Lowe Pty Ltd v Belgravia Nominees Pty Ltd
[2020] WASCA 180
•29 OCTOBER 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: LOWE PTY LTD -v- BELGRAVIA NOMINEES PTY LTD [2020] WASCA 180
CORAM: QUINLAN CJ
MITCHELL JA
BEECH JA
HEARD: 6 FEBRUARY 2020
DELIVERED : 29 OCTOBER 2020
FILE NO/S: CACV 21 of 2019
BETWEEN: LOWE PTY LTD (ACN 009 345 143)
COLIN REGINALD HEATH
Appellants
AND
BELGRAVIA NOMINEES PTY LTD (ACN 008 821 654)
JOONDEL DEVELOPMENTS PTY LTD (ACN 009 458 002)
First Respondents
PENHURST NOMINEES PTY LTD (ACN 008 821 725)
Second Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram: TOTTLE J
Citation: BELGRAVIA NOMINEES PTY LTD -v- LOWE PTY LTD [No 6] [2019] WASC 5
File Number : CIV 2583 of 2013, CIV 2003 of 2015, CIV 1483 of 2016, CIV 3005 of 2016
Catchwords:
Civil proceedings - Limitation of actions - Action for recovery of payments made to the defendant at the behest of a director of the plaintiff acting under mistake and in breach of fiduciary duty - Where defendant knowingly participated in breach of fiduciary duty by the plaintiff's director - Where action commenced more than 6 years after payments made - Where trial court extended the time in which the action could be commenced on the basis that the failure to commence the action was attributable to improper conduct of the defendant or a person for whom the defendant was vicariously liable - Proper construction of the statutory phrase 'fraudulent or other improper conduct' - Whether defendant's conduct was 'other improper conduct' - Whether plaintiff's failure to commence action within the limitation period was attributable to the impugned conduct of the defendant
Legislation:
Limitation Act 2005 (WA), s 38(2)
Result:
Appeals allowed in part
Category: A
Representation:
Counsel:
| Appellants | : | B Dharmananda SC & M Sims |
| First Respondents | : | M D Cuerden SC & D Chandler |
| Second Respondent | : | No appearance |
Solicitors:
| Appellants | : | Jackson McDonald |
| First Respondents | : | Robertson Hayles Lawyers |
| Second Respondent | : | No appearance |
Case(s) referred to in decision(s):
ASIC v Kobelt [2019] HCA 18; (2019) 93 ALJR 743
Australian Education Union v Department of Education [2012] HCA 3; (2012) 248 CLR 1
Brisbane South Regional Health Authority v Taylor (1997) 186 CLR 541
Certain Lloyd's Underwiters v Cross [2012] HCA 56; (2012) 248 CLR 378
Durolek v Pier (WA) Pty Ltd [No 2] [2019] WASCA 138
Gerlach v Clifton Bricks Pty Ltd [2002] HCA 22; (2002) 209 CLR 478
Harrison v Melhem [2008] NSWCA 67; (2008) 72 NSWLR 380
Kakavas v Crown Melbourne Ltd [2013] HCA 25; (2013) 250 CLR 392
Mansfield v Director of Public Prosecutions (WA) [2006] HCA 38; (2006) 226 CLR 486
Minister for Immigration v SZVFW [2018] HCA 30 (2018) 264 CLR 541
Mohammadi v Bethune [2018] WASCA 98
Owners of the Ship Shin Kobe Maru v Empire Shipping Co Inc (1994) 181 CLR 404
R v Byrnes (1995) 183 CLR 501
Re Bolton; ex parte Beane (1987) 162 CLR 514
Shire of Toodyay v Merrick [2016] WASC 29
The Commonwealth v Cornwell [2007] HCA 16; (2007) 229 CLR 519
Table of Contents
Summary
Parties and associated persons and entities
The Godecke family
Mr Heath and his associates
Bookkeeping and accounting staff and contractors
Factual background
Nature of the relationship between Mr Heath and the Godecke brothers
The purchase of the Quinns land in 1981
The formation of the Godecke Land Trading Partnership
The 1999 Agreement
Acquisition of Ibis land in September 1999
Arrangement for the development of the Quinns land in 2002 - 2003
Arrangements for the development of the Ibis land in October 2003
Payments on 4 April 2006
Payments on 26 March 2007
Process for invoicing and paying the above amounts
Belgravia's accounting records
Bill and Bob Godecke's knowledge of the payments
Meeting with Mr Quinlivan in September 2007
Deterioration of Bob Godecke's health in October 2007
Handover from Ms Le Fournour to Mr Quinlivan in October 2007
Appointment of Mr Quinlivan as company secretary of Belgravia
Inquiries by Karin Godecke in early September 2009
Change of Belgravia's directors on 14 September 2009
Karin Godecke's further inquiries about fees in 2009 - 2011
Expiry of limitation period for April 2006 payments in April 2012
Inquiries by Tony Godecke from May - June 2012
Correspondence and negotiations in July - September 2012
Expiry of limitation period for March 2007 payments in March 2013
Tony Godecke's further investigations
Notice of demand served in October
Changes in Belgravia's officeholders in 2013
Commencement of proceedings on 18 October 2013
The primary judge's approach
Basis of Belgravia's claim and Lowe's counterclaim
Determination of claim for mistaken payments
Determination of claims of breach of fiduciary duty
The limitation issue
Proper construction of s 38(2)
Improper conduct
The failure to commence the action was attributable to Lowe's improper conduct
Delay and prejudice
Award of equitable compensation
Lowe's claims
Orders made in the primary proceedings
The appeal to this court
Scope of the contested challenge to the primary orders
Existing grounds of appeal
Application to amend the grounds of appeal
Leave to appeal
Ground 1: construction of s 38(2) of the Limitation Act
Statutory provisions
The appellants' construction of s 38(2)
General principles
Preferred construction
Particular matters raised by the appellants
Ejusdem generis rule
Giving work for all statutory language
Extrinsic material
Purpose of s 38(2)
Disposition of ground 1
Grounds 2 and 5 fall away
Grounds 3(a), 3(b), 6(a) and 6(b) and the primary judge's construction
Grounds 2A, 3(c), 5A and 6(c): whether Lowe engaged in 'improper conduct'
No invoices provided when payments made
Informing Karin and Tony Godecke as to the basis for the payments
Failure to provide copies of invoices
Materiality of errors identified above
Grounds 4 and 7: attribution and Belgravia's knowledge
Materiality of errors as to characterisation of Lowe's conduct as improper
Orders
JUDGMENT OF THE COURT:
Summary
The central issue in this appeal is whether the primary judge erred in granting an extension of the limitation period in respect of claims made by the first‑named first respondent (Belgravia) against the first appellant (Lowe).
For more than three decades, the second appellant, Colin Heath, and two brothers, William (Bill) Godecke and Robert (Bob) Godecke, invested, through companies respectively owned by them, in projects involving the subdivision of land. Mr Heath provided services as project manager and, at times, real estate agent, in relation to those projects through Lowe, which he controlled. After Bob Godecke's death, disputes arose between Belgravia and Lowe concerning the terms on which Lowe provided Mr Heath's services and as to various payments which had been made to Lowe.
Belgravia brought proceedings against Lowe and Mr Heath to recover a number of payments made by Belgravia to Lowe. In substance, the primary judge upheld Belgravia's claims. Many of the judge's conclusions are not challenged on appeal. His Honour's conclusions are challenged only in relation to those of the claims arising from payments made by Belgravia to Lowe on 4 April 2006 and 26 March 2007.
The primary proceedings were commenced in October 2013. Consequently, recovery of the April 2006 and March 2007 payments was prima facie statute barred, the action having been commenced more than six years after the cause of action in relation to the payments accrued. However, the judge extended the limitation period in relation to those payments under s 38(2) of the Limitation Act 2005 (WA). That provision empowers the court to extend time if it is satisfied that the failure to commence proceedings within the limitation period is attributable to 'fraudulent or other improper conduct' of the defendant or of a person for whom the defendant is vicariously liable.
On appeal, the appellants challenge the primary judge's order extending the limitation period in respect of the April 2006 and March 2007 payments, and the orders that Lowe and Mr Heath pay Belgravia equitable compensation in respect of those payments. In broad summary, the appellants challenge the judge's construction of the phrase 'other improper conduct' in s 38(2) of the Limitation Act and his application of that provision, properly construed, to the facts found by his Honour.
Belgravia concedes the challenge to the orders made against Mr Heath personally, and the appeal should be allowed to that extent. However, for the following reasons, the orders were properly made against Lowe, so the appeal should otherwise be dismissed.
We agree with the substance of the primary judge's construction of s 38 of the Limitation Act. In our view, on the proper construction of s 38(2), the phrase 'other improper conduct' carries its ordinary meaning - conduct not in accordance with propriety, or what is proper in the circumstances - understood in its context. In that context, the impropriety must, at least ordinarily, relate to the purpose or tendency of the conduct to deprive a prospective plaintiff of the reasonable opportunity to commence proceedings within the limitation period, or to divert the prospective plaintiff from doing so. Whether fraudulent or other improper conduct has been established is an evaluative judgement to be made in all the circumstances of the case.
We also agree with his Honour's conclusion that various aspects of Lowe's conduct were improper and that Belgravia's failure to commence proceedings before the limitation period elapsed was attributable to that improper conduct. While we consider that his Honour erred in finding that certain other aspects of Lowe's conduct were improper, we conclude that these errors were not material.
Parties and associated persons and entities
The Godecke family
Bill Godecke and Bob Godecke were born in 1931 and 1932 respectively.[1]
[1] Primary reasons [46].
In November 1976, Bob Godecke incorporated Belgravia and Bill Godecke incorporated Penhurst Nominees Pty Ltd (Penhurst).[2] Bill and Bob Godecke were the original two directors of Belgravia.[3] Bob Godecke's wife, Delyse Godecke, has been a director of Belgravia since 31 January 1997.[4]
[2] Primary reasons [47].
[3] TB-0013 (Belgravia Nominees Pty Ltd Current and Historical Company Extract).
[4] TB-0013 (Belgravia Nominees Pty Ltd Current and Historical Company Extract).
Bill Godecke remained a director of Belgravia until he resigned on 14 September 2009.[5] Bob Godecke remained a director of Belgravia until his death on 25 December 2011.[6]
[5] Primary reasons [284].
[6] Primary reasons [2]; TB-0013 (Belgravia Nominees Pty Ltd Current and Historical Company Extract); Exhibit P1 (Statement of Tony Godecke) [68].
On 13 March 1996, Belgravia and Penhurst entered into a written partnership agreement, thereby forming the Godecke Land Trading Partnership (GLTP).
Bob Godecke's children, Karin Godecke and Tony Godecke, were appointed directors of Belgravia on 14 September 2009.[7] They remained directors of Belgravia until the date of trial.
[7] Primary reasons [279].
Bob Godecke also incorporated the second-named first respondent (Joondel). Joondel made a claim against Lowe and Mr Heath in respect of a payment made to Lowe on 16 July 2009. That claim was found to be established. As there is no controversy about the payment made by Joondel in this appeal, it is generally unnecessary to refer to Joondel or its claim in these reasons.
Mr Heath and his associates
Mr Heath was born in 1946.[8] He was a director of Lowe at all material times.
[8] Primary reasons [48].
Mr Heath was appointed as a director of Belgravia and Penhurst in 1998, remaining a director of Belgravia until he resigned in October 2013.[9]
[9] Primary reasons [47].
Mr Heath has been a licensed settlement agent since 1982 and a licensed real estate agent since 1990.[10] He worked for a real estate business operated by John Markham in the 1960s and early 1970s.[11]
[10] Primary reasons [49].
[11] Primary reasons [48].
In January 1974, Mr Heath and Mr Markham incorporated Carine Nominees Pty Ltd (Carine). Carine was operated as a quasi-partnership between Mr Heath and Mr Markham. Carine was the trustee of family trusts established by Mr Markham - the JRP Markham Family Trust, and by Mr Heath - the CR Heath Family Trust.[12]
[12] Primary reasons [48].
In 1996, the quasi-partnership between Mr Markham and Mr Heath came to an end. Mr Heath, through Lowe, established a business trading as the 'Heath Development Company'.
Sometime later, Mr Markham incorporated Anson Corporation Pty Ltd (Anson), which became involved in some of the projects in which Carine had been involved.[13]
Bookkeeping and accounting staff and contractors
[13] Primary reasons [48].
Christine Le Fournour was employed by Carine and later Lowe. She was responsible for calculating, tracking and preparing cheques for the payment of fees owed by the Godecke companies to Carine and later Lowe.[14] She retired from her employment with Lowe on 31 October 2007.[15]
[14] Primary reasons [52].
[15] Primary reasons [240].
Paul Quinlivan is Mr Heath's son-in-law and was employed as Lowe's chief financial officer from 25 October 2007.[16] Mr Quinlivan was also the bookkeeper and company secretary of Belgravia, from 30 March 2009[17] until he resigned from that position on 8 October 2013.[18]
[16] Primary reasons [25], [240] - [241].
[17] TB-0013 (Belgravia Nominees Pty Ltd Current and Historical Company Extract).
[18] Primary reasons [318], [342].
John Sendziuk was, from 1994 until his retirement in 2010, the senior accountant at RSM Bird Cameron, the accountants for the Godecke companies.[19]
[19] Primary reasons [61], [261].
Factual background
The primary judge's factual findings included the following.
Nature of the relationship between Mr Heath and the Godecke brothers
Mr Heath undertook considerable work in relation to the land development projects in which Bill and Bob Godecke invested. He was skilful and astute in his management of the projects. Bill and Bob Godecke left the management of the projects and the decisions that needed to be made in respect of them to Mr Heath. They did so because they had complete trust and confidence in Mr Heath. The length of the relationship between them, the number of projects they were involved in together, and the fact that they were friends as well as business associates, is testament to that trust and confidence. There is no evidence that Bill or Bob ever felt the need to put any of their communications with Mr Heath in writing and that in itself provides some indication of their trust in him.[20]
[20] Primary reasons [259].
Bill and Bob Godecke's very high level of trust in Mr Heath had been built up over a long period. While others in Bill or Bob's situation (for example Karin Godecke and Tony Godecke) might have monitored Mr Heath's work and what Lowe was charging, Bill and Bob Godecke had no inclination to, and did not, do so. That was a reflection of the way in which their relationship with Mr Heath developed and their interests and priorities, which were their respective recreational pursuits, rather than the land subdivision business.[21]
The purchase of the Quinns land in 1981
[21] Primary reasons [346].
In the late 1970s, Mr Heath identified an area of land in Quinns as potential development land. He asked Bill and Bob Godecke whether they wished to participate in the purchase of the land along with Carine, and they agreed to do so. Mr Heath negotiated the purchase of 77.57 ha of land, of which Carine, Belgravia and Penhurst became the registered proprietors on 18 March 1981. Carine held a 50% interest and Belgravia and Penhurst each held a 25% interest. Mr Heath described the project as involving the development of a 'beachfront superlot into 2 separate estates'. The separate estates were referred to by the codes MQ1 and MQ2 and the marketing names were Jindalee and Brighton Beachside Estate respectively. There were a number of obstacles to the development of the land for residential purposes, and it was not until the early 2000s that the Quinns land was ready for subdivision.[22]
The formation of the Godecke Land Trading Partnership
[22] Primary reasons [67].
On 13 March 1996, Penhurst and Belgravia entered into a written partnership agreement, thereby forming the GLTP. The GLTP was formed because Bob and Bill Godecke wanted profits and losses from their land development investments made by Belgravia and Penhurst to be shared equally between them. To achieve that outcome Mr Sendziuk recommended a partnership. The GLTP opened a bank account at the National Australia Bank (Partnership Account). Mr Heath became an authorised signatory on the account, following his appointment as a director of each of Belgravia and Penhurst in September 1998.[23]
The 1999 Agreement
[23] Primary reasons [122].
In late 1998, Bill and Bob Godecke met with Mr Heath and Mr Solomon, of the law firm Solomon Brothers. In that meeting there was a discussion to the effect that Bob and Bill Godecke required an agreement to be made with a company controlled by Mr Heath in which Mr Markham would not be involved because they did not wish Mr Markham to be involved in providing services to them.[24] However, the primary judge was not persuaded that Bill and Bob Godecke were the driving forces behind the preparation of the agreement, which was in Lowe's commercial interests. The 1999 Agreement was prepared for a combination of reasons:[25]
Mr Heath's concern to protect his position both with regard to Mr Markham and to comply with the terms of the REBA Act, a concern to have a single agreement governing all projects for the benefit of 'the next generation', and a concern on Bill and Bob's part that Mr Markham should not be involved in providing services to them.
[24] Primary reasons [171].
[25] Primary reasons [172].
On 26 August 1999, Belgravia, Joondel, Penhurst and Lowe entered into the 1999 Agreement, which had been drawn by Mr Solomon. Lowe was defined as 'Heath' in the agreement.[26]
[26] Primary reasons [176].
By cl 1 of that agreement, Joondel, Penhurst and Belgravia appointed Lowe to be the sole and exclusive manager and selling agent of each of their respective interests in certain properties. The properties to which the appointment applied were the properties listed in the schedule to the agreement and any other properties which it was agreed 'by letter or other written agreement' would be subject to the terms of the 1999 Agreement.
However, there was no schedule to the 1999 Agreement.[27] Mr Heath knew that a document specifying the properties which were going to be the subject of the 1999 Agreement had to be prepared. He did not prepare one in August 1999 because he knew that he had to resolve issues with Mr Markham before Lowe could be appointed the project manager of several properties.[28]
[27] Primary reasons [179].
[28] Primary reasons [186].
Clause 2.5 the 1999 Agreement provided for all decisions associated with the subdivision, development, management and marketing of the properties to be taken by Lowe, subject to the written directions of all proprietors. Clause 2.7 required Lowe to provide annual accounts to each of the parties in respect of each property, and to provide such other periodic reports and accounts as the parties may from time to time reasonably request. Clause 2.11 entitled Lowe to proceed with the orderly development and marketing of the properties in accordance with the terms of the Agreement without any other express direction or authority.
Clause 3 of the 1999 Agreement provided for the following fees to be paid to Lowe in consideration for its services:
3.1for all work associated with managing the properties including but not limited to obtaining approvals and supervising and coordinating the subdivision and development of the properties - 5% of the gross sales price of each of the developed properties or each part of the developed properties; and
3.2for selling and marketing the properties - of 5% of the gross sales price for each property or each part of each property.
Acquisition of Ibis land in September 1999
On 1 September 1999, Lowe, Anson, Belgravia and Penhurst acquired Part 131, Cross Road in Busselton (Ibis land).[29]
Arrangement for the development of the Quinns land in 2002 - 2003
[29] Primary reasons [128](d).
In late 2002, Satterley Property Group was engaged as the sales agent for the MQ2 area (Brighton Beachside Estate) of the Quinns land. Its fee was relevantly 1.25% of the sale price of each lot.[30]
[30] Primary reasons [198].
In 2003, the State Housing Commission, Carine,[31] Belgravia, and Penhurst entered into the joint venture agreement in respect of MQ2. The State Housing Commission was a participant because it contributed additional adjoining land to the subdivision. The joint venturers entered into a project management agreement with Lowe under which Lowe was appointed as the project manager for the MQ2 project.[32] The project management agreement provided for Lowe to be paid:[33]
(1)a project management fee equal to 3.75% of the Gross Sale Price (a defined term) of each lot sold; and
(2)'in consideration of [Lowe] securing the sale of any Lot', a sales commission of 2% of the Gross Sales Price of every residential lot sold and a sales commission as negotiated between the parties in respect of the sale of non-residential lots (cl 7.1 and cl 7.2).
[31] Carine was a party to the agreement in its capacity as the trustee of the JR Markham Family Trust and in its capacity as the trustee of the CR Heath Family Trust.
[32] Primary reasons [189], [195].
[33] Primary reasons [195].
The MQ2 subdivision started in 2002 and was completed in 2009. Lowe was the project manager of MQ2 and the selling agent was the Satterley Property Group.
The subdivision of MQ1/Jindalee started in 2003 and was still continuing at the date of trial. 500 residential lots in MQ1 had been sold by 2017. Lowe and Anson were the project managers of MQ1 and the selling agent was the Satterley Property Group.[34] There was no written agreement governing the terms upon which Anson and Lowe act as project managers on MQ1. A project management fee of 3.75% was charged by Lowe and Anson. Lowe claimed to be entitled to charge an additional 1.25% for managing Belgravia's and Penhurst's interests.[35]
Arrangements for the development of the Ibis land in October 2003
[34] Primary reasons [189].
[35] Primary reasons [197].
In October 2003 Lowe, Belgravia, Penhurst and Anson sold two interests of 25% each in the Ibis land to the Satterley Property Group and another company, Midtime Investments Pty Ltd. After this sale, Lowe, Belgravia, Penhurst and Anson each held a 12.5% interest in the Ibis land.[36]
[36] Primary reasons [221].
A joint venture agreement was entered into by the land owners known as the Broadwater Joint Venture Agreement. This agreement provided for the Satterley Property Group to be appointed as the project manager and exclusive selling agent for the project.[37]
[37] Primary reasons [222].
By a separate agreement made on 9 October 2003, the joint venture parties appointed Satterley Property Group as the project manager and exclusive selling agent. Satterley Property Group was to be paid a project management fee of 4.5% of the sale price of each lot and a selling fee of 2.5% of the sale price of each lot.[38]
Payments on 4 April 2006
[38] Primary reasons [223].
On 4 April 2006, Lowe prepared invoices addressed to the Directors of the GLTP in the following amounts, which were paid from the Partnership Account:[39]
[39] Primary reasons [345].
| Invoice date | Project specified in invoice or to which Lowe allocated payment | Project Management | Selling | Total |
| 4 April 2006 | MQ2 | $184,585.16 | $443,004.38 | $627,589.54 |
| 4 April 2006 | MQ1 | $116,428.13 | $253,962.50 | $370,390.63 |
| Total paid on 4 April 2006 | $997,980.17 | |||
The invoices referred to above described the fees as being for the balance of a 5% project management or selling fee, after deduction of a 3.75% project management fee or selling fees paid to agents.[40]
Payments on 26 March 2007
[40] Trial bundle 1883 (Green AB 193- 196).
On 26 March 2007, Lowe prepared invoices addressed to the Directors of the GLTP in the following amounts, which were paid from the Partnership Account:[41]
[41] Primary reasons [345].
| Invoice date | Project specified in invoice or to which Lowe allocated payment | Project Management | Selling | Total |
| 26 March 2007 | MQ1 | - | $610,921.50 | $610,912.50 |
| 26 March 2007 | MQ1 | $224,915.63 | - | $224,915.63 |
| 26 March 2007 | MQ2 | - | $5,461.60 | $5,461.60 |
| 26 March 2007 | Ibis Gardens | $107,593.75 | - | $107,593.75 |
| Total paid on 26 March 2007 | $948,883.48 | |||
The invoices referred to above described the fees as being for the balance of a 5% project management or selling fee, after deduction of a 3.75% project management fee or selling fees paid to Satterley.[42]
Process for invoicing and paying the above amounts
[42] Trial bundle 0210, 0211.
Ms Le Fournour's understanding was that Lowe was paid a fee of 5% of the gross sale price of subdivided lots in each project for project management services and a further 5% of the gross sale price as a selling fee.[43]
[43] Primary reasons [54].
During the relevant time, she kept Excel spreadsheets for each project, on which she recorded information about the sale of each lot. On one spreadsheet, she recorded the date of settlement, the price, the purchaser(s) and the selling fee deducted on settlement which she described as the 'REIWA selling fee'.[44] This information was derived from a settlement statement. On a second spreadsheet, prepared for the purpose of recording the fees charged by Lowe, she generally recorded the date of the sale, the lot number, the price, the selling fee deducted on settlement, an amount referred to as 'Catchup' and the project management or development fee.[45]
[44] A fee calculated in accordance with a schedule of fees published by the Real Estate Institute of Western Australia (REIWA). The REIWA schedule reproduced the schedule of maximum fees published by the Real Estate and Business Agent's Supervisory Board.
[45] Primary reasons [55].
'Catchup' fees were recorded by Ms Le Fournour in two circumstances. The first was when Lowe acted as sales agent and a sliding scale fee was taken at settlement and an additional fee was charged, representing the difference between the sliding scale and the 5% subdivisional rate. The second was when Lowe was not the project manager, or was the project manager but not the selling agent, and an additional fee was charged by Lowe bringing the total fee charged by a third party and Lowe for either project management or selling to 5%.[46]
[46] Primary reasons [59].
From time to time Mr Heath asked Ms Le Fournour to 'catch up' on fees in relation to a project. She would work out what she understood to be owed to Lowe, being the difference between the selling fee that had been deducted on settlement and 5% of the gross sale price of lots in the project and any outstanding project management or development fee. At the relevant time, she would draw a cheque on the Partnership Account and record on the cheque butt the details of the payment apportioning the amount between the balance of the selling fee due, if any such balance was due, and the project management fee. Ms Le Fournour recorded details of the payment in the relevant company's cash book and noted the 'catch up' payment on the spreadsheet for the project. Ms Le Fournour's evidence was that she gave the unsigned cheques to Mr Heath.[47] She prepared the invoices and inserted the invoice behind the cheque in the cheque book. The invoices were not sent to Bill or Bob Godecke.[48]
[47] Primary reasons [57].
[48] Primary reasons [60].
The invoices prepared by Lowe in the period between 4 April 2006 and 29 February 2008 identified the project to which the invoice related and stated whether the fees were for additional project management fees or additional selling fees. The invoices rendered after 29 February 2008 did not identify particular projects and did not distinguish between project management fees and selling fees. The invoices recorded the fees as being 'management/selling fees on various projects'. Some invoices also stated 'see attached schedule' but in no instances was a schedule attached to the invoice.[49]
[49] Primary reasons [344].
Mr Heath gave Ms Le Fournour instructions to prepare the invoices referred to at [43] and [45] above.
Mr Heath was not being dishonest in making these payments. He thought that Lowe was entitled to the fees and, if he had been asked at the time why Lowe was entitled to them, he would have referred to the 1999 Agreement. Mr Heath assumed, or convinced himself, that the 1999 Agreement applied. He did not reflect carefully, if at all, on whether Lowe was actually entitled to charge these additional fees.[50]
Belgravia's accounting records
[50] Primary reasons [277] - [278].
At the end of each financial year, Ms Le Fournour gave the bookkeeping records maintained by her to Mr Sendziuk, the senior accountant at RSM Bird Cameron who were the accountants for the Godecke companies. Ms Le Fournour also gave Mr Sendziuk the information required by him to complete Business Activity Statements on behalf of the Godecke companies.[51]
[51] Primary reasons [61].
In order to prepare the annual accounts and tax returns of Belgravia, Penhurst and Joondel, Mr Sendziuk met with Ms Le Fournour to obtain the bookkeeping records maintained by her including the paper cash books prepared in relation to each project, and trial balances that she prepared. When he had prepared the annual accounts, Mr Sendziuk put some of the information on which he had relied with his working papers into large brown folders for each entity. He provided the brown folders to Bob and Bill Godecke for safekeeping. Mr Sendziuk also prepared or assisted in the preparation of Business Activity Statements. Mr Sendziuk did not prepare the accounts for the various projects themselves. These were prepared by another firm of accountants. Mr Sendziuk did not audit the accounts, he did not review source documents and did not review any invoices. He could not remember any occasion on which he took source documents away from Lowe's offices.[52]
[52] Primary reasons [261].
The brown folders which Mr Sendziuk provided to Bill and Bob Godecke included cash books and reconciliation statements prepared by Ms Le Fournour. Included in the many thousands of entries within these documents, there are references to payments made in respect of additional selling fees. However, Bill and Bob trusted Mr Heath to such a degree that they would never have given any consideration to looking at the contents of the brown folders with the attention to detail required to identify that the payments in question had been made.[53]
[53] Primary reasons [354](a).
The brown folders also included project reports and financial statements for particular projects. The contents of the report selected by Lowe provided no insight into the amounts charged by Lowe in relation to selling fees.[54]
[54] Primary reasons [354](b).
The bank statements for the Partnership Account were sent to Lowe's offices. There was no reason to find that Bill or Bob examined the bank statements closely. The complete trust they placed in Mr Heath provides a reason why they would not examine the bank statements in any detail.[55]
[55] Primary reasons [354](d).
The financial statements and taxation returns of the GLTP for the financial years ending 30 June 2006 to 30 June 2012 included profit and loss statements which include a line item 'Development fees'. However, the figures so stated are not broken down any further in notes to the accounts or otherwise. It is apparent that there is no direct correlation between the development fees incurred in any financial year and the income derived from particular projects.[56]
Bill and Bob Godecke's knowledge of the payments
[56] Primary reasons [354](e).
The invoices for the April 2006 and March 2007 payments, referred to at [43] and [45] above, were never sent to Bill or Bob Godecke. Those invoices were never shown to them either before or after payments were made. Mr Heath did not obtain approval from either Bill or Bob Godecke before signing the cheques for payment of the invoices from the Partnership Account to Lowe.[57]
[57] Primary reasons [276].
The primary judge was not able to infer that Bob Godecke knew that Lowe was charging and paying itself additional fees when third parties were appointed as project managers and sales agents.[58]
Meeting with Mr Quinlivan in September 2007
[58] Primary reasons [354].
In July 2007, Ms Le Fournour gave notice of her intention to retire from her employment with Lowe. Prior to Mr Quinlivan taking over Ms Le Fournour's duties, Mr Heath introduced Mr Quinlivan to Bill and Bob Godecke in a meeting held at Lowe's offices. The primary judge was not satisfied that the issue of fees for the MQ1 project was discussed at this meeting.[59]
Deterioration of Bob Godecke's health in October 2007
[59] Primary reasons [244] - [248].
Between 2005 and 2007 Bob Godecke's health deteriorated. On 15 October 2007, Bob was admitted to hospital for heart surgery. On 21 October 2007, whilst in hospital, Bob suffered a stroke. After the stroke Bob was significantly disabled. His movements were limited and he was unable to walk. He also had difficulties with his speech and language. After a prolonged period in hospital Bob returned to live with his wife in their home in 2008, but in early 2009 he was admitted to the Regents Garden Nursing Home.[60]
Handover from Ms Le Fournour to Mr Quinlivan in October 2007
[60] Primary reasons [239].
Prior to Ms Le Fournour retiring on 31 October 2007, Mr Quinlivan attended Lowe's offices to become familiar with Lowe's business.[61]
[61] Primary reasons [241].
Mr Quinlivan's evidence, which it may be inferred the primary judge accepted, was that Mr Heath gave Mr Quinlivan a copy of the 1999 Agreement. Mr Heath told Mr Quinlivan that:[62]
whilst the agreement provided for a 5% project management fee and a 5% marketing and selling fee, Lowe did not charge the Godeckes the full amount of those fees but charged those amounts less any amount paid to other people who were retained to provide management or selling services in relation to a project.
[62] Primary reasons [242].
Mr Quinlivan took over Ms Le Fournour's duties on 31 October 2007.[63]
Appointment of Mr Quinlivan as company secretary of Belgravia
[63] Primary reasons [240].
Although the date of appointment was not the subject of a finding by the primary judge, on 30 March 2009 Mr Quinlivan was appointed to be the company secretary of Belgravia.[64]
Inquiries by Karin Godecke in early September 2009
[64] TB-0013 (Belgravia Nominees Pty Ltd Current and Historical Company Extract).
On 1 September 2009, Karin Godecke met with Mr Quinlivan in order to understand the nature and extent of Belgravia's investments and its relationship with Mr Heath. Karin Godecke informed Mr Quinlivan that she and Tony Godecke were planning to become directors of Belgravia and raised the possibility of removing Bill Godecke and Mr Heath as directors.[65]
[65] Primary reasons [280] - [281].
On 7 September 2009, Karin Godecke sent an email to Mr Quinlivan with some questions arising from a Partnership Account bank statement for July 2009. The email asked a number of questions, including a question asking about a withdrawal of $220,000 from Joondel's bank account to pay Lowe's invoice dated 16 July 2009 for $220,000. In her email, Ms Godecke asked:[66]
… would we be able to see a copy of the invoices? This would be particularly helpful in regards to any future commissions or bills we have to pay. The other option if it was practical for us to do so - would be for us to countersign any future invoices for Godecke Land Trading or Joondel. That might be a more efficient way of handling this I thought - just so that we can keep a track of how this all works. Your thoughts on this matter would be much appreciated.
[66] Primary reasons [281].
Mr Quinlivan replied to Karin Godecke's email on 8 September 2009. The email stated:[67]
…
2) We keep a running total of the commissions owed by Belgravia, Penhurst & Joondel. From time to time when the amount outstanding is getting high and there is enough money in we do an invoice to the company involved for an arbitrary amount.
…
The only problem that I can see with you or Tony signing all the cheques would be a logistic one. Can you get in to the office on short notice? More than happy to try and work out some sort of system, we only do it now for convenience.
This will not be much of a problem for the cheques, the problem that I can see happening (from my little area) is again the logistical one, if you remove both Colin and Bill as directors (I am a secretary too) it means that every time we have a transfer to sign, two of you (Karin, Tony or Del) will have to come into the office to sign. This usually has to be done the same day and we get 3 - 4 per week. Sorry if I am sounding negative and pointing out things that you already are aware of, however with your mum and Dad in Broome, Tony working and you with the kids, I can see this potentially being a problem.
More than happy to talk to you any time, and I hope that I am not overstepping the mark.
[67] Primary reasons [282].
Mr Quinlivan did not respond to Ms Godecke's request to see Lowe's invoices.[68]
Change of Belgravia's directors on 14 September 2009
[68] Primary reasons [283].
Karin Godecke and Tony Godecke were appointed directors of Belgravia on 14 September 2009.[69] Bill Godecke resigned as a director of Belgravia on that date.[70] Bob Godecke and Mr Heath remained directors of Belgravia at this time.
Karin Godecke's further inquiries about fees in 2009 - 2011
[69] Primary reasons [279].
[70] Primary reasons [284].
In about late 2009, Karin Godecke found a copy of the 1999 Agreement.[71]
[71] Primary reasons [288].
During a telephone conversation in late 2009, Mr Quinlivan told Karin Godecke that Bob Godecke had signed the 1999 Agreement and therefore Lowe was entitled to charge Belgravia 5% for project management fees and 5% for selling fees. She recalled him saying, 'You're lucky we're not charging you the full 10%, we're only topping it up to 10%'.[72]
[72] Primary reasons [290].
Karin Godecke asked Mr Quinlivan a number of times how a 5% project management fee and 5% selling fee applied to land where Satterley Property Group was the project manager and selling agent and it had already charged Belgravia and Joondel fees. The judge found, accepting Mr Quinlivan's evidence, that Mr Quinlivan said something along the lines of, 'perhaps think of it like subcontracting'.[73]
[73] Primary reasons [291] ‑ [292].
In early 2010, there was correspondence between Mr Quinlivan and Karin Godecke concerning sums said by Mr Quinlivan to be due to Lowe in relation to management and selling fees.[74] The judge found that following that correspondence, when Karin Godecke met Mr Quinlivan in Lowe's offices, he showed her the fee spreadsheet concerning these fees. The judge further found that viewing the spreadsheet in this way provided little effective opportunity for Karin Godecke to obtain an understanding of the fees being charged by Lowe and the basis upon which they were being charged.[75]
[74] Primary reasons [296] - [299].
[75] Primary reasons [299].
In February 2011, notwithstanding reservations about Lowe's entitlement to charge fees, Karin Godecke sent an email authorising Mr Quinlivan to deduct Lowe's fees.[76] She gave similar authority in June 2011.[77]
Expiry of limitation period for April 2006 payments in April 2012
[76] Primary reasons [304].
[77] Primary reasons [306].
The limitation period in relation to the April 2006 payments expired in April 2012.[78]
Inquiries by Tony Godecke from May - June 2012
[78] Primary reasons [426].
In May 2012, Tony Godecke became involved in pressing Mr Quinlivan for more information about the fees charged by Lowe.[79] On 6 June 2012, he sent a letter to Mr Quinlivan asking a series of questions about the fees and commissions charged by Lowe and seeking copies of various documents.[80]
[79] Primary reasons [308].
[80] Primary reasons [315].
The documents sought by Tony Godecke included 'copies of annual statements of commissions collected or to be collected by [Mr Heath], [Lowe] or any other associated entity from 30 June 2002 up to the present time'.[81]
[81] Primary reasons [316].
On 6 June 2012, Mr Quinlivan sent Tony Godecke an email to which he attached a copy of the valuation requested by Tony Godecke and stated that he would address the other requests. In answer to the request for copies of invoices, Mr Quinlivan stated:[82]
11) I can give you invoices that I have prepared, however 2002 is well before my time. When I started in 2008, Colin, Bill, Bob and I sat down and arrived at the starting outstanding balances.
[82] Primary reasons [317].
The judge noted Mr Quinlivan's evidence that his intention was to avoid having to do all the work, and that he accepted that he was 'fobbing off' Tony Godecke. Mr Quinlivan also accepted that it was false to convey that there had been some agreement reached in 2008.[83] The judge set out evidence of Mr Quinlivan in which he said that to ascertain what fees Lowe had charged over the previous 10 years was quite a difficult task which he was seeking to avoid.[84]
[83] Primary reasons [318].
[84] Primary reasons [318], referring to ts 1451.
On 7 June 2012, Mr Quinlivan sent five emails to Tony Godecke attaching copies of various documents.[85] Those documents included information as to payments made by Lowe in relation to MQ1 and settlement statements of sales of lots in that project, in a document entitled 'MQ1 Land Syndicate - Transaction Detail by account July 2011 ‑ June 2012', which did not record the payment of selling fees. On 11 June 2012, Tony Godecke sent Mr Quinlivan an email attaching a letter enquiring about payments of fees to Lowe and Anson recorded in this document and asking for copies of the invoices to which the payments related. Mr Quinlivan responded by email, stating that Lowe and Anson charged the project 3.75% project management and shared the fee 50% each, and Lowe then charges GLTP 1.25%.[86]
[85] Primary reasons [319].
[86] Primary reasons [323].
The judge accepted Tony Godecke's evidence that this was the first time he received written confirmation of payments to Lowe or Anson or any arrangement to the effect described in that email.[87]
[87] Primary reasons [324].
On 19 June 2012, Tony Godecke wrote a further letter to Mr Quinlivan raising further questions arising from the material that he had received.[88] The letter included a query in relation to the charging of a 3.625% selling fee by Lowe in relation to Ibis and Ibis 2. The letter also requested copies of invoices for amounts paid to Lowe for earlier years not shown on the spreadsheet, going back as far as possible.
[88] Primary reasons [325].
In response, Mr Quinlivan's email stated that Lowe was entitled to charge a fee for Ibis based on the 1999 Agreement. The email stated that Satterley charged 1.275% selling fee, with Lowe charging Belgravia 3.625% to make up the 5%, adding 'perhaps think of it like subcontracting'.[89]
[89] Primary reasons [326].
The email attached invoices rendered by Lowe to the GLTP on various dates in 2009, 2010, 2011 and 2012.[90] It may be noted that no invoices were provided in relation to payments before 2008 and thus in relation to the April 2006 and March 2007 payments.
Correspondence and negotiations in July - September 2012
[90] Primary reasons [327].
On 10 July 2012, Tony Godecke gave notice to Mr Heath of a possible dispute.[91] In his letter constituting the notice, Tony Godecke stated that he had formed the conclusion that Lowe may not be entitled to some of the sums claimed by it. The letter proposed a meeting with a view to reaching an amicable resolution.
[91] Primary reasons [329].
In the letter, Tony Godecke referred to his communications with Mr Quinlivan, and noted:
[Mr Quinlivan] has provided a spreadsheet which itemises the sums paid to and claimed by [Lowe] for the period from 30 June 2008 to date. I do not have any evidence of amounts paid by [GLTP] to Lowe Pty Ltd prior to 30 June 2008. It appears that that the amounts claimed by [Lowe] were recorded in the tax returns of [GLTP] as development costs.
After perusal of the various documents provided by [Mr Cunningham] including the [1999 Agreement], I have formed the conclusion that [Lowe] may not be entitled to some of the sums claimed. (emphasis added)
Tony Godecke's letter went on to express concerns, including that the sums claimed did not come within the 1999 Agreement. It also said that, as a director of Belgravia, Mr Heath was required to act for the benefit of the company.
On 1 August 2012, there was a meeting between Mr Heath, Mr Quinlivan, Karin Godecke, Tony Godecke and Mr Tan (who was then Belgravia's solicitor). The judge found that the minutes accurately record the substance of what was discussed.[92] It appears from the terms of the minutes that Mr Heath continued to rely on the 1999 Agreement as the source of Lowe's entitlement to the fees.
[92] Primary reasons [330].
Following the meeting, on 20 August 2012, Mr Tony Godecke sent a letter to Mr Heath. The letter stated that, 'It is clear that the commissions which have been charged in relation to the properties sold and developed by Satterley do not come within the terms of the original agreement'.[93] The letter invited Mr Heath to review the sums which had been claimed as selling fees and project management fees.
[93] Primary reasons [333].
The further meeting between the parties on 10 September 2012 did not lead to any resolution. At the meeting, Mr Quinlivan said that a large commission had been paid shortly before he started working for Lowe. The judge inferred that that was a reference to the fees charged and paid to Lowe in March 2007, in other words, the March 2007 payments.[94] Following the meeting, Mr Tony Godecke sent an email to Mr Quinlivan seeking details of the payments, but received no response from Mr Quinlivan.[95]
[94] Primary reasons [334] - [336].
[95] Primary reasons [335].
Discussions with a view to resolving the differences between the parties continued into 2013. On 14 February 2013, there was a further meeting between Karin Godecke, Tony Godecke, Mr Heath and Mr Quinlivan. On 12 March 2013, Mr Heath responded to an offer that had been made prior to the 14 February 2013 meeting in terms which asserted that the sales commission and the project management fees were calculated, charged and paid in accordance with the 1999 Agreement.[96]
Expiry of limitation period for March 2007 payments in March 2013
[96] Primary reasons [336] - [337].
The limitation period in relation to the March 2007 payments expired in March 2013.[97]
Tony Godecke's further investigations
[97] Primary reasons [427].
Mr Quinlivan did not provide Tony Godecke with any of the invoices prepared by Lowe before 2 February 2009. In an attempt to find out what fees had been paid, in July 2013 Tony Godecke obtained from Mr Heath the cheque books for the Partnership Account. In August 2013, he obtained copies of the bank statements for the Partnership Account for the period 1 July 2005 to 30 June 2009 from the National Australia Bank. He also obtained copies of cheques drawn on the Partnership Account in the period between 6 June 2006 and 29 May 2008. All but two of those cheques were signed by Mr Heath. Bill Godecke signed the two cheques not signed by Mr Heath. Using the information derived from these records Tony Godecke was able to work out that the disputed payments had been made out of the Partnership Account.[98]
Notice of demand served in October
[98] Primary reasons [340].
On 3 October 2013 the solicitors for Belgravia and Joondel sent a letter of demand to Mr Heath seeking his resignation as a director of Belgravia and Joondel and payment of the sum of $4,560,280.[99]
Changes in Belgravia's officeholders in 2013
[99] Primary reasons [341].
Mr Quinlivan resigned as company secretary of Belgravia on 8 October 2013. Mr Heath was removed as a director of Belgravia on 24 October 2013.[100]
Commencement of proceedings on 18 October 2013
[100] Primary reasons [342].
On 18 October 2013, Belgravia commenced proceedings by writ with a general indorsement, which claimed relief including equitable compensation for making payments to which Lowe was not entitled.
The primary judge's approach
By the time of trial, it was common ground that the terms of the 1999 Agreement did not entitle Lowe to payment of the claimed fees.[101]
Basis of Belgravia's claim and Lowe's counterclaim
[101] Primary reasons [370].
As the primary judge noted, the grounds upon which Belgravia claimed recovery of the payments they had made included, relevantly:
(1)That Mr Heath caused or directed the payments to be made to Lowe in the mistaken belief that Lowe was entitled to the payments under the terms of the 1999 Agreement.
(2)In causing or directing the payments to be made to Lowe, Mr Heath breached his fiduciary duties and analogous statutory duties as a director of Belgravia.
Lowe denied those claims and counterclaimed for fees it said were owed to it. In essence, its case was that it was entitled to a fee of 10% of a gross sale price of lots in the subdivisions less any amounts paid to third parties for project management or selling services.[102]
[102] Primary reasons [10].
The judge described the critical issue as being whether, if a third party was engaged to act as project manager or as selling agent on a project, Lowe was entitled to a fee equal to 10% of the gross sale price received by the Godecke companies for the sale of subdivided lots in the projects, less any amount paid to the third party for fees for project management or selling or for project management and selling.[103]
[103] Primary reasons [10].
Lowe advanced five ways in which the court could determine that issue favourably to it.[104] For present purposes, it suffices to note that the primary judge found that none of those bases was established, so that Lowe had no entitlement to the disputed fees.
Determination of claim for mistaken payments
[104] Described by the judge at primary reasons [12].
The primary judge found that the payments made in respect of the disputed fees were made by Mr Heath in the belief that Lowe was entitled to them. As Lowe had no such entitlement Belgravia had a prima facie right to the recovery of those fees. Lowe did not contend that there were any circumstances that rendered restitution unjust. Subject to the limitation defence, Lowe was liable to make restitution of the payments made by mistake.[105]
Determination of claims of breach of fiduciary duty
[105] Primary reasons [387] - [388].
Mr Heath breached his fiduciary duties both because he was in a position of 'clearest conflict' and because he used his position as a director of Belgravia, or an opportunity resulting from that position, being the authority to draw cheques against or otherwise operate the Partnership Account. Mr Heath owed Belgravia a duty not to make payments to Lowe to which Lowe had no contractual entitlement. This duty conflicted with Mr Heath's interest in obtaining the payments for Lowe's benefit. Mr Heath was able to make the payments because he was a signatory to the Partnership Account. He was a signatory because he was a director of Belgravia.[106]
[106] Primary reasons [392].
No defence was afforded by the fact that, at the time the disputed payments were made, Mr Heath believed that Lowe was entitled to them.[107]
[107] Primary reasons [393].
Mr Heath breached the fiduciary duties he owed to Belgravia in the manner outlined above and Lowe is to be taken as having jointly participated in those breaches. Subject to the limitation defence, Mr Heath and Lowe were liable to pay equitable compensation to Belgravia in the amount of the disputed payments.[108]
[108] Primary reasons [394].
The primary judge rejected Lowe's claim for the court to exercise its discretionary power to make an order for 'just allowances' for the management services which Lowe provided to Belgravia.[109]
The limitation issue
[109] Primary reasons [396] - [398].
The primary judge noted that Belgravia accepted that its claims for the recovery of payments made before 18 October 2007 were statute barred unless an order extending the limitation periods is made under s 38(2) of the Limitation Act.[110]
Proper construction of s 38(2)
[110] Primary reasons [400].
After setting out the terms of s 38(2), the judge considered the proper construction of that provision. His Honour concluded that:
(1)The phrase 'attributable to' requires a causal connection in fact between the failure to commence the action and the 'fraudulent or other improper conduct'.[111]
(2)(a) conduct will be improper for the purposes of s 38(2) of the Limitation Act if it breaches the standards of conduct that would be expected of a person in the defendant's position;
(b)the question of breach is to be determined objectively; and
(c)the existence of a breach does not depend on the defendant having a consciousness of the impropriety.[112]
(3)The phrase 'other improper conduct' does not denote a requirement of some element of moral turpitude beyond a mere breach of contract, duty of care or fiduciary duty.[113]
[111] Primary reasons [405].
[112] Primary reasons [411].
[113] Primary reasons [412] - [416].
As the judge's construction of s 38(2) is in issue on appeal, we will outline his Honour's reasons for adopting this construction.
The judge referred to the decision of Gething AM (as his Honour then was) in Shire of Toodyay v Merrick,[114] which had considered the meaning of the phrase 'other improper conduct' in s 38(2) of the Limitation Act. The primary judge noted that Gething AM had referred to observations of the High Court in R v Byrnes concerning the phrase 'improper use' in s 229(4) of the Companies (South Australia) Code.[115] The primary judge set out the following passage from the reasons of the plurality in R v Byrnes:[116]
Improper is an indefinite term. …
…
Impropriety does not depend on an alleged offender's consciousness of impropriety. Impropriety consists in a breach of the standards of conduct that would be expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstances of the case. When impropriety is said to consist in an abuse of power, the state of mind of the alleged offender is important: the alleged offender's knowledge or means of knowledge of the circumstances in which the power is exercised and his purpose or intention in exercising the power are important factors in determining the question whether the power has been abused. But impropriety is not restricted to abuse of power. It may consist in the doing of an act which a director or officer knows or ought to know that he has no authority to do.
[114] Shire of Toodyay v Merrick [2016] WASC 29.
[115] Section 229(4) of the Companies (South Australia) Code prohibited an employee or an officer of a corporation from making 'improper use' of his position to obtain an advantage for himself or another or to cause detriment to the company.
[116] R v Byrnes (1995) 183 CLR 501, 513 - 515.
The primary judge then set out the following conclusions stated by Gething AM in Merrick:[117]
…[C]onduct will be otherwise 'improper' for the purposes of LA s 38(2) if it breaches the standards of conduct that would be expected of a person in the defendant's position. This is to be determined objectively, and, unlike fraudulent conduct, does not depend on the defendant having a consciousness of the impropriety. So defined, the two components of the phrase 'fraudulent or other improper conduct' are each given distinct meaning, and are complementary.
The phrase 'other improper conduct' appears in the context of the phrase 'fraudulent or other conduct' in LA s 38(2). According to well established syntactical presumptions of statutory interpretation, its meaning is derived from this context, and is limited by the specific reference to 'fraudulent' which precedes it. Although there is not a series of words which defines the class, the context denotes some element of moral turpitude beyond a mere breach of contract, duty of care or even fiduciary duty. If every breach of contract, duty of care or fiduciary duty amounted to 'other improper conduct' the general limitation provisions in LA pt 2 would cease to have any meaning. Something more is required, which may be in the nature of a particularly egregious breach of contract, duty of care or fiduciary duty. It may also be conduct which is independent of the cause of action, but done with the effect of concealing it. In this regard, the equitable doctrine of concealed fraud, discussed above [127] may provide some assistance by way of analogy as to what conduct would be 'otherwise improper'. (footnotes omitted)
[117] Merrick [146] - [147].
As will be seen, this passage appears to have been taken by some to suggest a dichotomy between an element of moral turpitude, on the one hand, and a 'mere' breach of contract, duty of care or fiduciary duty, on the other hand.
As already noted, the primary judge expressed his agreement with Gething AM's conclusions to the effect summarised in [111(2)] above. However, he did not agree with the conclusion that an element of moral turpitude was required beyond a mere breach of contract, duty of care or even breach of fiduciary duty. The judge identified four reasons for that conclusion, which is challenged by ground 1.
First, the legislature had chosen to use a phrase of broad ambit in a statutory provision with an evident purpose of relieving the potentially harsh consequences flowing from the application of the statutory limitation periods. Consequently, the court should be slow to circumscribe the broad meaning of the phrase 'improper conduct' by the introduction of a qualification not appearing in the text.[118]
[118] Primary reasons [413].
Secondly, the relevant dictionary definition of 'improper' is 'not in accordance with propriety of behaviour, manners: improper conduct'. The judge observed that introducing an element of moral turpitude into the definition of 'improper conduct' involves a significant departure from the ordinary meaning of 'improper'.[119]
[119] Primary reasons [414].
Thirdly, the judge observed that it was difficult to contemplate conduct involving an element of moral turpitude that did not include a consciousness of impropriety.[120]
[120] Primary reasons [415].
Fourthly, the primary judge referred to the reasoning of Gething AM that an element of moral turpitude was required because, if a simple breach of contract, duty of care or fiduciary duty was sufficient to constitute improper conduct, the general limitation period would cease to have meaning. The primary judge expressed the view that such reasoning accorded insufficient weight to the requirement that the failure to commence the action was attributable to the improper conduct. That additional requirement restricted the cases in respect of which an extension of the limitation period could be granted.[121]
Improper conduct
[121] Primary reasons [416].
The judge found that Lowe had engaged in improper conduct in various respects.
His Honour noted that the April 2006 and March 2007 payments related to the projects known as MQ1 and MQ2, and Ibis Gardens. When the payments were made, Lowe was the joint project manager of MQ1 and was the project manager of MQ2.[122] The judge posed the question, and made findings, as to the standards of conduct that would have been expected of Lowe as a project manager or joint project manager. He found it would be expected that such a party would disclose to project participants the fees charged by it in respect of the project as they were being charged and paid on the basis upon which those fees were being charged. It would be expected that the project manager would provide an invoice to the project participants incorporating a clear explanation of the fees charged and the manner in which they had been calculated.[123] It would also be expected that express authority for the payment would be obtained.[124] Also, it would be expected of a project manager that it would respond to queries from project participants about its fees and the basis upon which it was charging fees by providing full and accurate information.[125]
[122] Primary reasons [420].
[123] Primary reasons [421].
[124] Primary reasons [421].
[125] Primary reasons [421].
The judge observed that the fees charged by Lowe were very substantial and that it knew the basis upon which it had charged the fees; providing a clear explanation of that basis was not an onerous task. While Mr Quinlivan may not have wanted to spend the time required to respond to the request for copies of the invoices, the judge found that having regard to the amounts charged by Lowe, requesting copies of the invoices was not unreasonable and the invoices should have been provided by Lowe.[126]
[126] Primary reasons [422].
The judge also observed that Mr Heath was a director of Belgravia and Mr Quinlivan was its company secretary. They occupied those positions because Lowe was a service provider to Belgravia. The judge found that Lowe was vicariously liable for their conduct. In his capacity as a director of Belgravia, Mr Heath was obliged to ensure that Belgravia knew what fees were being charged by Lowe and the basis upon which those fees were being charged.[127]
[127] Primary reasons [423].
The judge found the following conduct on the part of Lowe constituted improper conduct:[128]
(a)The failure by Lowe to provide invoices to Belgravia at the time the disputed payments were made in April 2006 and March 2007 or otherwise make clear to Belgravia that the payments were in respect of additional project management and additional selling fees.
(b)The failure by Lowe to obtain authorisation for the payments before they were made.
(c)The fact Mr Heath and Mr Quinlivan informed Ms [Karin] Godecke and Mr Tony Godecke, in response to their inquiries, that the 1999 Agreement was the basis upon which Lowe was charging additional fees.
(d)The failure by Mr Heath and Mr Quinlivan to inform Ms [Karin] Godecke and Mr Tony Godecke of the basis upon which Lowe claimed to be entitled to be paid additional project management and additional selling fees before the proceedings were commenced even though they knew that Ms [Karin] Godecke and Mr [Tony] Godecke were trying to obtain an understanding of the basis upon which additional fees had been charged by Lowe.
(e)Mr Quinlivan's response to Mr Tony Godecke's request in May 2011 for copies of the joint venture agreements relating to projects in which Belgravia had an interest, that is, sending Mr [Tony] Godecke only one joint venture agreement, being the Provence Number 1 joint venture agreement, and two other documents which were clearly not joint venture agreements.
(f)The fact Mr Quinlivan did not provide copies of invoices in respect of payments made before February 2009 when Mr Tony Godecke requested copies of invoices from him in June 2012. Further, in his email to Mr Tony Godecke of 6 June 2012, being his response to the request for copies of the invoices, Mr Quinlivan stated 'I can give you the invoices that I have prepared, however 2002 is well before my time. When I started in 2008, Colin, Bill, Bob and I sat down and arrived at the starting outstanding balances'. The effect of this statement was to convey the impression that the 'starting outstanding balances' were agreed in 2008 when that was not in fact the case. Mr Quinlivan accepted, in effect, that he made the statement to dissuade Mr Tony Godecke from pursuing his request for the earlier invoices - as Mr Quinlivan accepted in cross‑examination he was 'fobbing [Mr Tony Godecke] off'.
(g)The fact that following the meeting on 10 September 2012 at which Mr Quinlivan had mentioned the payment of a large commission before he, Mr Quinlivan, started work at Lowe, Mr Quinlivan did not respond to an email from Mr Tony Godecke seeking details of the payment. I infer that Mr Quinlivan's reference to the large commission was a reference to the payments made in March 2007.
[128] Primary reasons [424].
The judge found that Lowe's conduct in these respects fell well below the standards of conduct expected of it. The judge expressed the view that 'the breaches were serious'.[129]
The failure to commence the action was attributable to Lowe's improper conduct
[129] Primary reasons [425].
The primary judge went on to find that Belgravia's failure to commence an action to recover the 2006 payments and the 2007 payments within the limitation period was attributable to Lowe's improper conduct.
The primary judge noted that the limitation period in relation to the April 2006 payments expired in April 2012. He was satisfied that Belgravia did not know at any point before the expiry of the limitation period that the payments made in April 2006 were made in respect of additional project management and additional selling fees. It was thus not in a position to make a decision as to whether to commence proceedings.[130]
[130] Primary reasons [426].
The primary judge found that Belgravia's lack of knowledge of the 2006 payments was attributable to the following aspects of Lowe's improper conduct:[131]
(a)its failure to inform Belgravia that the payments were for additional project management and selling fees at the time the payments were made;
(b)its failure to provide Belgravia with the invoices for which the payments were made when the payments were made; and
(c)its failure to inform Belgravia of the basis upon which it was charging additional project management and selling fees at the time the payments were made or at any time between the date of the payments and April 2012.
[131] Primary reasons [426].
The primary judge noted that the limitation period in relation to the March 2007 payments expired in March 2013. He was satisfied that Belgravia did not know at any point before the expiry of the limitation period that the payments made in March 2007 were made in respect of additional project management and additional selling fees. It was thus not in a position to make a decision as to whether to commence proceedings.[132]
[132] Primary reasons [427].
The primary judge found that Belgravia's lack of knowledge of the 2007 payments was attributable to the aspects of Lowe's improper conduct set out at [129] above, adding, in the case of the failure in par (b), the failure to provide invoices at any time prior to March 2013, and the following additional aspects of Lowe's improper conduct:[133]
(d)informing Belgravia that the source of Lowe's entitlement to the payments was the 1999 Agreement when that was not the basis upon which Lowe claimed to be entitled to additional fees; and
(e)its failure to respond to Mr Tony Godecke's request for details of the large commission paid shortly before Mr Quinlivan joined Lowe - which as I have found was a reference to the March 2007 payments.
[133] Primary reasons [427].
What is said in pars (a) - (e) quoted at [129] and [131] above is evidently a shorthand reference to aspects of what is set out in (a) - (g) quoted at [125] above.
The judge observed that Mr Tony Godecke was not aware of the April 2006 and March 2007 payments until August 2013, when he obtained the bank statements for the Partnership Account for the period 1 July 2005 to 30 June 2009.[134] The judge found that the action ought reasonably have been commenced at the time when it was, in fact, commenced, namely in October 2013.[135]
Delay and prejudice
[134] Primary reasons [428].
[135] Primary reasons [429].
The judge found that the delay in commencing the action had not unacceptably diminished the prospects of a fair trial and extending the time would not significantly prejudice Lowe.[136]
[136] Primary reasons [430].
His Honour consequently concluded that the limitation period applicable to the 2006 and 2007 payments should be extended.[137]
Award of equitable compensation
[137] Primary reasons [431].
As noted above, the impugned payments to Lowe were made from the Partnership Account, operated by Belgravia and Penhurst. Penhurst aligned itself with Lowe in opposing the claims made by Belgravia and supported the defences relied upon by Lowe. In addition, Penhurst specifically opposed the grant of any relief to Belgravia in respect of the payments from the Partnership Account. Penhurst also denied that there was a partnership which entitled Belgravia to make the claim on Penhurst's behalf. However, it was not in issue that the funds in the Partnership Account were the joint property of Belgravia and Penhurst.[138]
[138] Primary reasons [432] - [438].
The primary judge was satisfied that each of Belgravia and Penhurst held a 50% undivided interest in the choses in action constituted by the causes of action against Lowe and Mr Heath in respect of the disputed payments. His Honour was satisfied that Belgravia was entitled to maintain the action in respect of the disputed payments otherwise than as a (former) partner in the GLTP partnership.[139]
[139] Primary reasons [438].
The primary judge considered that, in other circumstances, the appropriate course would be to enter judgment for 100% of the claim because to do so would reflect the indivisible nature of the choses in action constituted by the causes of action. In those circumstances Belgravia would be obliged to hold 50% of any recovery on trust for Penhurst.[140] However, his Honour considered that the circumstances of this case warranted a different approach:[141]
Penhurst has actively opposed Belgravia's claims and disavows any desire to benefit from them. In my view the fairest and most pragmatic approach to this aspect of the dispute is for the judgment on Belgravia's claim to be founded upon the claims for breach of fiduciary duty and to be for the award of equitable compensation in the amounts of the disputed payments. In that context having regard to Penhurst's position and having regard to the object of equitable compensation, being the restoration of what the principal has lost, the judgment in Belgravia's favour should be in the form of an award of equitable compensation for 50% of the disputed payments made out of the [Partnership Account].
Lowe's claims
[140] Primary reasons [439] - [440]
[141] Primary reasons [440].
The primary judge held that it followed from reasons already given that Lowe's claims should be dismissed.
Orders made in the primary proceedings
The primary reasons related to four proceedings.
CIV 2583 of 2013 was Belgravia's claim against Lowe and Mr Heath in respect of the 19 payments from the Partnership Account and Joondel's claim against Lowe and Mr Heath in respect of a single payment. So far as Belgravia's claim is concerned, order 1 of orders made by the primary judge on 14 January 2019 ordered Lowe and Mr Heath to pay equitable compensation to Belgravia in amounts representing 50% of each of the 19 payments, plus interest at 6% per annum from the date of the payment. Orders 1(a) - (b) thus ordered Lowe and Mr Heath to pay Belgravia a total of $498,990.09 plus interest in respect of the April 2006 payments. Orders 1(c) - (f) ordered Lowe and Mr Heath to pay Belgravia a total of $474,441.75 plus interest in respect of the March 2007 payments. The total award of equitable compensation in favour of Belgravia was $2,170,140.43.
CIV 2003 of 2015 was Lowe's claim against Belgravia and Penhurst in respect of outstanding fees. CIV 1483 of 2016 was Lowe's claim against Joondel in respect of outstanding fees. On 14 January 2019, the primary judge made orders in each of those proceedings that Lowe's claim be dismissed.
CIV 3005 of 2016 was Belgravia's application for an extension of time for the commencement of CIV 2583 of 2013 to 18 October 2013, pursuant to s 38(2) of the Limitation Act. On 14 January 2019, the primary judge made orders granting that application.
The appeal to this court
Lowe and Mr Heath have appealed against the orders granting equitable compensation to Belgravia and Joondel made in CIV 2583 of 2013, and the order extending the limitation period made in CIV 3005 of 2018. The appeal proceedings are CACV 21 of 2019 and CACV 15 of 2019 respectively.
Lowe has appealed against the orders dismissing its claims against Belgravia and Joondel made in CIV 2003 of 2015 and CIV 1483 of 2016. The appeal proceedings are CACV 19 of 2019 and CACV 20 of 2019 respectively.
On 14 February 2019, an order was made consolidating the above appeal proceedings into the one appeal proceeding, with CACV 21 of 2019 standing as the main appeal proceeding.
Scope of the contested challenge to the primary orders
The grounds of appeal in the consolidated appeals seek to challenge only the decision to extend the limitation periods and the award of equitable compensation to Belgravia in respect of the April 2006 and March 2007 payments.
Those grounds do not affect the awards of equitable compensation to Belgravia in respect of payments made after March 2007, or the award of equitable compensation to Joondel. Nor do those grounds affect the dismissal of Lowe's claims. It follows that the consolidated appeals must be dismissed so far as they challenge those orders.
Ground 8 contends that the primary judge erred in granting an extension of time to bring proceedings against Mr Heath, including on the ground that the judge made no findings of improper conduct against Mr Heath (as opposed to Lowe), and no finding that Belgravia's failure to commence action against Mr Heath was attributable to any improper conduct on Mr Heath's part. Belgravia concedes ground 8. It follows that the consolidated appeal proceedings must be allowed at least so far as they challenge the grant of an extension of time for bringing proceedings against Mr Heath and ordering Mr Heath to pay equitable compensation to Belgravia in respect of the April 2006 and March 2007 payments.
The contentious issue in the consolidated appeals is whether the extension of time for Belgravia to commence proceedings against Lowe should be set aside. If that extension of time is set aside, it would follow that the orders that Lowe pay equitable compensation to Belgravia in respect of the April 2006 and March 2007 payments should also be set aside. If the challenge to the extension of time fails, Lowe advances no other basis for setting aside those orders.
Existing grounds of appeal
The existing grounds of appeal challenge the extension of time for Belgravia to commence proceedings against Lowe on 7 grounds.
Ground 1 contends that the primary judge erred in his construction of s 38(2) of the Limitation Act. Lowe contends that the judge erred in concluding that the court may extend time if satisfied that the failure to commence the action was attributable to conduct that involved a 'mere breach of contract, duty of care or . . . breach of a fiduciary duty', even if the conduct does not involve 'some element of moral turpitude'.
Grounds 2 and 5 relate to the April 2006 and March 2007 payments respectively. They are premised on the success of ground 1. They contend that the primary judge erred in concluding that conduct referred to at [129] and [131] above was improper conduct, when that conduct did not have any element of moral turpitude, was not dishonest and was not akin to fraudulent conduct. These grounds must fail unless the construction of s 38(2) advanced by ground 1 succeeds. Belgravia accepts that grounds 2 and 5 succeed if the construction advanced by ground 1 succeeds, as it doesn't suggest that Lowe's conduct involved dishonesty or something akin to fraud.[142] Therefore, the success or failure of grounds 2 and 5 turns entirely on whether ground 1 succeeds.
[142] Appeal ts 102.
Grounds 3 and 6 relate to the April 2006 and March 2007 payments respectively. They are premised on the failure of ground 1, but a construction of s 38(2) which requires that 'improper conduct' must involve a breach of contract, breach of a duty of care or a breach of fiduciary duty. The grounds contend that the primary judge erred in concluding that conduct referred to at [129] and [131] above was improper conduct, when that conduct did not involve any breach of contract, breach of a duty of care or a breach of fiduciary duty.
Grounds 4 and 7 relate to the April 2006 and March 2007 payments respectively. They contend that the primary judge erred in concluding that Belgravia's failure to commence action in time with respect to the relevant payments was 'attributable' to Lowe's conduct. This is on the basis that Belgravia, by its officers and agents, knew prior to the expiry of the relevant limitation period that the relevant payments had been made. The grounds contend that, in order to commence the action, Belgravia did not need to know Lowe's genuine but incorrect view as to its entitlement to payment of additional project management and selling fees.
Application to amend the grounds of appeal
During the course of oral argument of the consolidated appeals, a third possible construction of s 38(2), in addition to the two constructions suggested by ground 1, was debated. On that third view, the words 'improper conduct' bear their ordinary meaning, namely, conduct which is not in accordance with propriety, or what is proper in the circumstances. On this view, neither moral turpitude akin to fraud nor a breach of contract, duty of care or fiduciary duty is essential to the characterisation of conduct as improper within the meaning of s 38(2) of the Limitation Act.
Senior counsel for Belgravia submitted that the primary judge did not proceed on the basis that improper conduct means a breach of contract, duty of care or fiduciary duty. Rather, counsel contended that the judge applied the ordinary meaning referred to above.[143] He also made the point that the grounds of appeal did not challenge the primary judge's finding that the conduct summarised at [129] and [131] above was 'improper' in the ordinary sense of that term.[144] Senior counsel for Belgravia also submitted that grounds 4 and 7 were narrowly confined to the contention that Lowe knew about the April 2006 and March 2007 payments.[145] He contended that Lowe's submissions went beyond the grounds of appeal.[146]
[143] Appeal ts 98.
[144] Appeal ts 101 - 102.
[145] Appeal ts 78 - 79.
[146] Appeal ts 78, 103.
In reply submissions, senior counsel for Lowe contended that the grounds of appeal were broad enough to encompass the oral submissions that had been advanced by reference to the third possible construction referred to above.[147]
[147] Appeal ts 119 - 124.
At the conclusion of oral argument, the court indicated its provisional view to the effect that, if the primary judge proceeded by reference to the third possible construction referred to above, there was no ground of appeal that contended that the judge erred in his application of that test.[148] Senior counsel for Lowe indicated that, in that event, Lowe sought to amend its grounds of appeal. The court reserved its decision subject to any application for leave to amend the grounds of appeal being filed within 14 days.
[148] Appeal ts 124 - 125.
By application in an appeal filed on 19 February 2020, Lowe and Mr Heath seek leave to amend their ground of appeal in terms of a minute of amended grounds of appeal annexed to the supporting affidavit of Chelsea Lee Quirk affirmed on 19 February 2020.
The proposed amended grounds introduce new grounds 2A and 5A. Those grounds are in materially the same terms, but are addressed to the April 2006 and March 2007 payments respectively. The grounds in effect contend that, irrespective of whether the primary judge erred in concluding that 'other improper conduct' refers to conduct that is not in accordance with propriety, or breached the expected standards of conduct of a person in the defendant's position, the judge erred in concluding that the conduct summarised at [129] and [131] above was 'other improper conduct'.
The proposed amended grounds also introduce a new par (c) to grounds 3 and 6. The effect of the addition is to contend that the judge erred in concluding that the conduct summarised at [129] and [131] above was 'improper conduct', in that the standards of conduct found to have been breached were not expected or established standards of conduct.
In his second reading speech to the Bill for the Limitation Act, the Attorney General said:[170]
The basis for these reforms stems from May 2002 when a discussion paper entitled 'Limitations Law Reform' was released for public comment. The discussion paper took into account the recommendations of the Western Australian Law Reform Commission's 1997 report titled 'Limitation and Notice of Actions'. A number of comments and submissions were received in response to the discussion paper.
Since the release of that paper, the issue of limitations law has been the subject of further consideration in the context of reform of the law governing civil liability generally, both in the 'Review of the Law of Negligence' report - commonly referred to as the Ipp report, which was released in September 2002 - and in the report of the Australian Health Ministers Advisory Council chaired by Professor Marcia Neave, which was also released in that month. The issue has also been canvassed in detail at a national level and a number of states and territories have introduced legislation to amend their limitation laws. Generally, the concern in those other states and territories has been to narrow, from a limitations perspective, the typically very broad circumstances in which proceedings in respect of personal injury may be brought.
[170] Hansard 7 April 2005, page 563 (Legislative Assembly).
In relation to the then proposed s 17 of the Limitation Act, the Attorney General said:[171]
Third, the courts are to be empowered, upon being satisfied that a victim's failure to commence proceedings was attributable to fraudulent or other improper conduct of the proposed defendant, to extend time for the commencement of proceedings for three years from when the proceedings should reasonably have been brought.
Fourth, while on extension applications, the courts have a broad discretion as to whether to grant or refuse leave once the necessary criteria are met. The bill specifically requires the courts to have regard to the prospects of a fair [trial] and to whether the grant of leave would significantly prejudice the defendant.
[171] Hansard 7 April 2005, page 565 (Legislative Assembly).
The appellants submit that, under s 19(1) of the Interpretation Act, the court can have reference to the above material to confirm the ordinary meaning of s 38(2) or to determine its meaning when it is ambiguous or obscure or the ordinary meaning leads to a result that is manifestly absurd or is unreasonable. They contend that the reference to 'other moral turpitude' in the passage of the government's 2002 paper quoted at [203] above shows that the purpose of s 38(2) was to permit an extension only if there was fraudulent conduct or some other moral turpitude.[172]
[172] Appellants' Submissions [34] - [39].
We do not accept that the reference to 'fraud or other moral turpitude' in the 2002 paper is of material assistance in this court's construction of s 38(2) of the Limitation Act:
(1)It must be kept in mind that the function of this court is to construe the language which Parliament has enacted, and the words of a Minister in Parliament must not be substituted for the text of the law.[173] Statements as to the meaning of words by Ministers in second reading speeches are very rarely useful in construing Parliament's objective intention.[174] The need for caution is even greater in the case of a government policy document which is merely referred to by a Minister in a second reading speech.
(2)The Attorney General's second reading speech did not indicate that the Bill for the Limitation Act adopted all of the policy statements contained in the 2002 paper. Rather, he indicated that the basis for the reforms proposed in the Bill stemmed from the date when the paper was published for public comments. The Minister's speech also indicated that further policy development had occurred in light of public comments received and other inquires.
(3)What is conveyed by the reference to 'moral turpitude' in the 2002 paper is unclear, particularly references to the application of the proposed provision 'in child sex abuse or 'Stolen Generation' claims. The latter references do not appear consistent with a concept of 'moral turpitude' that is akin to fraud.
Purpose of s 38(2)
[173] Re Bolton; ex parte Beane (1987) 162 CLR 514, 518.
[174] Harrison v Melhem [2008] NSWCA 67; (2008) 72 NSWLR 380 [12] - [13], [162] - [185], [191] - [194].
Contrary to the appellants' submissions, in our view, an attempt to discern the purpose of s 38(2) provides no real assistance in attributing meaning to the critical phrase in it. As already noted at [177] above, the Limitation Act provides for periods of limitation that are generally applicable. Section 38 is one of several provisions in div 3 empowering a court to extend the time for commencement of actions in certain circumstances or of a certain character. Such a provision, by its nature, involves a balancing of competing considerations. An attempt to discern a purpose of such a provision is liable to involve an assumption or assertion as to a purpose and as to the critical question of construction.[175] The best guide to where the balance has been drawn lies in the language of the text.
Disposition of ground 1
[175] Certain Lloyd's Underwiters v Cross [2012] HCA 56; (2012) 248 CLR 378 [26]; Australian Education Union v Department of Education [2012] HCA 3; (2012) 248 CLR 1 [28].
For the above reasons, in our view, the judge did not err in the manner alleged by ground 1, namely in failing to find that conduct amounts to 'other improper conduct' only if it involves an element of moral turpitude. Ground 1 is not established.
Grounds 2 and 5 fall away
Grounds 2 and 5 contend that, if the construction advanced by ground 1 is adopted, the findings of improper conduct summarised at [129] and [131] above must be set aside. As noted above, grounds 2 and 5 are premised on the success of ground 1. Grounds 2 and 5 fail as a result of the failure of ground 1.
Grounds 3(a), 3(b), 6(a) and 6(b) and the primary judge's construction
Grounds 3(a), 3(b), 6(a) and 6(b) contend that the primary judge erred in concluding that conduct referred to at [129] and [131] above was improper conduct, when that conduct did not involve any breach of contract, breach of a duty of care or a breach of fiduciary duty. As noted at [154] above, these grounds are premised on the failure of ground 1, but a construction of s 38(2) which requires that 'improper conduct' must involve a breach of contract, breach of a duty of care or a breach of fiduciary duty. As we have already rejected that construction of s 38(2) in dealing with ground 1, these grounds also fail.
Further, in our view, the primary judge did not equate 'improper conduct' with a breach of contract, duty of care or fiduciary duty. His Honour's express finding was that conduct will be improper for the purposes of s 38(2) 'if it breaches the standards of conduct that would be expected of a person in the defendant's position'.[176] His reference to 'mere breach of contract, duty of care or even breach of a fiduciary duty' was in the context of rejecting the proposition that some element of moral turpitude is required beyond such a mere breach.[177] In doing so, his Honour rejected the argument that the court should depart from the ordinary meaning, which he identified as being 'not in accordance with propriety of behaviour'.[178]
[176] Primary reasons [411](a).
[177] Primary reasons [412].
[178] Primary reasons [414].
For the reasons explained in relation to ground 1, to the extent that as the judge found that, in the context of s 38(2), 'improper' has its ordinary meaning of 'not in accordance with propriety of behaviour', the judge did not err.
Grounds 2A, 3(c), 5A and 6(c): whether Lowe engaged in 'improper conduct'
It is now convenient to turn to grounds 2A, 3(c), 5A and 6(c), which challenge the primary judge's conclusion that the conduct summarised at [129] and [131] above, was 'improper conduct' within the ordinary meaning of that phrase. As we have noted, what is said at [129] and [131] above is evidently a shorthand reference to aspects of what is set out at [125] above, where the primary judge identified the conduct of Lowe which he regarded as improper.
Whether, in a given set of circumstances, particular conduct answers the statutory description of 'other improper conduct' is an evaluative judgement. While, in some cases, reasonable minds may reasonably differ on that question, the question of whether the conduct answers the statutory description attracts the correctness standard of appellate review, not the House v The King standard.[179] The respondents accepted that this was so.[180]
No invoices provided when payments made
[179] See, by analogy, the position concerning whether conduct answers the statutory description of 'conduct that is unconscionable': Minister for Immigration v SZVFW [2018] HCA 30 (2018) 264 CLR 541 [46], [151]; ASIC v Kobelt [2019] HCA 18; (2019) 93 ALJR 743 [47].
[180] Appeal ts 100 - 101.
The first two aspects of 'improper conduct' found by the primary judge arose out of the circumstances in which the payments were made. The findings concern the failure to provide invoices to Belgravia or obtain authorisation at the time the payments were made. The grounds challenge the following findings as to aspects of Lowe's conduct which were improper that are set out at [129] above (quoted below for ease of reference):
(a)its failure to inform Belgravia that the payments were for additional project management and selling fees at the time the payments were made;
(b)its failure to provide Belgravia with the invoices for which the payments were made when the payments were made; and
The conduct was also identified in the following terms in the findings summarised at [125] above (quoted below for ease of reference):[181]
(a)The failure by Lowe to provide invoices to Belgravia at the time the disputed payments were made in April 2006 and March 2007 or otherwise make clear to Belgravia that the payments were in respect of additional project management and additional selling fees.
[181] This conduct was identified at [426](a) and (b) and [427](a) and (b) of the primary reasons.
We are not persuaded that the primary judge erred in concluding that the above conduct was improper.
Lowe participated in Mr Heath's breach of fiduciary duty in a manner that was likely to prevent Belgravia from ever becoming aware of the fact of the breach. The breach arose in circumstances where Lowe was the custodian of Belgravia's financial records and where the bank statements for the Partnership Account were sent to Lowe's offices and retained by Lowe. In that context, Lowe invoiced Belgravia for the fees in a way that effectively ensured that no officer of Belgravia other than the defaulting fiduciary would be aware of the fact or basis of the payments. The invoices were provided to the defaulting fiduciary director, Mr Heath, alone. Once the payment was made by Mr Heath, the invoices were retained by Lowe. That occurred in circumstances where Lowe was aware that Mr Heath had not informed any other officer of Belgravia of the payments, and had not sought approval from any other officer.
In assessing the propriety of that conduct, it is relevant to bear in mind the background, which included the informality involved in the parties' business dealings and the practice that Lowe had in managing Belgravia's affairs without reference to members of the Godecke family who were officers of that company. However, that history of trust and informality does not provide an answer to the allegation of impropriety. In that regard, we agree with the following observations made by the primary judge:[182]
It is clear from the evidence which I have summarised that Lowe had no formal process in place for obtaining the Godeckes' authorisation for the payment of its fees and for recording any authority given by the Godeckes. Mr Heath was responsible for the payment to his own company of very substantial sums in respect of fees. His approach to paying his own company using the Godecke's companies' money was distinguished by a level of informality that was extraordinary even in the context of his long and trusting relationship with the Godeckes. Judged by ordinary business standards the absence of any written record of authority from the Godeckes approving the payment of Lowe's invoices is remarkable. To say that no greater level of formality was required because Bill, Bob and Mr Heath were honourable men who trusted each other is not a satisfactory explanation for the casual way in which Mr Heath dealt with the payment of Lowe's fees.
[182] Primary reasons [276].
Lowe participated in Mr Heath's breach of fiduciary duty by issuing invoices for payments to which it was not entitled in a manner which effectively ensured that no officers of Belgravia other than the defaulting fiduciary would have the knowledge required to properly commence proceedings to recover the payments. Regardless of Lowe's intention, the process its officer and employee adopted produced a payment by Lowe to Belgravia, to which Lowe was not entitled, by a breach of fiduciary duty in which Lowe knowingly participated, in a manner which left no evidence accessible to Belgravia of the fact of or asserted basis for the payment. The manner in which Lowe participated in Mr Heath's breach of fiduciary duty tended to unfairly deprive Belgravia of the opportunity of becoming aware of the payments and the asserted basis for them, and therefore to unfairly deprive Belgravia of the opportunity to commence proceedings to recover the payments within the limitation period. As well as constituting knowing participation in a breach of fiduciary duty, the conduct was improper within the ordinary meaning of that term as used in the context of s 38(2) of the Limitation Act.
In our view, the primary judge was correct to find that Lowe's failure to provide invoices to any person other than Mr Heath, in circumstances where it knew that Mr Heath was not seeking the authorisation of the payments by any other person, is properly characterised as improper conduct by Lowe.
Informing Karin and Tony Godecke as to the basis for the payments
The next two aspects of the 'improper conduct' found by the primary judge arose out of Mr Heath's and Mr Quinlivan's alleged failure to inform Karin and Tony Godecke of the basis upon which Lowe was charging additional fees. The grounds challenge the following findings as to aspects of Lowe's improper conduct set out at [129] and [131] above (quoted below for ease of reference):
(c)its failure to inform Belgravia of the basis upon which it was charging additional project management and selling fees at the time the payments were made or at any time between the date of the payments and [April 2012/March 2013].
(d)informing Belgravia that the source of Lowe's entitlement to the payments was the 1999 Agreement when that was not the basis upon which Lowe claimed to be entitled to additional fees.
The conduct referred to at (c) was relevant to the April 2006 and March 2007 payments, while the conduct referred to at (d) was found to relate only to the March 2007 payments.
This conduct was also identified in the following terms in the findings set out at [125] above (quoted below for ease of reference):
(c)The fact Mr Heath and Mr Quinlivan informed Ms [Karin] Godecke and Mr Tony Godecke, in response to their inquiries, that the 1999 Agreement was the basis upon which Lowe was charging additional fees.
(d)The failure by Mr Heath and Mr Quinlivan to inform Ms [Karin] Godecke and Mr Tony Godecke of the basis upon which Lowe claimed to be entitled to be paid additional project management and additional selling fees before the proceedings were commenced even though they knew that Ms [Karin] Godecke and Mr [Tony] Godecke were trying to obtain an understanding of the basis upon which additional fees had been charged by Lowe.
In our respectful view, the primary judge erred in finding, set out at [223](c) above, that Lowe engaged in improper conduct in failing to inform Belgravia of the basis upon which it was charging additional projection management and selling fees at the time the payments were made or at any time between the date of the payments and the expiry of the limitation periods. Read literally, the finding is incorrect. On the judge's findings, Lowe did so inform Belgravia. The judge found that, by late 2009, Mr Quinlivan had told Ms Godecke that the 1999 agreement entitled Lowe 'to charge Belgravia and Joondel 5% for project management fees and 5% for selling fees', and that this was so even where a third party, such as Satterley Property Group, was the project manager and selling agent.[183]
[183] Primary reasons [290] - [292].
Similarly, read literally, the findings set out at [223](c) and (d) above appear to be inconsistent. Par (d) identifies conduct of informing Karin and Tony Godecke basis upon which Lowe was charging additional fees, while par (c) identifies conduct of failing to inform Karin and Tony Godecke of the basis upon which Lowe claimed to be entitled to the additional fees.
It appears that, in making the findings set out at [223] (c) and (d), the judge was referring to a failure by Lowe to inform Belgravia of the basis upon which Lowe ultimately, at trial, claimed that it was entitled to charge the additional fees.
In our respectful view, the fact that, up to 2012 or 2013, Lowe had not articulated the oral side agreement case upon which it relied at trial does not bear at all on the inquiry for the purposes of s 38(2). The primary judge found that Lowe invoiced and accepted the April 2006 and March 2007 payments honestly but mistakenly believing that the 1999 Agreement entitled it to those payments. The later alternate justifications advanced by Lowe at trial were rejected by the primary judge. The fact that, prior to the commencement of the proceedings, Lowe did not advance justifications for the payments which emerged only after the proceedings were commenced, and were found not to be established, cannot be properly characterised as improper conduct. Nor was it improper for Lowe to advance the actual reason it believed itself to be entitled to the payments when asked how it was entitled to the payments. That is particularly so when Tony and Karin Godecke had, at that time, a copy of the 1999 Agreement on which Lowe relied and so were in a position to assess for themselves the merits of Lowe's claims.
Senior counsel for Belgravia accepted that the finding set out at [223](d) above was in error.[184] For the above reasons, that concession was correctly made. In our respectful view, the conduct identified in the findings set out at [223](c) and (d) above is not properly characterised as improper conduct within the meaning of s 38(2) of the Limitation Act.
Failure to provide copies of invoices
[184] Appeal ts 113.
The final two aspects of the 'improper conduct' found by the primary judge related to Mr Quinlivan's failure to provide invoices for the March 2007 payments when requested by Tony Godecke. The April 2006 payments are not relevant here, as the limitation period for bringing action to recover the April 2006 payments had already expired by the time Tony Godecke first requested copies of invoices.
The grounds challenge the following findings as to aspects of Lowe's improper conduct set out at [131] above (quoted below for ease of reference):
(e)its failure to respond to Mr Tony Godecke's request for details of the large commission paid shortly before Mr Quinlivan joined Lowe - which as I have found was a reference to the March 2007 payments.
The grounds also challenge the finding, referred to in [131] above, that the failure to provide invoices at any time prior to March 2013 was improper conduct.
The conduct was also identified in the following terms in the findings set out at [125] above (quoted below for ease of reference):
(f)The fact Mr Quinlivan did not provide copies of invoices in respect of payments made before February 2009 when Mr Tony Godecke requested copies of invoices from him in June 2012. Further, in his email to Mr Tony Godecke of 6 June 2012, being his response to the request for copies of the invoices, Mr Quinlivan stated 'I can give you the invoices that I have prepared, however 2002 is well before my time. When I started in 2008, Colin, Bill, Bob and I sat down and arrived at the starting outstanding balances'. The effect of this statement was to convey the impression that the 'starting outstanding balances' were agreed in 2008 when that was not in fact the case. Mr Quinlivan accepted, in effect, that he made the statement to dissuade Mr Tony Godecke from pursuing his request for the earlier invoices - as Mr Quinlivan accepted in cross‑examination he was 'fobbing [Mr Tony Godecke] off'.
(g)The fact that following the meeting on 10 September 2012 at which Mr Quinlivan had mentioned the payment of a large commission before he, Mr Quinlivan, started work at Lowe, Mr Quinlivan did not respond to an email from Mr Tony Godecke seeking details of the payment. I infer that Mr Quinlivan's reference to the large commission was a reference to the payments made in March 2007.
We agree with the primary judge that the above conduct was improper in the circumstances.
The propriety of that conduct is to be evaluated against the background of the improper conduct of Lowe in obtaining the April 2006 and March 2007 payments without the knowledge or approval of any officer of Belgravia other than the defaulting fiduciary director Mr Heath. Given that background, and the consequence that in 2012 the officers of Belgravia other than Mr Heath did not know of the payments or their asserted basis, it was improper for Mr Quinlivan to 'fob-off' Tony Godecke's requests for copies of invoices issued at the relevant time. Lowe was found to be vicariously liable for Mr Quinlivan's conduct,[185] in our view, correctly so where the request was made of an officer of Lowe in relation to records retained by Lowe. The conduct remains improper despite the fact that Mr Quinlivan was motivated by a desire to avoid the effort involved in obtaining information rather than a desire to conceal wrongdoing. In making these requests, Belgravia was seeking information and records as to payments of fees it had made to Lowe. Belgravia was undoubtedly entitled to do so, indeed it should have been provided with the information and records when the payments were made. As must have been evident to Lowe, Belgravia's purpose in seeking information and records was to ensure that Belgravia had paid fees to Lowe only to the extent that Lowe was entitled to such fees. It was improper for Lowe, having secured the payments of fees to which it was not entitled (the basis for which it had never informed Belgravia and for which it alone retained relevant records), to stonewall requests for access to information which would reveal the fact, nature and timing of the payments. It was conduct that was apt to unfairly deprive Belgravia of information required to commence proceedings to recover the payments, and to appreciate that the expiry of the limitation period for instituting those proceedings was looming.
[185] Primary reasons [423].
In our view, the above conduct was improper within the ordinary meaning of that term as used in the context of s 38(2) of the Limitation Act.
Materiality of errors identified above
We have concluded that the primary judge erred in finding that the conduct referred to in the findings set out at [223](c) and (d) above was improper conduct within the meaning of s 38(2) of the Limitation Act. Grounds 2A, 3(c), 5A and 6(c) are established to that extent, but only to that extent. We will deal with the materiality of these errors after dealing with grounds 4 and 7, which challenge the primary judge's findings as to attribution on the basis of Lowe's knowledge.
Grounds 4 and 7: attribution and Belgravia's knowledge
As noted above, grounds 4 and 7 contend that the primary judge erred in concluding that Belgravia's failure to commence action in time with respect to the relevant payments was 'attributable' to Lowe's conduct. This is on the basis that Belgravia, by its officers and agents, knew prior to the expiry of the relevant limitation period that the relevant payments had been made.
These grounds firstly contend that, before the expiry of the relevant limitation periods, Belgravia, through its officers or agents, knew that the April 2006 payments and the March 2007 payments had been made. We do not accept that contention.
Although Mr Heath was an officer of Belgravia, in our view, knowledge of a breach of fiduciary duty is not to be attributed to Belgravia through the knowledge of the defaulting fiduciary. There was no evidence or finding that Mr Quinlivan ever knew of the payments. While Ms Le Fournour knew of the payments, she was not an officer of Belgravia.
The judge made express findings, noted at [60] - [61] above, that Bill and Bob Godecke did not know of the payments April 2006 or March 2007 payments. We agree with those conclusions, which the appellants' submissions do not challenge, and the primary judge's reasons for reaching them. There is nothing to suggest that the other director of Belgravia at the time those payments were made, Delyse Godecke, was aware of the payments.
Nor do the appellants advance any proper basis for impugning the primary judge's finding that it was not until August 2013 that Tony Godecke discover that the April 2006 and March 2007 payments had been made.[186] There is nothing to suggest that Karin Godecke became aware of the payments at any earlier time.
[186] Primary reasons [340].
The appellants rely on an accounting record titled 'Transaction Detail by Account, July 2005 through June 2006'. Under the heading '271 - Development & S/Fees (Project Dev & S/Fees)' the amounts and dates of the April 2006 payments are noted.[187] The trial bundle refers to this as part of a large bundle of documents referred to as the GLTP Bookkeeping file. It is common ground that the GLTP Bookkeeping file was tendered as one of the internal bookkeeping records maintained by Ms Le Fournour and 'provided to Mr Sendziuk for the purposes of the preparation of the accounts'.[188]
[187] TB-1883 - Extract of GLTP Bookkeeping file, p 16095 (Green AB 198).
[188] Appeal ts 89; Appellants' Submissions [76] - [77].
We are not satisfied that the above bookkeeping document provides any proper basis for attributing knowledge of the payments to Belgravia. The primary judge made no finding as to this document, and the appellants did not point to, and we cannot find, any material reference to it in the evidence. The record was kept by Lowe's employee, Ms Le Fournour. While the record was no doubt available to Mr Sendziuk to inspect at Lowe's offices, the appellant does not point to any evidence that Mr Sendziuk took that particular record away from Lowe's offices. As noted at [55] above, Mr Sendziuk could not recall taking source documents away from Lowe's offices. Even if the record was available to Belgravia, the description of the payments in the record was highly ambiguous, and formed part of a large volume of material. The fact that the April 2006 and March 2007 payments had been made, and the nature of those payments, was not readily discernible from the record. While the payments may have been incorporated into the line item 'Development fees' in GLTP's profit and loss statements, there was no breakdown of that figure in the profit and loss statements.[189] We are far from persuaded that the primary judge erred in failing to find that Belgravia's knowledge of the payments was to be inferred from the bookkeeping records maintained by Ms Le Fournour and the financial statements prepared by Mr Sendziuk with access to Ms Le Fournour's bookkeeping records.
[189] Primary reasons [354](e).
In our view, there is no merit to the appellants' contention that Belgravia knew of the April 2006 and March 2007 payments before the expiry of the relevant limitation periods.
The second contention advanced by grounds 4 and 7 is that, in order to commence the action, Belgravia did not need to know of the basis on which Lowe claimed entitlement to the payment of additional project management and selling fees. However, on any view Belgravia needed to know that payments had been made for 'additional project management and selling fees' to commence proceedings to recover those payments. For the reasons explained above, the primary judge was correct to find that Belgravia did not know that fact before the expiry of the limitation period. Moreover, until August 2013, Tony Godecke and Belgravia did not know that any payments of fees said to be due under the 1999 Agreement had been made before 2008, because their requests for invoices and information had been fobbed off. Consequently, Tony Godecke and Belgravia did not have in mind the need to commence an action in respect of payments made before 2008 in order to avoid the expiry of the limitation period.
The judge did not err in either manner alleged by grounds 4 and 7.
Materiality of errors as to characterisation of Lowe's conduct as improper
The critical findings made by the primary judge were, as noted at [128] and [130] above, that Belgravia did not know at any point before the expiry of the relevant limitation period that the April 2006 and March 2007 payments. That lack of knowledge meant that Belgravia was not in a position to make a decision as to whether to commence proceedings to recover those payments. Once the knowledge was gained in August 2013, proceedings were promptly commenced in October 2013. The delay in commencing the proceedings was attributable to the improper conduct on the basis that Belgravia's lack of knowledge was attributable to that improper conduct.
We have concluded that the primary judge erred in finding that the conduct set out at [223](c) and (d) above constituted improper conduct for the purposes of s 38(2) of the Limitation Act. However, his Honour did not otherwise err in finding the conduct to which he attributed Belgravia's failure to commence proceedings to be improper.
It remains to consider the materiality of the errors in relation to the conduct set out at [223](c) and (d) to the primary judge's ultimate conclusion that Belgravia's failure to commence proceedings within the limitation period was attributable to Lowe's improper conduct. In our view, the error in relation to the conduct referred out at [223](c) and (d) above is not material to the primary judge's ultimate decision. It remains the case that the other conduct, which the primary judge correctly found to be improper, was a substantial cause of Belgravia's relevant lack of knowledge. If Lowe had not engaged in the conduct properly found by the primary judge to be improper, then Belgravia would have known, well before the expiry of the limitation period, that the April 2006 and March 2007 payments had been made as payment of additional project management and selling fees. Belgravia would then have been in a position to have commenced proceedings, as it promptly did once it acquired that knowledge.
Orders
For the above reasons, we would make orders in the consolidated appeals having the following effect:
(1)The appellants have leave to amend their grounds of appeal in terms of the minute of amended grounds of appeal annexed to the supporting affidavit of Chelsea Lee Quirk affirmed on 19 February 2020.
(2)The appellants have leave to appeal against the orders, made in CIV 3005 of 2016 on 14 January 2019, extending the limitation periods under s 38(2) of the Limitation Act.
(3)The consolidated appeals are allowed to the following extent:
(a)Order 1 of the orders made by the primary judge in CIV 3005 of 2016 on 14 January 2019 is set aside to the extent that it extends the time for Belgravia to commence proceedings against Mr Heath.
(b)Order 1 of the orders made by the primary judge in CIV 2583 of 2013 on 14 January 2019 is set aside to the extent that it requires Mr Heath to pay equitable compensation in the amounts specified in par (a) - (f) inclusive of that order.
(4)The consolidated appeals are otherwise dismissed.
We would hear from the parties as to the precise form of the above orders, and as to the appropriate orders in relation to the costs of the appeals and the primary proceedings.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
MT
Research Orderly to the Honourable Justice Mitchell29 OCTOBER 2020
9
2
1