 244. But, primarily, the case was put on the basis that the payment was not authorised under the initial (and prevailing) agreement of the parties.

Counsel for the first to fifth respondents submitted that the resolution of 18 March was lawful and a proper exercise by Derrick and Gleeson of their powers as directors of Uniti. In making this submission he relied upon several provisions of the Uniti trust deed, Uniti’s articles of association and the nature of directors’ duties.

First, counsel identified the provisions in the trust deed upon which he relied. He referred to the following clauses; 9 (the trustee holds the trust fund for the benefit of the unitholder in accordance with the terms and conditions of the deed); 10 (the unit holder is entitled to the benefit of the trusts in the proportion in which they hold units but the unitholder is not entitled to the transfer to it of any of the trust property except in accordance with the provisions of the deed); 28 (the investment and management of the trust fund and the administration of the trust shall be solely in the hands of the trustee except to the extent the consent of a unitholder is required or the unitholder may direct); 29 (a) (trustee may employ persons for the administration of the trust and carrying on any business upon such terms as it thinks fit); 30(a) (where the trustee is a corporation, its powers may be exercised by the directors acting as a board in the same manner as they might act in accordance with the corporations articles of association in any other matter concerning the trustee); 30 (d) (any powers or discretion exercised under the deed by the trustee shall be deemed exercised when the resolution of the trustee exercising that discretion has been made). Counsel also referred to clauses 32, 33, 51 and 54 and I will mention them in a moment. But, pausing in his submission at this point, counsel said that, in relation to cl. 30 (a) & (d), because the trustee was Uniti -

“...provided the memorandum and articles of Uniti are followed in relation to the passage of resolutions at board meetings and provided there is no breach of any provision of the deed, trust deed, in the passage of such a resolution or no other breach of trust, that is the law of equity pertaining to trusts, or any breach of the Trustee Act in the making of that resolution, the decision made by the board is a decision of the trustee and Mr. Llewellyn’s position as the third of three directors, if he was unhappy with the proceedings of the board, was to take action against the board...”

Counsel then sought to make a point of the fact that Llewellyn did not take action against the board, before or after he became aware of the resolution, when he could have pursued a remedy under s.260 of the Law, and which, if it had been urgent could have been dealt with expeditiously. However, he chose not to do so and “simply did his own thing in Nextec and took what actions he thought were appropriate to protect his financial interests in Uniti”. Although the central point of this submission was that Llewellyn was dilatory in protecting his interests when he became aware of the resolution of 18 March, counsel added to the submission comments concerning Llewellyn’s conduct and how he opted to handle the situation and protect his interest, that referred to the time and events which occurred prior to the resolution, indeed even back to December 1995. The submission in this respect seemed to be that Llewellyn relied on correspondence which stated his position as distinct from attending board meetings (which he did attend sometimes ) and that, in effect, he could not complain if the other directors passed a resolution which they regarded as appropriate in the circumstances. That is, of course, assuming that the resolution was a valid resolution in the eyes of the law. Before dealing with that issue of validity, it is necessary to say something about counsel’s submission.

The essential point of the submission was an attack on Llewellyn for not promptly commencing action in the court to impugn the resolution. In my view this is a criticism without merit. The resolution was made on 18 March 1997. Llewellyn had opposed such a payment. I refer to what I have already said about the matter. On 12 March 1997 Derrick and Gleeson wrote to Llewellyn enclosing an agenda for the directors’ meeting on 18 March. They also enclosed a draft agreement for consideration. In their letter Derrick and Gleeson referred to this contentious matter of their being paid a salary. On this point the letter said -

“..The issue of salaries is clearly a very sensitive point. The return to Unitholders is after all costs. The cost of our full-time effort is relevant to the expected $1.4m Unitholder distribution, a point you confirmed at our last Board Meeting, as the return to Unitholders would have been considerably less without such. In our view, the only matter requiring resolution is the determination of a reasonable sum. It is most unreasonable of you not to concede this as you have been advantaged by our dedication over and above what would have been the case.”

In other words, Derrick and Gleeson were putting forward the case ( as they had in the past and which Llewellyn had always rejected) for them to receive a reward for their efforts, a reward which was denied by the terms of the parties venture. Llewellyn did not agree.

As I have pointed out, there was further correspondence and a meeting at Coadys on 17 March at which the parties discussed outstanding issues. In the circumstances, which included in particular that Derrick and Gleeson were to respond to an offer from Llewellyn, Llewellyn did not attend the directors’ meeting the next morning, 18 March. Further, the agenda for the meeting did not specifically refer to the matter of this payment or set forth the terms of the resolution and the TRA invoice was not enclosed in the letter of 12 March 1997, or provided to Llewellyn prior to the meeting on 18 March.

For reasons which appealed to them, which in my view were taken in a calculated way for their personal advantage, Derrick and Gleeson did not tell Llewellyn of the resolution or of the invoice from TRA. They remained silent on those points notwithstanding that they wrote to Coadys on 21 and 27 March. These letters are significant for another reason. They state that until matters of uncertainty in relation to discussions with Bain (referred to in the letters as Deutsche Morgan Greenfell Australia Ltd and to which I later refer as DMG) are resolved, “we are not inclined to advance, or distribute any funds to Unitholders”. This was at a time when Coadys were threatening legal action. Indeed, it must have been obvious that litigation at the instance of Llewellyn was imminent. So, what did Derrick and Gleeson do? They obtained the Bain fee and paid the TRA invoice out of the funds thus derived. Those funds of course belonged to Uniti as trustee. They carried this resolution into effect without advising Llewellyn of any of the relevant facts. What Derrick and Gleeson did, was done to advantage themselves before the litigation commenced. Every step was in my view planned to achieve the end. What they had done was not disclosed until 3 April 1997 when the game was up, so to speak. The disclosure was by Derricks letter of 2 April which in addition to the minutes of the directors’ meeting on 18 March, enclosed a cheque for Llewellyn and a TRA invoice, and other papers which disclosed payment of $300,000 to TRA (in fact being $276,090.23 after taking into account the cost to TRA of purchasing an item of Uniti’s property).

It is curious that Derricks letter of 2 April was not received by Llewellyn until the evening of 3 April, but that is when it was provided to Llewellyn. Whether or not the letter was prepared on 2 April and held until the last moment, or perhaps pending legal advice (for Derrick and Gleeson were receiving legal advice) does not matter. What is clear, and what I find, is that the late provision of this information was a deliberate tactic adopted by Derrick and Gleeson as part of their plan to bring to fruition and complete the steps they had taken to advantage themselves financially and tactically in their dispute with Llewellyn. For by obtaining the payment they had Uniti’s money in their pocket and put the onus on Llewellyn, as it were, to establish at law that it should not be there but with Uniti.

Llewellyn commenced this proceeding on 11 April, that is, on the 8th day after disclosure by Derrick of what he and Gleeson had done. The submission of counsel for the first to fifth respondents that Llewellyn had not acted promptly to seek relief under s. 260 or otherwise is to be assessed in light of these matters. I reject the submission.

I mentioned that as part of his submission counsel referred to matters that went back to December 1995 including the pattern of Llewellyn’s attendance at directors’ meetings. That attendance, such as it was, is to be assessed in light of the fact that the parties were locked in a bitter dispute. It is also in the context of ongoing attempts to settle the dispute. The context cannot be ignored. In a sense and in reality, the discussion at a directors’ meeting may and doubtless often reinforced a difference that was already known or was readily ascertainable. One thing that Llewellyn did not do was abdicate his rights in favour of Derrick and Gleeson. Subject to the decisions that the three individuals made from time to time in relation to the winding up, the parties rights and obligations under their agreement and at law remained alive.

I return then to the provisions in the Uniti trust deed which counsel referred to in support of the validity of the resolution of 18 March. The next clause is cl. 32 which exempts the trustee from liability in carrying on the trust except for wilful and individual fraud on the part of the trustee. Counsel then referred to cl. 33 (a), (b), (h), (i) and (u). Clause 33 is a standard provision which confers a variety of powers on the trustee in the investment and management of the trust fund. The powers relied upon are the power to carry on a business (par. (a)), the power to borrow and raise money (par. (b)), the power to make payments for carrying on, managing or developing or purchasing any business (par. (h)), the power to do any act which in the opinion of the trustee is necessary for the proper and efficient management and development of any business (par. (i)), and the power to employ managers, staff and contractors as necessary or desirable and to pay such persons out of the trust fund as to the trustee shall seem appropriate (par. (u)).

It was submitted that these powers authorised Uniti “to use the services of TRA or for that matter Derrick and Gleeson, as provided by their own companies, and for that matter Llewellyn as provided by his private company, to carry on the business of the trust”. It was submitted that it was not incumbent on the trustee to work for nothing and that Uniti was empowered to engage such persons as it saw fit and to pay them for their services, whether or not the person engaged was a company controlled by a director or even a director himself. Counsel said that prior to the split up Uniti reimbursed directors’ expenses and in this respect he instanced the payment of air fares which had been borne in the first instance by the director himself. In the subject case the $300,000 fee was for work done “to finish off Uniti files”. There was other work such as administration matters which Derrick and Gleeson did not charge for. In their earlier negotiations and in the 9 February document the parties had contemplated the payment of such remuneration and this was consistent, it was submitted, with the directors having the power to determine upon such remuneration.

The next step in the submission of counsel for the first to fifth respondents was that Derrick and Gleeson proceeded on the basis that Llewellyn encouraged them to proceed by an offer he made as to the basis of winding up. This sounded like a plea of estoppel, but I do not think it was. Counsel said other things but to an extent his submission was a little like a plea for the recognition of the claims of the just.

At one point in his submission counsel for the applicants said that he agreed with the submission for the first to fifth respondents that at this early time the parties agreed that Uniti would continue for the purpose of completing R & D syndicates 1 - 29 and that the parties be otherwise free to compete for business. The applicants counsel added that on 9 February there was an agreement on whether Uniti’s business should include matters 30 - 56. It will be recalled however that I have concluded the parties did not make an agreement on 9 February or subsequently in terms of the offer of that date.

For the present I am not so much concerned with the question whether and in relation to what matters the parties agreed to limit Uniti’s business activities. I am concerned with the question whether they made an agreement that entitled Derrick and Gleeson, or TRA, to payment of the sum of $300,000.

Included in the parties discussions was an offer from Eco on 25 November 1995 and an offer from RKLA on 27 November. These offers involved the purchase of the other’s units in the trust. The offers contained terms as to the provision of management services to complete matters up to no. 29 and the allowance of daily fees to Derrick and Gleeson of $2,000 and $1,350 respectively for any such services, such amounts to be deducted from the syndicate proceeds. Neither offer was accepted and on 28 November Derrick gave notice of the directors meeting of 1 December and the unit holders meeting on 11 December.

On 29 November Llewellyn sent a proposal which included that unitholders would bill to Uniti “agreed expenses in relation to the syndicates 4 - 28 (9) which will be deduced from the gross income pool”. It also included a proposal that the unitholders time spent in concluding the transactions 4 - 28 (9), and Gleeson’s time in managing the trust and accounting be deducted from the gross income pool, on agreed daily rates. The proposal was not accepted.

Then followed the meeting of directors on 1 December which Llewellyn did not attend, and Derrick’s letter of that day. Llewellyn responded on 3 December. The letter includes a general statement as to “broadly” accepting the propositions in Derrick's letter of 1 December but he then stated that he would respond in detail after taking advice. One cannot get an acceptance of an offer out of this letter. Moreover, the letter said that he expected Uniti to continue to receive revenues and make payments to unit holders.

On 7 December Llewellyn responded to Derrick’s letter of 1 December. I referred to this letter above. I have also referred to the response of Derrick and Gleeson on 8 December. This correspondence did not expressly deal with the payment of management fees. And so communications between the parties continued. It is not necessary to mention them all here. I have given an outline of events in the earlier part of this judgment. A central point in the correspondence is which matters Uniti will continue, which Llewellyn may handle and conflict of interest.

On 22 December Derrick and Gleeson acquired TRA. Derrick and Gleeson had, as it were, taken to themselves the conduct of certain R & D syndication applications and from 22 December they commenced using TRA letterhead in relation to Uniti work, as I mentioned earlier. They could have used Uniti letterhead for the handling and completion of Uniti matters. In my view they, and Llewellyn for his part with Nextec, used the letterhead of their new corporate entity for their own benefit in identifying their new business. But doing that did not give rise to an engagement by Uniti of TRA to perform work, let alone an agreement that it be performed at any particular rate. Derrick and Gleeson, or TRA, cannot force an agreement upon Uniti. It is said that in effect the parties agreed to the one side and the other carrying out Uniti work under the name of their respective new corporate entity but even if that was so it is another thing to find an agreement that that entity be entitled to remuneration for the directors time spent on Uniti business.

One then comes to the offer made by Derrick and Gleeson on 9 February 1996. This document did deal with the management fee issue. Counsel for the first to fifth respondents submitted that Llewellyn’s purported acceptance did not produce an agreement. Indeed he submitted that the offer was one that was not capable of acceptance. He further submitted that Llewellyns response was not an acceptance, or at least an acceptance that produced and concluded a binding agreement. He also submitted that the subsequent discussions did not result in an agreement. I have already concluded that the 9 February document never became a concluded and binding agreement.

To conclude on this point. I agree with counsel for the first to fifth respondents that the parties did not reach an agreed position that a management fee such as the impugned $300,000 fee be paid for undertaking and completing Uniti work. The mere fact that a daily rate for Derrick and Gleeson was mentioned does not mean that there was an agreeement that they be remunerated at such a rate. Nor does the fact that , as it turned out, Derrick and Gleeson as executive directors of Uniti and TRA carried out much work mean that there was such an agreement. That they did the work was the result of their actions in determining to do so. It does not follow from their actions that there was an agreement which contained a term that they be remunerated. In particular it does not follow that a term to that effect could or should be implied. Further, there is no basis for an estoppel against Llewellyn in favour of Derrick and Gleeson being entitled to remuneration.

For these reasons I conclude that the charge and payment of $300,000 was not made pursuant to an agreement between the parties. The result is that the amount, or rather the net amount of $276,090.23, received by TRA is liable to be repaid to Uniti.

I now deal with the issue whether TRA is liable to account to Uniti in respect of relevant R&D Start matters. They are matters in which the client was one in respect of whom Uniti had acted in connection with an R & D syndication project. The applicants contention is that the R&D Start matters were Uniti matters which Derrick and Gleeson appropriated to TRA for its (and their) benefit to the exclusion of Uniti. Thus, TRA has retained and claims to be entitled to the success fee earned in respect of such R & D Start matters. The respondents deny the claim.

The present issue is concerned with R&D Start applications which have already or do hereafter succeed and which the applicants contend are the property of Uniti by reason of a prior connection with Uniti in relation to an R&D syndication matter. The identity of the clients and the subject matters is not in dispute.

Derrick said that he and Gleeson pressed all Uniti applications as far as they could under the R&D syndication programme. Not all could be brought to fruition but, Derrick said, they did their best to bring about a successful result. In particular, he said, and I accept, that no such application was withdrawn so as to have the client proceed under the R&D Start programme.

Moving from that point Derrick identified why the relevant R&D Start applications were not the property of Uniti. First, in many cases (he said) the clients were contacted direct by officers of the Department of Industry, Science and Tourism and encouraged to apply. Second, all Start applications lodged by former Uniti clients were lodged as a result of their own decision to do so. TRA assisted in preparing their application when requested to do so. Under Start the client lodged the application whereas syndicate applications were lodged by the packager. Third, Start was an entirely new programme, and not a continuation or reshaping of the R&D syndicate programme. The differences between the programmes were elaborated on by Derrick in a supplementary witness statement and by Gleeson in his witness statement. I have regard to all evidence on these matters. In the result, Derrick said and counsel for the first to fifth respondents submitted, neither the Start applications, the clients or the subject matter of their projects were the “property” of Uniti.

I reached the conclusion, having attended to the documentary and oral evidence, and having formed impressions of Derrick, Gleeson and Llewellyn, that each side sought to put its case on this aspect at the highest in every respect including in the evidence as to the differences between R&D syndication and Start.

For his part Llewellyn’s evidence was to the effect that there was little difference in substance between the two programmes although there may have been differences in detail. In particular he said that the Start applications were similar to syndicate applications and that the Uniti precedent business plan which had been developed by Uniti in his time with Uniti was adapted to and used in Start applications. Not surprisingly, this evidence was attacked by the first to fifth respondents. Although the Uniti form of document has been adapted I accept the thrust of the evidence that the Start applications by former Uniti clients took advantage of the Uniti form, and that the applications were put together by or under Derrick and Gleeson. In this respect see Derrick’s letter to Transcom International Limited dated 24 November 1996 which related to a Start application and in which he said that TRA “will have to spend considerable time and effort in repackaging your application, photocopying, collating and binding twelve copies, and arrange for courier or hand delivery of these to Canberra” and requested a $500 flat fee to offset those direct costs.

In essence, whether it be the syndicate or Start programme, one was dealing with a government programme to assist research and development. Uniti was engaged in the business of assisting companies who desired such assistance, to obtain the benefit of the programme. Uniti’s role, to put it very simply and without elaboration, was to facilitate getting an application together with the best chance of success. It would seem, or at least I so find, that it or its directors had appropriate expertise in this regard. They did well in a relatively short time. They dealt not merely with clients but with other persons such as financiers and government. In addition, Uniti offered services such as corporate advice. In the result, I conclude, Uniti and its directors developed and retained, and held up to and beyond 23 July 1996, a reputation for skill and expertise in the area. One aspect of this is seen in the leadership role with government which Derrick and Gleeson took in relation to proposed changes to the system and the implementation of those changes. Derrick and Gleeson were aware of these matters, and under the name of TRA sought to take advantage of them for their purposes as early as 22 December 1995 when they wrote to a number of former and potential clients of Uniti. They sought to turn the Uniti connection to their advantage with TRA, not just in connection with concluding projects but generally in my view. So, doubtless, would Llewellyn have acted, or did act.

Counsel for the applicants submitted that the contemporaneous documents show that Derrick and Gleeson regarded the relevant Start application clients as Uniti business. Indeed, he submitted, there was not a single piece of paper in the court book which suggests they were not the property of Uniti. As part of this submission he relied on a list of relevant documents, to which should be added a reference to Uniti’s letter dated 21 March 1997 written by Derrick to Bain (DMG) in which he agreed to Uniti sharing a Start fee with Bain. Of these documents he referred in particular to the reference to R&D Start in par’s 4.4 and 4.6 of the agenda for the meeting of directors on 9 January 1997 (following the commencement of the Start programme), and the attached list of the 11 Uniti Start prospects entitled “Uniti Corporation - R&D Start Prospects”; Derrick and Gleeson’s letters dated 25 February 1997, 3 March 1997, and the agenda and attached papers for the 18 March 1997 directors meeting. These are some of the documentary references which indicate the relevant Start matters are Uniti matters and were so treated by Derrick and Gleeson.

It is not necessary to set out all the relevant statements in the documents referred to by the applicants. In my view they do show that Derrick and Gleeson treated Start applications by Uniti syndication clients as being Uniti clients and I am satisfied, having heard the evidence of Derrick and Gleeson, that that was deliberate. In par. 4.6 of the agenda for the 9 January meeting, which was prepared by Derrick and Gleeson, after a prior reference to Start applications by Uniti clients, it is stated that directors need to consider, among others, the proposition that-

“(iii) In view of the relation of the R&D syndicate applications and the R&D Start applications by the ex-syndicate clients, and the potential value in the portfolio of Start projects, Uniti to take primary responsibility for the cost of running the office at William Street, effective from 1 January 1997. Month to month tenancy arrangements continue for the time being.”

In my view the relationship was and is clear and direct. The real problem between the parties is that they never came to terms on matters such as the sharing of the resulting success fees, management fees and the Beam fee.

Derrick and Gleeson sought to explain the item in the minutes of that meeting under the heading “Uniti Syndicates / Start Applications”. The item records that the meeting “discussed the portfolio of eleven (11) ex- R&D syndicates who had applied for R&D Start as a consequence of negotiations between S. Derrick, W. Gleeson (as TRA) and others with Government”. The item then states that

“It was proposed that:
· the portfolio be treated as a Uniti asset with a potential upside of $2m in fees; and
· reasonable success fee sharing arrangements between Uniti and S Derrick and W J Gleeson (as TRA) are appropriate to share that upside to reflect the various contributions.
The Directors agreed to consider their position on these matters further. R K Llewellyn undertook to consider and respond to the information on Start projects and the proposal on consulting fees tabled by S Derrick and W J Gleeson. “

It should also be noted that the minutes conclude by recording that the meeting agreed, concerning financial arrangements post 31 December 1996, that -

“Reasonable consulting fees were due to the respective directors for the work performed post-June 1996, particularly having regard to the 23 July 1996 announcement and the R&D Start portfolio, and that the Board of Uniti consider a proposal in respect of the quantum amount, which will take into account success fee sharing arrangements for R&D Start applications.”

In their evidence Derrick and Gleeson said, in relation to the item relating to Uniti Syndicate / Start Applications that the attached list of 11 Start prospects was incorrectly entitled. They said, contrary to the title mentioned above, that “some” of these Start applications “may be considered Uniti business on the basis that reasonable fee sharing arrangements were put in place”. They said that the discussion on the item was in the context of seeking and achieving agreement on the matters of fee sharing, a management fee for themselves and Nextec sharing success fees. As I have mentioned, the parties did not agree on these matters. One can understand the fact of discussions with a view to settling differences. They preceded 9 January and continued thereafter.

The fact of such discussions cannot disguise the reality. The reality is expressed by the documents and in that regard, as I have said, I am assisted by my assessment of the witnesses. The reality is, I find, that the progression of the matters into and under the Start programme was a continuation, extension and taking to completion under changed guidelines the clients attempt to seek research and development assistance. Further, I reject the evidence of Derrick and Gleeson that there was a mistake in the heading of the list, and, to the extent that their evidence seeks to say, that they only raised and were prepared to bring in the Uniti Start applications if agreement could be reached on the matters. In any event, even if that was their attitude the question is whether it was correct. That is, that the relevant Start prospects were not the property of Uniti. In my view their actions were reflective of the sense and reality of the matter, that these clients were Uniti clients, that they were so regarded, and that the true nature of the work was pursuing to the most successful conclusion the application of such clients tailored to the requirements of government as they were from time to time.

A point relied upon by counsel for the first to fifth respondents is that Uniti worked on the basis of a contractual mandate from each client that was limited or confined both to a project and a time. Similarly, TRA performed the relevant Start work under written engagements with the client. Those engagements came about, I find, as a result of Derrick and Gleeson being “the principal points of contact with all of these clients”(to quote counsel for the first to fifth respondents). I also find on a balance of probabilities and having regard to their relationship with the clients, that if Derrick and Gleeson had used a Uniti engagement the clients would have signed it. But Derrick and Gleeson chose to take the work up in TRA. Another point made by counsel for the first to fifth respondents was that Start was unknown in November 1995 when their working relationship broke down. In my view the answer to that as a point is that it was not open to a director to appropriate part of Uniti’s business for himself. Further, the work in question was being performed as part of a winding up of Uniti’s business.

The position is that Derrick and Gleeson by exercising their majority power as directors of Uniti, have diverted to their company TRA or to themselves via TRA for their benefit and profit, certain business transactions that would otherwise have been conducted by Uniti for the clients concerned. As a result, Derrick and Gleeson diverted profit to themselves at the expense of Uniti. It is sufficient in such circumstances to refer to Regal (Hastings) Ltd v. Gulliver [1967] 2 A.C. 134 at 144 - 145 and 153, for authority for the conclusion that in the present circumstances Derrick and Gleeson are liable to account. TRA, of course, received the profit with knowledge that it was diverted from Uniti and received in virtue of Derrick and Gleeson’s breach of fiduciary duty.

I turn now to the matter of the Beam fee. This is raised by Uniti’s counter claim against Llewellyn and Nextec. On this aspect counsel for Uniti addressed lengthy submissions. Uniti sought the recovery of profits obtained by Nextec on the Beam fund raising. Those profits are a success fee of $125,000, commission of $8,000 on a sub-underwriting agreement and 150,000 performance options granted to Nextec by Beam.

I have already mentioned the points taken by Llewellyn and Nextec in their defence. A fundamental point of fact is that the mandate for equity funding under which Nextec earned the fee was entered into subsequent to the breakdown of the parties business relationship. Uniti had no such mandate in December 1995, although Llewellyn had previously been seeking such a mandate. Counsel for Uniti submitted that in all the circumstances it could be seen that there was a line of continuity in the work of Llewellyn or Nextec in pursuing and in obtaining a mandate from Beam and that the correct conclusion was that the Beam work was Uniti business.

The approach of counsel for Llewellyn and Nextec renders it unnecessary to labour through the documents to determine whether in substance Llewellyn and Nextec did pursue an item of Uniti work. In his final address counsel for Llewellyn and Nextec said that the issue for determination was whether Llewellyn had the consent or agreement of Derrick and Gleeson to pursue the equity prospect with Beam. He conceded that in the absence of such consent or agreement the fund raising for Beam “did form part of Uniti’s business”. In addition, counsel also relied upon the pleas in the defence of waiver and estoppel. That is, that Derrick and Gleeson had waived any right in Uniti to the work or that they were estopped from denying that Llewellyn was entitled to carry out the work for his benefit

Curiously, counsel for the first to fifth respondents supported this submission. He submitted that Llewellyn was entitled to take the Beam fund raising work “because the directors between them worked out which work of Uniti’s they had abandoned and our case is that no-one took work for themselves that was not abandoned by Uniti”. He submitted that Uniti’s counterclaim should fail. It seemed strange that this submission came from counsel for Derrick and Gleeson who are the controlling directors of Uniti and whose decision it was that the counterclaim should be brought. The scenario is: Derrick and Gleeson control Uniti, Uniti brings a counterclaim with their approval, their counsel says it should fail. It cannot be thought that Uniti has in some way proceeded under the hand of an independent person because if it had Uniti must have added a counterclaim against Derrick, Gleeson and TRA for the recovery of the Start monies. So Uniti proceeded in a partial way as between the directors, clearly at the instigation of Derrick and Gleeson only to have their counsel in his final address submit that Uniti’s claim is without merit. I do not overlook that the explanation for counsel’s submission may lie in a perception which may have developed as the case unfolded at trial of a weakness and inconsistency in his clients position on the Start issue compared with the position being taken by Uniti on the Beam issue , in particular that all the Start matters were new business unconnected with Uniti business. In other words, the forensic line taken by counsel for the first to fifth respondents was an attempt to bolster the position of Derrick, Gleeson and TRA on the R&D Start fee aspect of the case. But, for whatever reason, that is the submission which counsel for the first to fifth respondents made.

I turn then to outline the facts and circumstances that counsel for Llewellyn and Nextec relied upon to establish the submission of consent or of an agreement to the like effect, waiver and estoppel. The relevant events and circumstances occurred following the break up of the parties relationship in November 1995. The parties’ subsequent discussions dealt with the range and extent of the work that would be carried out in winding up Uniti’s affairs and who would carry out that work. It is submitted that in these discussions Derrick and Gleeson agreed or consented to Llewellyn keeping the Beam equity fund raising work. It is a fact that Llewellyn, himself or by Nextec, pursued the Beam fund raising mandate, succeeded in obtaining the mandate and was successful under the mandate in that Beam raised funds.

In the earlier part of these reasons I referred to relevant events and correspondence subsequent to 25 November 1995. As to the events on 26 November, it is sufficient to note that Beam fund raising was not an R &D syndication matter and therefore was not one of the matters 1-29 which Derrick and Gleeson that day resolved be placed under the executive management of Derrick. Of course, as I have said, at that time Uniti did not hold a mandate from Beam for the purpose of raising funds.

As to Llewellyns offer on 27 November, it is sufficient to note that after dealing with matters 1 - 29 it proposed that Eco and Gleeson Pty Ltd may pursue any business opportunities they may choose but in the area of structured finance not to include any involvement with the organisations in syndicates 1 - 55 except those on a list and when requested to assist.

Passing then to the 28 November notices of meeting one sees the intention of Derrick and Gleeson as to the work to be pursued by Uniti. The proposal which Llewellyn sent on 29 November included the suggestion that RKLA have ongoing responsibility for Beam. That treated Beam as a Uniti matter.

Then, in his letter of 7 December Llewellyn said he would pursue activities with entities except where there was “an existing contractual commitment with Uniti”. He identified Beam as an entity he might pursue. Towards the end of the letter he said that as previously agreed he would like a number of documents to be provided to him on computer disk. He then listed nine categories of document one of which was "Beam Investment Proposal". That proposal was for the obtaining of investment in Beam and was part of the work of Uniti (see the draft Investment Proposal prepared by Uniti dated 26 August 1995) in connection with Beam obtaining equity funding. It was said by counsel for Llewellyn and Nextec that this put Derrick and Gleeson on notice of Llewellyn's intention to pursue an equity funding mandate from Beam. That letter was responded to by the Derrick and Gleeson letter of 8 December. That letter includes the statements that “each of us” will be able to compete for business other than projects 1 - 29 but not so as to prejudice those projects and noted that Llewellyn will pursue projects he had listed.

In Derrick and Gleesons letter of 11 December there is reference in the first paragraph quoted above to “current business”. This is a reference to Derrick and Gleeson wishing to restrict activities to projects 1 - 28. The reference in the next sentence to the third unitholder is a reference to Llewellyn and to matters other than 1 - 28.

I refer above to the events of 13 December. There was an issue as to what was comprehended by the expression “existing business at hand”. It is clear that it included projects 1 - 29. Derrick said that it should also be taken as including five existing contracts for non-syndicate activities, but it did not include syndicate or potential syndicate matters 30 - 56. The five existing matters were Beam, Ajax Fasteners, SES, Transcom and Resource Co - Management. Of course there was not then a Beam fund raising mandate although Llewellyn had been pursuing one. For this reason it was rather strained to include Beam fund raising and in this respect I hesitate to accept that part of the evidence. Derrick agreed it was implicit in the resolution that the parties could compete in relation to those later matters 30 - 56. He further said that where there was no Uniti relationship Llewellyn could pursue non R&D business.

In his letter of 15 December Llewellyn said that Derrick and Gleeson cannot limit the business of Uniti by a policy contrary to the requirements of the trust deed. Derrick and Gleeson's letter in response on 19 December referred to Llewellyn's request for copies of files. Without being specific as to the Beam documents they said they expected to be able to provide copies or access “other than those which involve the on-going business of Uniti” on which their position remains the same. Whether Beam fund raising was “on-going” business may be a matter of doubt but counsels concession rather concedes that it was. At the same time it is noted that Beam was in matters 30 - 56 and there was then no contract or mandate for fund raising.

On 19 December Llewellyn sent Beam a draft equity funding mandate for consideration. This provided for the engagement of Nextec, and not Uniti. Llewellyn did not advise Derrick and Gleeson on his attempts to secure this mandate.

I have referred above to Derrick and Gleeson's correspondence on 22 December. The minutes of the meeting of directors held on 21 December that were enclosed with that letter include an item entitled “Director Obligations”. Under that item it is recorded that Llewellyn expressed a view that Derrick and Gleeson were acting illegally and with a conflict of interest while he was fulfilling all the duties of a director. On the other hand, Derrick's stated view was that Llewellyn had a conflict of interest in dealing with Uniti clients without prior reference to Derrick and Gleeson and in using non-Uniti letterhead. It is apparent from these minutes, the letter of 22 December and the parties evidence that at this stage, and notwithstanding any prior correspondence, Derrick and Gleeson on the one hand and Llewellyn on the other were not in agreement as to how Uniti's business and which parts of it was to be handled and by whom. I am well satisfied that what the parties were doing was engaging in discussions and manoeuvres with the purpose of protecting and if possible advancing their respective interest. I find that neither side was altogether frank with the other. Neither side telegraphed their punches as far as the establishment of TRA and Nextec were concerned or any relevant strategy to be deployed. The letter of 22 December concludes by saying to Llewellyn -

“If you wish to put forward a proposal, for our consideration, that suggests a mechanism for dealing with what could have been described in November as “Uniti’s potential business”, then we are quite willing to consider this. However, we suggest that such a proposal will need to acknowledge that:
•Uniti’s potential business opportunities were not confined to R&D syndication alone.
•Many of the non-syndicate opportunities that you were working on had involved substantial direct input by each of us.

Given the time that has already passed, we suggest that you may wish to make a proposal promptly. Just as some of Uniti’s syndicate prospects have already become aware of the current situation - reinforced by your dealing with them on your own letterhead - we assume that some non-syndicate candidates may also be aware. We are also aware of your representations to Packagers, Uniti Affiliates, the Regulators and other interested industry parties.
We look forward to receiving and reviewing your proposal at your earliest convenience.”

It is important to note that Llewellyn did not put a proposal in response to that letter. Nor did he disclose that he was seeking to obtain an equity funding mandate from Beam.

It is not necessary to refer specifically to much that occurred thereafter, for, I have already noted, the parties did not reach agreement. There is a reference to Beam in a letter dated 23 January 1996 from Derrick and Gleeson's solicitor; this refers to an outstanding fee for work previously performed.

Ultimately, on 20 March 1996 Beam signed an equity funding mandate in favour of Nextec. As noted, Nextec proceeded to perform its part of the agreement and became entitled to and did receive the remuneration mentioned above which Uniti seeks to have brought to account. Llewellyn did not tell Derrick and Gleeson he had obtained the mandate. He said in evidence that in mid 1996 it became public knowledge that Nextec was assisting Beam with a public fund raising and that from that time Derrick and Gleeson showed an interest in Nextec's relationship with Beam whereas previously no such interest existed.

It should be noted that the point taken by Llewellyn in his discussions with Derrick and Gleeson that Uniti was not entitled to the Beam fee because the mandate was signed some four months after his departure, is not relied upon by his counsel. That is made clear by the concession that if it is not for the defence of consent, agreement, waiver or estoppel, the Beam matter was Uniti work and Uniti was entitled to the fee.

In the view that I take of the facts none of these defences is established. The fact is that despite all the talking and all the negotiations the parties did not reach an agreement to settle the terms of winding up the business. Nevertheless, Llewellyn and Nextec contend that when one regards the correspondence between the parties it can be seen that Derrick and Gleeson agreed with Llewellyn that Llewellyn was entitled to pursue Beam on the equity fund raising prospect and, if successful, retain the resulting remuneration for himself to the entire exclusion of Uniti. While I have regard to all of the correspondence in its context, that of particular relevance is that which passed in December 1995; see in particular Llewellyn's facsimile dated 7 December and Derrick and Gleeson's response dated 8 December. The question is whether Derrick and Gleeson agreed that Llewellyn should have for his own benefit to the exclusion of Uniti this particular piece of Uniti work constituted by the Beam fund raising matter or otherwise consented to Llewellyn being so entitled. Putting aside the separate issue raised by counsel for Uniti as to whether Derrick and Gleeson could legally so agree, the question is whether they did agree as alleged. It must also be borne in mind that there is a distinction between Llewellyn continuing to work on Beam matters, and for this purpose requiring the file, for the benefit of Uniti and working on a Beam matter that is unconnected with Uniti work. That is particularly pertinent when, as here, the work in question is conceded as being Uniti work for which, subject to the stated defences, Uniti is entitled to the fee. This is not a case in which the work which Llewellyn did for Beam was new and quite unconnected with work on which Uniti had been engaged with Beam. Further, the communications that passed between the parties were written in circumstances of bitter dispute, and are contentious and self-serving.

In all the circumstances and having regard to all the evidence I reject the case that Derrick and Gleeson consented or agreed to Llewellyn (and I say Llewellyn because Nextec was not known in 1995 and in 1996 Llewellyn was not frank in disclosing what he and Nextec were doing with Beam) being at liberty to pursue Beam for an equity funding mandate and to keep for himself to the entire exclusion of Uniti the whole of any fee or reward whatsoever which might be received pursuant to any such mandate. It is not sufficient to merely point to a reference to Beam and to a reference to pursuing activities with an organisation with which Uniti had dealt. The enquiry is articulated with more precision than that. In my view it was neither articulated, or responded to by Derrick and Gleeson, in terms which could constitute a consent or an agreement resulting from an offer and acceptance to Llewellyn taking over for himself the particular item of work or prospect of work.

It is important not to overlook the statement in Derrick and Gleesons letter of 8 December that in the pursuit of work previously pursued or conducted by Uniti the directors could not undertake activities which bring their other interests into conflict in the interests of Uniti. Of course, it is now conceded by Llewellyn's counsel that, prima facie, Beam work was Uniti work, and that should be taken as being the case when the parties were negotiating in 1995. It follows that Derrick and Gleeson's position was that Llewellyn could not bring his interest into conflict with Uniti's interest. Quite simply, that means that he could not take the Beam fund raising work for himself without a clear consent or agreement that permitted him to do so. Further, that letter shows that Derrick and Gleeson had not had sufficient time to consider Llewellyn's request for files which included a Beam file. Finally, on this point it is worth repeating that Llewellyn did not advise his intention concerning the pursuit of the fund raising mandate.

For these reasons too the pleas of waiver and estoppel must fail. Derrick and Gleeson did not know what Llewellyn intended in respect of Beam fund raising or that Llewellyn sought consent so as to take an item of Uniti work for his benefit absolutely. They did not know of Nextec. They did not know of the mandate. Llewellyn kept them in the dark, deliberately for his own benefit while he turned an item of Uniti work to his benefit. Indeed, he even sought an exclusive mandate from Beam on the basis that it recognised “the substantial at risk investment Nextec (through Richard Llewellyn) has made working with Beam over the last several years”. Of course the reference to Nextec was wrong; it was Uniti who had performed that work (see Nextec’s letter to Beam dated 8 February 1996). The mandate was sought in part as reward for Uniti’s past efforts. Further, on the estoppel point what Llewellyn did was done knowingly and if there be detriment to himself or Nextec it was self-induced and not suffered by reason of reliance on any representation or conduct of Derrick and Gleeson. Finally, still on the point of detriment, counsel for Uniti said that Nextec should be allowed an amount for any expenditure, and to enable it to make a profit, and for any skill and work that was put into produce the profit. He had no suggestion as to the amount of any such allowance and said that that issue should be sent to a Master for an enquiry. Subject to this submission I conclude that Llewellyn or Nextec is liable to account for the fee earned under the Beam mandate.

I do not at this point deal with the merits of this matter of an enquiry or of an allowance in favour of Llewellyn or Nextec just as I have not dealt with a similar contention made by counsel for the first to fifth respondents in relation to the work done by Derrick and Gleeson.

I have now dealt with the three central issues raised for determination. The relief sought by the applicants and the relief sought on the counter claim is wide-ranging but the foundation to the relief are the answers to these three points. It seemed to me that the width of the relief sought, and the variety of bases on which it was sought, was due, in part at least, to the complexity of the case and the difficulty the parties had in identifying the issues and seeing a way through them. It was suggested that I answer the main issues and allow the parties an opportunity to consider the form of relief that may be appropriate. I think there is much sense in that approach and for that reason and because it will give the parties an opportunity to consider their respective positions I will now stand the matter over for mention at a convenient time with a direction that counsel confer and submit minutes of orders.

Beam	Practel
Panfida	Wallace
Wingarra/Yunghans	Ajax/NCL
Mat-Man	Aurora
Crisisware	Sterlite
MRI	Adsteam/David Jones
SES	Village
Lateral Concepts	DSTO/Optronics
Goodman Fielder

[1998] VSC 74

24 September 1998