Marriner v Australian Super Developments Pty Ltd
[2016] VSCA 141
•17 June 2016
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2015 0074
| DAVID WELLESLEY MARRINER & ORS (According to the attached Schedule) | Applicants |
| v | |
| AUSTRALIAN SUPER DEVELOPMENTS PTY LTD | Respondent |
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| JUDGES: | TATE ACJ, KYROU and FERGUSON JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 16 May 2016 |
| DATE OF JUDGMENT: | 17 June 2016 |
| MEDIUM NEUTRAL CITATION: | [2016] VSCA 141 |
| JUDGMENTS APPEALED FROM: | Australian Super Developments Pty Ltd v Marriner [2014] VSC 464; Australian Super Developments Pty Ltd v Marriner [No 2] [2015] VSC 315 (Sloss J) |
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TRUSTS – Breach of trust by solicitors transferring a client’s funds at direction of a third party – Whether third party knowingly induced or immediately procured breach – Principle in Eaves v Hickson (1861) 30 Beav 136; 54 ER 840 considered – Leave to appeal granted but appeal dismissed.
PRACTICE AND PROCEDURE – Email sent to original trial judge setting out parties’ agreed position on effect of a settlement payment made by another party on damages to be awarded to plaintiff – Issues remitted to another judge following successful appeal to Court of Appeal – Email not referred to or tendered at remitter trial – Whether, after publication of remitter judge’s reasons, defendants required leave to reopen their case in order to rely on email on quantum of damages – Dangers of informal communications with court discussed.
COSTS – Plaintiff ultimately succeeded in recovering small proportion of damages claimed in original trial – Whether issues-based costs order appropriate – Whether an invalid offer of compromise can be treated as a Calderbank offer – Whether defendants acted unreasonably in not accepting that offer – Costs orders affirmed.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicants | Mr P J Bick QC with Mr R A Heath | Meerkin & Apel |
| For the Respondent | Mr N J O’Bryan SC with Mr A T Broadfoot | Holding Redlich |
TABLE OF CONTENTS
Introduction and summary
Structure of judgment
PART A: GROUNDS 1, 2: MR MARRINER’S KNOWLEDGE
Facts relating to Grounds 1 and 2
Establishment of bank bond for $1.61 million and release of first two tranches
Release and disbursal of third tranche of Bond Monies
Mr Marriner’s instruction for disbursal of $80,000 from trust funds
Events after Mr Marriner’s instruction
Legal principles relevant to Ground 1
Sloss J’s findings relating to Ground 1
Parties’ submissions on Ground 1
Decision on Ground 1
Ground 2: Weight to be given to Byrne J’s findings
Byrne J’s findings
Legal principles relevant to Ground 2
Sloss J’s findings relating to Ground 2
Parties’ submissions on Ground 2
Decision on Ground 2
PART B: GROUNDS 3, 4: EFFECT OF PAYMENT BY W&W
Facts relating to Grounds 3 and 4
Legal principles relevant to Grounds 3 and 4
Sloss J’s findings relating to Grounds 3 and 4
Parties’ submissions on Grounds 3 and 4
Decision on Grounds 3 and 4
PART C: GROUNDS 5, 6, 7: COSTS
Facts relating to Grounds 5, 6 and 7
Legal principles relevant to Grounds 5, 6 and 7
Sloss J’s findings relating to Grounds 5, 6 and 7
Sloss J’s findings relating to Ground 5
Sloss J’s findings relating to Ground 6
Sloss J’s findings relating to Ground 7
Parties’ submissions on Grounds 5, 6 and 7
Decision on Grounds 5, 6 and 7
Conclusion
TATE ACJ
KYROU JA
FERGUSON JA:
Introduction and summary
Since 2005, the parties to this litigation have spent millions of dollars and have used up valuable court resources, both at trial and on appeal, over a relatively small amount of money. There have been multiple claims and a complex counterclaim, an appeal and cross appeal, a second trial on issues remitted by the Court of Appeal and now there is an application for leave to appeal from orders made at the second trial. The parties’ pursuit of litigation instead of endeavouring to reach a reasonable, proportionate, and timely, commercial compromise is greatly to be regretted.
The disputed events took place in 2000 and 2001 and relate to a property development joint venture between entities associated with David Marriner and entities associated with the Construction and Building Unions Superannuation Fund (‘CBUS’). The joint venture commenced in 1993 and came to an end on 3 November 2000. Its projects included the development of the Laguna Quays resort in North Queensland (‘Resort’).
The key individuals and entities and their roles are as follows:
(a)Australian Super Developments Pty Ltd (‘ASD’) was the joint venture company. It was previously known as Staged Developments Australia Pty Ltd.
(b)United Super Pty Ltd was the trustee of CBUS and, in that capacity, owned 50 per cent of the shares in ASD until 3 November 2000.[1] After that time, it was the ultimate owner of all the shares. At relevant times, its directors included Ralph Willis and George Wason.
[1]For the purposes of this judgment, it is not necessary to distinguish between ownership of the shares by United Super Pty Ltd and ownership by its wholly owned subsidiary, United Super Investments Pty Ltd. It is also not necessary to refer to the ASD Unit Trust.
(c)Goldworthy Pty Ltd was a company controlled by Mr Marriner and, until 3 November 2000, owned 50 per cent of the shares in ASD.
(d)At relevant times, Mr Willis, Mr Wason and Barrie Frost were the nominees of United Super Pty Ltd on ASD’s board of directors (‘ASD’s board’). Until 3 November 2000, Goldworthy Pty Ltd’s nominees were Mr Marriner, Ian Court and Garry Weaven. Mr Marriner was also the CEO of ASD until 3 November 2000. Ian Patience became the CEO on 17 November 2000, initially in an acting capacity. Graham Spence was the Resort project manager.
(e)ASD Laguna Investments Pty Ltd was, until 17 April 2002,[2] a wholly owned subsidiary of ASD. It was responsible for the Resort project.
(f)LQ Management Pty Ltd was a wholly owned subsidiary of ASD Laguna Investments Pty Ltd and conducted the day-to-day operations of the Resort project as agent for ASD Laguna Investments Pty Ltd.
(g)Cumberland Management Pty Ltd was a subsidiary of ASD which operated the Cumberland Lorne Resort.
(h)Laguna Australia Pty Ltd, Laguna Australia Airport Pty Ltd (‘Laguna Airport’), Stage Design Pty Ltd and Fulham Holdings Ltd were companies controlled by Mr Marriner.
(i)Peter Jephson and John Whalley were associates of Mr Marriner who served as joint company secretaries of ASD and some of its subsidiaries. Mr Jephson resigned his position on 19 January 2001 and Mr Whalley resigned on 27 February 2001. After their resignations, they continued to work for entities controlled by Mr Marriner (‘Marriner Group’) for some time.
(j)S R Wallace & Wallace (‘W&W’) is a firm of solicitors in Mackay, Queensland, which acted for ASD in relation to the Resort in 2000 and 2001. Paul Penridge was a partner of the firm.
(k)Leo Erbacher was the owner of land near the Resort. A contract for ASD to purchase that land was replaced by a contract in which Laguna Airport was the purchaser.
(l)JJ McDonald & Sons Engineering Pty Ltd (‘JJ McDonald’) was a contractor which performed some work at the Resort.
(m)The WS Group was a firm of consulting surveyors which was engaged in various aspects of the Resort project.
[2]On 17 April 2002, entities controlled by Mr Marriner purchased the Resort from ASD. The sale transaction, which commenced with Heads of Agreement dated 30 June 2000 and had a chequered history after that date, is not directly relevant to the issues in the present application for leave to appeal.
We will refer to ASD, United Super Pty Ltd, Mr Willis, Mr Wason, Mr Frost and Mr Patience as ‘the ASD parties’. We will refer to Mr Marriner, Goldworthy Pty Ltd, Laguna Australia Pty Ltd, Laguna Airport, Stage Design Pty Ltd and Fulham Holdings Ltd as ‘the Marriner parties’.
The original trial involved claims by ASD against the Marriner parties and W&W. ASD alleged that Mr Marriner had exceeded his authority in relation to certain capital expenditure at the Resort (‘capital expenditure claim’). ASD also alleged that W&W had committed a breach of trust in relation to funds that it held on trust for ASD as a result of the cancellation of a bank bond,[3] by disbursing those funds to third parties at the direction of persons who were not authorised by ASD. The unauthorised directions to W&W were made by Mr Jephson allegedly at Mr Marriner’s request, save for a direction which Mr Marriner made personally on 22 May 2001 that $80,000 be paid to the WS Group. ASD claimed that Mr Marriner was liable for the unauthorised disbursement of the trust funds by W&W pursuant to the Eaves v Hickson[4] principle because he had knowingly induced or immediately procured the breach of trust by W&W (‘bond monies claim’).[5] ASD’s claims against the other Marriner parties were based on Mr Marriner’s knowledge and conduct.
[3]As discussed below, funds held in a set-off bank account to secure a bank bond in favour of an electricity company were released in three tranches. The third and final tranche of $853,200 became available when the bank bond was cancelled on 13 February 2001.
[4](1861) 30 Beav 136; 54 ER 840.
[5]As discussed at [133] below, ASD’s claims against Mr Marriner pursuant to the Eaves v Hickson principle were not confined to the third tranche of the bond monies. ASD also alleged that payments totalling $426,600, which represented the second tranche of the bond monies, to persons other than ASD constituted a breach of trust by LQ Management Pty Ltd and that Mr Marriner had knowingly induced or immediately procured that breach of trust and was liable to ASD for that amount. However, as the claim relating to the second tranche is not directly relevant to the present application for leave to appeal, we will treat the bond monies claim as being confined to the third tranche.
The Marriner parties raised a number of affirmative defences and counterclaimed against the ASD parties. The defences and the counterclaim relied on the same or similar facts and included allegations that the ASD parties had acted unconscionably and had engaged in misleading and deceptive conduct.
It appears that W&W claimed indemnity from the Marriner parties.
The original trial took place before Byrne J over 20 sitting days between 18 August and 18 September 2009. On 31 July 2009, 18 days prior to the trial, ASD settled its claim against W&W in the amount of $350,000 (‘W&W settlement payment’) and W&W consented to the dismissal of its claim against the Marriner parties. However, the W&W settlement payment did not obviate the need for ASD to establish that W&W had committed a breach of trust and that Mr Marriner had knowingly induced or immediately procured that breach.
Byrne J published his reasons in respect of ASD’s claims on 26 February 2010[6] and subsequently published his reasons on the Marriner parties’ counterclaim on 16 April 2010.[7] He found that W&W had not committed a breach of trust because Mr Penridge believed that Mr Jephson and Mr Marriner were authorised by ASD to give instructions on its behalf, and therefore the bond monies claim could not succeed against the Marriner parties.[8] Byrne J found in favour of ASD in respect of part of the capital expenditure claim — assessing damages at $412,113 — and rejected the Marriner parties’ defences and counterclaim. He made an order: that there be judgment for ASD against Mr Marriner in the amount of $412,113 plus interest in the amount of $224,336.25; that there be judgment for ASD on the counterclaim; that Mr Marriner pay ASD’s costs on the claim; and that there be no order for costs on the counterclaim.
[6]Australian Super Developments Pty Ltd v Marriner [2010] VSC 41 (‘Byrne J’s principal reasons’).
[7]Australian Super Developments Pty Ltd v Marriner [No 2] [2010] VSC 66 (‘Byrne J’s reasons on the counterclaim’).
[8]Byrne J’s principal reasons [150]–[151].
The Marriner parties appealed against Byrne J’s order. ASD brought a cross appeal in respect of Byrne J’s rejection of the bond monies claim. ASD also filed a notice of contention regarding the quantum awarded by Byrne J in respect of the capital expenditure claim.
On 3 August 2012, the Court of Appeal (Neave and Mandie JJA and Judd AJA) allowed the appeal and allowed the cross appeal in part.[9] The Court held that the judge had erred in concluding that Mr Marriner had breached a capital expenditure cap because, on the construction adopted by the Court of Appeal, the relevant agreement did not impose an expenditure limit on Mr Marriner but rather a limit on the extent of ASD’s liability.[10] The Court also found that a trustee can be liable for an innocent breach of trust and that Byrne J had erred in holding that W&W had not committed a breach of trust.[11] As Byrne J had not fully dealt with the issue of whether any of the Marriner parties were liable for the breach of trust on the basis of the directions that had been given by Mr Jephson and Mr Marriner to W&W, the Court decided to remit that part of the case for determination by a judge in the Trial Division.[12] The Court also found that Byrne J did not provide adequate reasons for rejecting the Marriner parties’ affirmative defences and counterclaim and decided to remit those issues also.[13]
[9]Marriner v Australian Super Developments Pty Ltd [2012] VSCA 171 (‘Court of Appeal’s principal reasons’).
[10]Court of Appeal’s principal reasons [209], [229], [246].
[11]Court of Appeal’s principal reasons [147].
[12]Byrne J had retired prior to 3 August 2012.
[13]Court of Appeal’s principal reasons [293], [296]–[297].
The order that the Court of Appeal made on 3 August 2012 was as follows:
1The appeal be allowed in the manner that follows.
2The Orders made by the Honourable Justice Byrne on 16 April 2010 be set aside.
3The cross-appeal be allowed in part.
4The following issues be remitted to be determined by a judge of the Trial Division and, subject to any contrary order of that trial judge, on the basis of the evidence already adduced in the trial:
· the liability of [Mr] Marriner for the breaches of trust committed by [W&W], including the applicability of any defences and related counterclaims;
· the liability of Goldworthy Pty Ltd, Laguna Australia Pty Ltd, and Stage Design Pty Ltd for the breaches of trust committed by [W&W], including the applicability of any defences and related counterclaims; and
· liability for the costs of the hearing before the Honourable Justice Byrne.
On 5 December 2012, the Court of Appeal (Neave JA and Judd AJA) published separate reasons in respect of costs.[14] It ordered that the ASD parties pay 80 per cent of the Marriner parties’ costs of the appeal on a party and party basis and that there be no order for the costs of the cross appeal.
[14]Marriner v Australian Super Developments Pty Ltd [No 2] [2012] VSCA 290 (‘Court of Appeal’s costs reasons’). Mandie JA had retired prior to 5 December 2012.
The remitter trial was conducted on the basis of the evidence adduced in the original trial and occupied six days before Sloss J in August and September 2013. On 19 September 2014, Sloss J upheld part of ASD’s claim against Mr Marriner, rejected the Marriner parties’ affirmative defences and dismissed their counterclaim.[15] Further hearings took place on 3 December 2014 and 25 February 2015 in relation to quantum and costs issues. On 30 June 2015, Sloss J decided: that ASD was entitled to judgment for $80,000 against Mr Marriner but not against any of the other Marriner parties; that the Marriner parties’ counterclaim be dismissed; that the Marriner parties pay ASD’s costs of the claims and counterclaim in the remitter proceeding and of the claims and counterclaim in the original trial before Byrne J; and that some of those costs be paid on an indemnity basis.[16] On 23 July 2015, Sloss J made an order reflecting the above decision. The order also required Mr Marriner to pay ASD interest of $87,920.73.
[15]Australian Super Developments Pty Ltd v Marriner [2014] VSC 464 (‘Sloss J’s principal reasons’).
[16]Australian Super Developments Pty Ltd v Marriner [No 2] [2015] VSC 315 (‘Sloss J’s quantum and costs reasons’).
It should be noted that, by ordering the Marriner parties to pay ASD’s costs of the claims and counterclaim in the original trial before Byrne J, Sloss J effectively varied that part of Byrne J’s order that specified that there be no order for costs on the counterclaim.[17]
[17]Sloss J’s quantum and costs reasons [155].
The Marriner parties now seek leave to appeal against the judgment for $80,000 and the costs orders. Leave to appeal is not sought in respect of the dismissal of the counterclaim. The Marriner parties rely on seven proposed grounds of appeal.
Grounds 1 and 2 raise the issue of whether Sloss J erred in finding that, in directing W&W to pay $80,000 from the firm’s trust account to the WS Group on 22 May 2001, Mr Marriner knowingly induced or immediately procured a breach of trust by W&W and was thus liable to pay that amount to ASD.
Grounds 3 and 4 raise the issues of whether Sloss J erred in finding that:
(a)the parties had agreed that ASD must give credit for the W&W settlement payment of $350,000 by reducing the amount sought to be recovered by ASD;
(b)the Marriner parties required leave to reopen their case for the purpose of relying on an email which was said to record an agreement between the parties that the W&W settlement sum of $350,000 was to be deducted from any damages awarded to ASD; and
(c)there were no exceptional circumstances justifying the reopening of the Marriner parties’ case and thus they were precluded from relying on the abovementioned email.
Grounds 5, 6 and 7 relate to costs and raise the issues of whether Sloss J erred in finding that:
(a)the costs orders of Byrne J should not be disturbed save that Byrne J’s order that there be no order for costs of the counterclaim in the original trial should be replaced by an order that the Marriner parties pay ASD’s costs of the counterclaim in that trial;
(b)the Marriner parties must pay ASD’s costs of the remitter trial; and
(c)the Marriner parties must pay ASD’s costs incurred after 8 March 2013 on an indemnity basis.
For reasons that follow, we have concluded that the application for leave to appeal should be granted but that the appeal should be dismissed.
Structure of judgment
As the proposed grounds of appeal raise three main issues, we will deal with them in three separate parts. Part A will deal with Grounds 1 and 2, Part B will deal with Grounds 3 and 4 and Part C will deal with Grounds 5, 6 and 7. In each part, we will set out: the grounds with which the part deals; the facts relevant to those grounds; the legal principles relevant to those grounds; Sloss J’s findings that relate to those grounds; the parties’ submissions on those grounds; and our decision on those grounds.
PART A: GROUNDS 1, 2: MR MARRINER’S KNOWLEDGE
Grounds 1 and 2 are as follows:
1[Sloss J] erred in finding that, in directing [W&W] to pay $80,000 from a trust account linked to file no. 96989 (Erbacher purchase file), on 22 May 2001, Mr Marriner knowingly procured or induced a breach of trust and was thus liable to pay $80,000 to ASD. [Sloss J] should have found that, given the lack of direct evidence, there was insufficient evidence to support a finding that Mr Marriner was aware that the funds in the relevant account belonged to ASD.
2[Sloss J] failed to accord sufficient weight to the finding by the trial judge, Byrne J (who saw and heard the witnesses) on the same evidence as was before [Sloss J] that there was no evidence Mr Marriner knew the WS Group account for $80,000 was paid from third tranche funds. Had [Sloss J] done so she would have either found there was no reason for her to depart from the finding of [Byrne J] or, alternatively, there was insufficient evidence to support a finding that Mr Marriner was aware that the funds in the relevant account belonged to ASD.[18]
[18]Citations omitted.
Facts relating to Grounds 1 and 2
Grounds 1 and 2 require consideration of the evidence that was relevant to Mr Marriner’s knowledge. Ground 2 also requires consideration of Byrne J’s findings. We will first deal with the evidence concerning Mr Marriner’s knowledge. Ground 2 will be discussed separately after our conclusions in respect of Ground 1.
Sloss J’s primary findings of fact are not in dispute. However, the Marriner parties challenge some of the inferences that she drew from those facts. Set out below are the primary facts that are relevant to Ground 1. The full factual background and context of the litigation can be found in the reasons published by Byrne J, the Court of Appeal, and Sloss J, and will not be repeated here.
The working relationship between Mr Marriner and Mr Jephson was as follows:
(a)Mr Jephson had worked for the Marriner Group since January 1994. He joined the joint venture team of ASD in 1996 and served as company secretary of ASD, ASD Laguna Investments Pty Ltd, LQ Management Pty Ltd and Cumberland Management Pty Ltd until he resigned from these positions on 19 January 2001. Prior to his resignation, Mr Jephson assisted Mr Marriner in the day to day management of the development of the Resort. One of Mr Jephson’s duties was the payment of ASD’s accounts.
(b)From about 22 January 2001 until about 19 November 2001, Mr Jephson was an employee of Stage Design Pty Ltd, and was located in the same office suite as Mr Marriner. He was company secretary of Stage Design Pty Ltd from 17 September 1996 until 19 October 2001, of Laguna Australia Pty Ltd from 5 February 2001 until 19 October 2001 and of Laguna Airport from 4 October 2000 until 19 October 2001. One of Mr Jephson’s duties was the payment of the Marriner Group’s accounts. He gave evidence that the Marriner Group was ‘always pressed for money’ and that he ‘was always pressed hard for moneys.’
(c)Although Mr Jephson reported to Mr Marriner, he worked with little or no supervision from Mr Marriner. Mr Marriner gave evidence to this effect. Mr Jephson’s evidence was that he operated autonomously in relation to the payment of accounts, that no one supervised him and that he did not need supervision or guidance. Mr Whalley gave evidence that Mr Marriner had instructed executive staff that he expected that they would inform him of matters on a ‘needs basis’ but not on issues of detail, and that they should discharge their responsibilities without constant referral back to him.
Establishment of bank bond for $1.61 million and release of first two tranches
In August 1997, ASD and Village Roadshow Ltd entered into a joint venture to purchase the Resort. In March 1999, ASD acquired Village Roadshow Ltd’s interest in the Resort.
Village Roadshow Ltd had previously provided a bank bond of $1.61 million to secure payment of a sum which would become due to the Mackay Electricity Board (‘MEB’) if the Resort failed to consume a certain amount of electricity. On 11 March 1999, at a meeting of ASD’s board, Mr Marriner informed board members that $1.61 million would be required to cover the bond.
Prior to a new bond being issued, Mr Marriner sought to negotiate more favourable terms with MEB than those under which the previous bond had been issued. He sought to persuade MEB to accept a deposit of $1.61 million as sufficient security. Although MEB insisted upon a bank bond, Mr Marriner succeeded in persuading MEB to agree to the bond being reduced in three tranches if the consumption of electricity by the Resort was sufficient.
On 21 May 1999, the Bank of Queensland (‘BOQ’) issued the new bond for LQ Management Pty Ltd in favour of MEB (‘Bond’). Funds to provide security for the Bond were sourced from CBUS and were deposited in a set-off account with BOQ in the name of LQ Management Pty Ltd (‘Bond Monies’).
The minutes of an ASD board meeting held on 22 June 1999, at which Mr Marriner was present, recorded that MEB had ‘agreed to release $400,000 from the total deposit of $1.61 million’ and that ‘[t]hese funds would be applied in part to the cost of sealing a section of the Midge Point Road adjacent to the resort.’
On 2 December 1999, the amount required by MEB as security for electricity consumption by the Resort was reduced and a first tranche of the Bond Monies in the amount of $330,170 became available in the BOQ set-off account. This amount was paid to ASD’s account on the instruction of Mr Jephson.
On 28 July 2000, Mr Marriner, purportedly acting on behalf of ASD, entered into a contract with Mr Erbacher to purchase from Mr Erbacher land located near the Resort. However, ASD’s board had not approved the purchase of this land. Consequently, on 8 December 2000, Mr Marriner and Mr Erbacher agreed to terminate the contract for the sale of land. On the same day, Mr Marriner and Mr Erbacher executed a deed of indemnity by which Mr Marriner agreed to indemnify Mr Erbacher for any stamp duty that may be payable on the terminated contract. Also on the same day, replacement contracts were executed by Mr Marriner on behalf of the purchaser, Laguna Airport, and by Mr Erbacher, for part of that land, described as Lot 32 and part of Lots 16 and 33. Mr Penridge gave evidence that this land was required for the construction of a runway extension as part of Mr Marriner’s plans to construct an airport to service the Resort and the surrounding area.
The contract for the purchase of part of Lots 16 and 33 (‘Erbacher Land’) specified a purchase price of $82,000. It provided that settlement would take place on the date of registration of a plan of subdivision and that Laguna Airport was responsible for undertaking a survey and arranging the registration of the plan of subdivision. As stated at [67] below, settlement took place on 19 July 2001 or shortly after that date.
In late 2000, electricity consumption by the Resort was such that it became possible for a second tranche of the Bond Monies in the amount of $426,600 to be released from the BOQ set-off account.
On 24 October 2000, Mr Jephson, as company secretary of LQ Management Pty Ltd, sent a fax to BOQ requesting that it arrange to issue a new bond for the lower amount of $853,200 in favour of Ergon Energy (the successor of MEB) and liaise with Ergon Energy as necessary. The fax also instructed BOQ to transfer the amount of the second tranche of the Bond Monies to the account of ASD. Later that day, Mr Jephson sent a letter to BOQ varying his initial instructions and instructing BOQ to pay the second tranche as follows:
(a)$156,600 to JJ McDonald; and
(b)$270,000 to Cumberland Management Pty Ltd to reimburse that company for payments it had previously made to JJ McDonald for work performed at the Resort.
The second tranche of the Bond Monies in the amount of $426,600 did not become available in the BOQ set-off account until 22 November 2000. BOQ made payments to JJ McDonald and Cumberland Management Pty Ltd as instructed by Mr Jephson on 30 November 2000.
Mr Marriner and Mr Jephson denied that Mr Marriner directed Mr Jephson to instruct BOQ to make the above payments out of the second tranche funds. Mr Jephson gave evidence that he did not discuss any of these payments with Mr Marriner or inform him of them and that he had no reason to believe that Mr Marriner was aware of them at the time. Mr Marriner gave evidence that he had no involvement in, and did not know at the time, how and when the second tranche funds were recovered and applied.
Release and disbursal of third tranche of Bond Monies
Following the payment of the second tranche of the Bond Monies, the balance remaining in the BOQ set-off account was $853,200.
On 24 January 2001, David Graham, an investment banker assisting Mr Marriner, requested Mr Penridge of W&W to provide him with a brief summary of the bonds held in relation to the Resort. In correspondence dated 29 January 2001, Mr Penridge set out advice on the bonds, including the Bond in favour of Ergon Energy.
Mr Marriner gave evidence that he told Mr Penridge to arrange to have the whole of the residual amount released from Ergon Energy and that Mr Penridge said, in effect, that he would do whatever was necessary to arrange that. At this time, Mr Marriner was no longer the CEO or a director of ASD. He did not tell ASD of his communication with Mr Penridge.[19]
[19]Sloss J’s principal reasons [327].
According to a file note that Mr Penridge prepared on 12 February 2001, he had been instructed to make arrangements for Mr Marriner to meet with Ergon Energy on 6 February 2001 to discuss cancellation of the Bond. On that day, he telephoned the Connection and Pricing Manager at Ergon Energy, Mr Greg Edwards. Mr Edwards told Mr Penridge: that a decision on cancellation of the Bond did not have to be made by the Ergon Energy board; that the relevant officer could make that decision; that Mr Edwards could make a recommendation; and that, having regard to the current electricity usage, Mr Edwards could not see why the Bond could not be cancelled. Mr Penridge told Mr Edwards that he would not bother about a meeting and that he would make a written submission to Mr Edwards that the Bond be cancelled.
Mr Penridge then telephoned Mr Marriner. Mr Penridge’s file note dated 12 February 2001 records that he ‘phoned David and told him [what Mr Edwards had said] and he agreed that there was little point in having a meeting’. Mr Penridge gave evidence that he probably told Mr Marriner that cancellation of the Bond was more or less a formality. Mr Marriner gave evidence that he did not recall the conversation with Mr Penridge but did not dispute the accuracy of Mr Penridge’s file note. He said that it was his understanding that ‘there wasn’t really an issue with the bond moneys being returned.’
On 6 February 2001, Mr Penridge sent a letter to Mr Edwards on behalf of ‘the owners of [the Resort]’ to ‘formally request’ the cancellation of the Bond and ‘immediate release’ of the balance of the Bond Monies of $853,200 ‘to our client.’ The basis for the request was that ‘the long term operation of the resort and the maintained [electricity] consumption levels now warrant release of these monies.’
Mr Penridge gave evidence that he sent the letter to Mr Edwards on the basis of instructions received from Mr Marriner. He could not recall whether he also received those instructions from Mr Jephson and/or Mr Spence. Mr Penridge said that, based on what he had been told by Mr Marriner and Mr Whalley (and perhaps also Mr Spence) possibly in June 2000, it was his understanding at that time that the Marriner Group was buying the Resort on an ‘as is, where is’ basis and that, under the acquisition arrangements, the Marriner Group was entitled to the benefit of any bonds.
On 13 February 2001, Mr Penridge received a message to call Mr Jephson. Mr Jephson gave evidence that he did not recall any conversation with Mr Marriner before making the call to Mr Penridge but he conceded that he may well have spoken with Mr Marriner. When Mr Penridge returned the call, Mr Jephson said that he would arrange for the release of the third tranche of the Bond Monies to the W&W trust account and that he would provide Mr Penridge with a list of accounts into which those monies were to be paid. At this time, Mr Jephson was no longer the company secretary of ASD or an employee of any of its subsidiaries. He was an employee of the Marriner Group.
By letter dated 13 February 2001, Ergon Energy instructed BOQ to cancel the Bond and authorised the release of the Bond Monies. As a result, the Bond was cancelled and the third and final tranche of the Bond Monies in the amount of $853,200 became available in the BOQ set-off account.
On 14 February 2001, Mr Penridge received a copy of the letter from Ergon Energy to BOQ dated 13 February 2001. Mr Penridge forwarded a copy of this letter to Mr Jephson. On the same day, Mr Jephson sent a fax to BOQ instructing it to pay the Bond Monies to W&W. The fax was on LQ Management Pty Ltd letterhead even though Mr Jephson was no longer company secretary of that company. Mr Jephson denied that this fax was written under Mr Marriner’s instructions. He said that he wrote the letter of his own accord. Mr Marriner similarly denied that he had spoken with Mr Jephson about sending the letter to BOQ. He said ‘No, I wouldn’t have been talking to [Mr Jephson] about this at all.’
On 17 February 2001, a lengthy meeting took place at the Resort between Mr Penridge, Mr Marriner, Mr Blackwell from the WS Group, Mr Whalley and Mr Spence. Mr Penridge’s handwritten file note recorded the matters discussed and included the notations: ‘lease/bonds’ (one hour) and ‘No bonds avail[able]’. Mr Penridge could not recall any discussions about the Bond taking place at that meeting. He gave evidence that, if it had been discussed, ‘some note would have been there.’
On 19 February 2001, Mr Jephson sent a fax to W&W attaching a spreadsheet of payments that W&W was required to make from the third tranche of the Bond Monies. The spreadsheet contained three columns respectively titled ‘Payee’, ‘Amount’ and ‘Reference’. The spreadsheet relevantly included:
(a)a payment of $85,000 to ‘Larkins McCarthy Trust Account’;
(b)a payment of $8,150 to ‘Goldworthy Pty Ltd’; and
(c)a payment of $83,200 to the W&W trust account. In the ‘Reference’ column corresponding with this payment, the following notation was written: ‘Settlement funds for Erbacher transaction.’
Mr Jephson’s fax was on Stage Design Pty Ltd letterhead. The fax: requested that W&W provide confirmation when the payments were made; noted that ‘the Larkins McCarthy funds transfer is urgent and must be designated as “Clear Funds”’; and requested that Mr Penridge call Mr Jephson. Mr Jephson gave evidence that he did not believe he sent the fax after speaking to Mr Marriner. He said that no one told him which payments to include in the spreadsheet; they simply represented invoices that needed to be paid. Mr Marriner gave evidence that he did not discuss the spreadsheet with Mr Jephson.
On 20 February 2001, Mr Jephson sent a fax to W&W requesting, among other things, that the payment to the Larkins McCarthy Trust Account be increased by $1,500 (to $86,500) and the payment to Goldworthy Pty Ltd be decreased by $1,500 (to $6,650).
Larkins McCarthy was a firm of solicitors in Colac which acted for Mr Marriner. Mr Whalley gave evidence that the payment to Larkins McCarthy was for the purchase of property in Victoria by Goldworthy Pty Ltd.
Mr Jephson gave evidence that Mr Marriner did not direct him to recover the third tranche of the Bond Monies and that he did not tell Mr Marriner that the third tranche had been released or what was to be done with it. He said that tasks of this nature were left to him in the ordinary course of his duties and that he did not discuss with Mr Marriner his fax dated 19 February 2001 to W&W.
The W&W trust records show that the third tranche of the Bond Monies in the amount of $853,200 was received from BOQ on 21 February 2001. The records also show that that money was credited to five W&W files as follows:
File Number
File Description
Amount
95925 Planning and Title Advices Club Villas 6,367.09 96835 Laguna Quays Airstrip Advices 21,709.12 98444 Laguna Australia Airport Pty Ltd purchased from ASD 2,928.87 96989 ASD; Purchase of land from Erbacher 83,200.00 96978 ASD; General Advices 738,994.92 $853,150.00[20]
[20]It is not clear why this amount was $50 less than the third tranche of the Bond Monies.
In total, payments were made disposing of all of the third tranche of the Bond Monies other than $555.34. The payments that were made are discussed below.
The Bond Monies distributed to Files 95925 and 98444 were applied in payment of W&W accounts addressed to Laguna Airport. The Bond Monies distributed to File 96835 were applied in payment of a W&W account addressed to ASD.
File 96978 was described as the ‘General Advices’ file. Its account ledger stated that the client for the file was ASD. The Bond Monies transferred to this file were disbursed progressively between February and June 2001 on instructions from Mr Jephson to meet debts owed to third parties. Mr Jephson gave evidence that he alone determined to whom the funds were to be distributed and that he did not communicate with Mr Marriner regarding the distribution of any of the third tranche Bond Monies. He said that he chose to make payments from funds in W&W’s trust account because ‘the money was just sitting there.’ These instructions were sometimes given by fax on Stage Design Pty Ltd letterhead, on two occasions by fax on Goldworthy Pty Ltd letterhead and on a number of occasions simply by Mr Jephson’s endorsement of an instruction to pay on a copy of the account to be paid. Mr Penridge gave evidence that every time Mr Jephson gave instructions to make a payment, he made it. The payments of $86,500 to Larkins McCarthy and $6,650 to Goldworthy Pty Ltd, which were the subject of Mr Jephson’s request set out at [51] above, were made on 21 February 2001 and 23 February 2001, respectively, from the funds credited to File 96978.
File 96989 related to the purchase of land from Mr Erbacher described at [32]–[33] above (‘Erbacher File’). The client for the file was ASD. As at 22 May 2001, $85,200 was credited to that file, comprising:
(a)$83,200 of the Bond Monies credited to the file on 21 February 2001; and
(b)$2,000 transferred to the file from File 96978 on 5 April 2001 at Mr Jephson’s request. This amount was for the payment of stamp duty arising out of the original terminated contract for the purchase of land from Mr Erbacher by ASD.[21]
[21]See [32] above.
The third tranche of the Bond Monies was received by W&W in its capacity as solicitors for ASD and ASD was the beneficiary of those funds.[22] Accordingly, the funds credited to the Erbacher File were held by W&W on trust for ASD.[23]
[22]Court of Appeal’s principal reasons [146]; Sloss J’s principal reasons [260].
[23]See further [90]–[91], [125]–[127] below.
Mr Marriner’s instruction for disbursal of $80,000 from trust funds
On 22 May 2001, the amount of $80,000 was withdrawn from funds held in W&W’s trust account for the Erbacher File and was used to purchase a bank cheque for $80,000 payable to the WS Group following a conversation between Mr Penridge and Mr Marriner on that day (‘WS Group payment’). Mr Penridge prepared a file note dated 22 May 2001 in relation to his conversation with Mr Marriner. The file note was headed ‘[ASD] Purchase Erbacher’ and contained the file number 96989. The file note stated:
I spoke with David Marriner who authorised me at 2.30 this afternoon to draw a cheque for the sum of $80,000.00 from [the] Erbacher file made payable to WS Group. The cheque was to be converted to a bank cheque and then deposited into WS Group’s account with the National Australia Bank.
Mr Penridge gave evidence that he did not recall what was said during his conversation with Mr Marriner on 22 May 2001. He stated that he could not say why money from the Erbacher File was to be paid to the WS Group. He said ‘I can’t say why. I just know that WS Group were owed some costs in relation to works they performed for Laguna Quays Resort and those monies were used for that purpose.’ He agreed that the reason he made the payment was that Mr Marriner had instructed him to do so. He added that ‘[i]f I recall, that’s the only one that he did give me any instructions on.’ Mr Penridge also said that, as at 22 May 2001, he knew that Mr Marriner was no longer a director or the CEO of ASD and that he believed that, on that day, he ‘did not connect the trust funds credited to the Erbacher file with the bond funds received from [BOQ].’
Mr Marriner gave evidence that he did not recall any conversation with Mr Penridge regarding the disbursement of funds from a trust account to pay WS Group in May 2001 but that he could not doubt Mr Penridge’s file note because he did not know. Later, he said that he did not speak to Mr Penridge at that time. He said that Mr Penridge raised the WS Group payment at some later point and Mr Marriner told him that he ‘had no knowledge of it whatsoever.’ Mr Marriner added that he responded to Mr Penridge by saying that ‘in the normal course our policy has been that some party would have had to give some written instruction and follow up on this’ and Mr Penridge was unable to say why that did not occur in this instance. Mr Marriner maintained that position when he was taken to the evidence Mr Penridge had given, stating that he could not recall the telephone discussion of 22 May 2001, and reiterated that Mr Penridge’s normal practice was to send something in writing and ask for a signature before he would perform any transaction.
In cross-examination, Mr Marriner was asked whether he was aware as at May 2001 that W&W were holding monies in respect of the Erbacher File for settlement of that file. He responded as follows:
I would have been perhaps aware of it in principle, Mr Anderson, but you fail to see that I was not involved in the day to day accounting and financial matters. I was involved in seeing that financial accounts were brought together and concluded and audited. I was involved in sitting in on reports to the relevant parties that sat around the table at an informal Board meeting. I did not stand over that on a day to day basis.
More broadly, Mr Marriner said that he was not informed by Mr Penridge, nor any other person, and did not know that the third tranche of the Bond Monies had been released by Ergon Energy prior to those funds being disbursed from the W&W trust account. He also stated that he did not know prior to their disbursal that those monies had been deposited into the W&W trust account. He said he was not involved in and did not give instructions to any person, including Mr Penridge, as to how the third tranche funds were to be applied, and he did not know that all or any of those funds had been applied in any particular way. He also said that he ‘had no involvement whatsoever’ in instructing Mr Jephson to send the faxes to Mr Penridge between February and June 2001 directing that payments be made. Mr Marriner’s evidence was that he believed that Mr Jephson, as administrative officer within the scope of his duties, would have decided how best to disburse the funds according to his understanding of the appropriate use.
Mr Marriner also gave evidence that the Marriner Group was under ‘enormous pressure’ in relation to the Resort in 2001 and that ‘there was generally quite an extensive … mixing bowl of where funds were coming in, going to, coming out of.’
In para 53(a) of their further amended defence and counterclaim, the Marriner parties admitted that Mr Marriner gave ‘an oral instruction … to Penridge … on 22 May 2001 to apply $80,000 of the sum of $83,200 in the [W&W] Trust account in respect of Erbacher purchase monies to accounts of [the] WS Group’.[24]
[24]Paragraph 59(i) of the further amended defence and counterclaim refers back to para 53(a). As para 59(i) does not add anything to para 53(a), we will not make further reference to it.
Events after Mr Marriner’s instruction
On 26 June 2001, Laguna Airport executed a transfer for the acquisition of the Erbacher Land and Mr Marriner witnessed the affixation of that company’s common seal in his capacity as director. On 3 July 2001, the Marriner Group deposited with W&W $82,000 for the credit of the Erbacher File to enable the purchase from Mr Erbacher to be completed. It appears that settlement took place on 19 July 2001 or shortly after that date. The client on the file was still shown as ASD even though the purchaser was now Laguna Airport.
On 9 August 2001, Mr Penridge sent a letter to Mr Patience confirming that the sum received into the W&W trust account was $853,200, of which only the sum of $555.34 remained, pending further instructions.
Legal principles relevant to Ground 1
It was common ground at the remitter trial that, as the breach of trust by W&W was innocent and Mr Marriner did not receive any part of the trust funds, neither limb of Barnes v Addy[25] was applicable. It was also common ground that, notwithstanding that the breach of trust was innocent, Mr Marriner, as a stranger to the trust relationship, could be liable pursuant to the principle emanating from Eaves v Hickson[26] if ASD could establish that he knowingly induced or immediately procured the breach.
[25](1874) LR 9 Ch App 244.
[26](1861) 30 Beav 136; 54 ER 840.
Sloss J found that the adverb ‘knowingly’ applies to both the inducement and procurement limbs.[27] She also found that the knowledge requirement could be satisfied by any of the first four categories of notice set out in Baden v Societe Generale pour Favoriser le Developpement du Commerce et de L’Industrie en France SA[28] which have been held to apply to the second limb of Barnes v Addy. Adapted to the claim against Mr Marriner, those categories are as follows:
(a) where Mr Marriner had actual knowledge of the breach of trust;
(b) where Mr Marriner wilfully shut his eyes to the obvious;(c)where Mr Marriner had wilfully or recklessly failed to make inquiries that an honest and reasonable person would make; and
(d)where Mr Marriner had knowledge of circumstances that would have indicated the facts to an honest and reasonable person, even if the moral obtuseness of Mr Marriner prevented him from recognising the breach of trust.
[27]Sloss J’s principal reasons [301].
[28][1993] 1 WLR 509, 575–6 [250], 582 [274] (‘Baden’).
Sloss J also found that the fifth category of notice referred to in Baden did not apply to liability under the Eaves v Hickson principle. That category is engaged where a third party has knowledge of circumstances which would have put an honest and reasonable person on inquiry as to whether a breach of trust was being committed.
The above principles are consistent with High Court authority: see Consul Development Pty Ltd v DPC Estates Pty Ltd[29] and Farah Constructions Pty Ltd v Say-Dee Pty Ltd.[30] The principles are also consistent with the observations made by the Court of Appeal in deciding the appeal against Byrne J’s orders.[31] The correctness of the principles has not been disputed by any of the parties to the present application for leave to appeal.
[29](1975) 132 CLR 373, 398, 412.
[30](2007) 230 CLR 89, 159 [161], 163–4 [174]–[178].
[31]Court of Appeal’s principal reasons [150]–[162]. See also Elders Trustee & Executor Co Ltd v E G Reeves Pty Ltd (1987) 78 ALR 193, 238–9; Syrimiv Hinds (1996) 6 NTLR 1, 10–11; NCR Australia v Credit Connection [2004] NSWSC 1 [161]–[169].
A party seeking to establish that an inference ought to be drawn must demonstrate that that inference is the more probable one which arises from the established facts.[32] The inference must be based on evidence rather than speculation.[33]
[32]Holloway v McFeeters (1956) 94 CLR 470, 480–1 (‘Holloway’); Box Hill Institute of TAFE v Johnson [2015] VSCA 245 [37] (‘Box Hill’).
[33]Holloway (1956) 94 CLR 470, 480; Trkulja v Markovic [2015] VSCA 298 [103].
In Holloway v McFeeters,[34] in the context of a claim for damages for a death caused by a vehicle collision, Williams, Webb and Taylor JJ explained the process the court will undertake when drawing inferences in the following often cited passage:
Inferences from actual facts that are proved are just as much part of the evidence as those facts themselves. In a civil cause ‘you need only circumstances raising a more probable inference in favour of what is alleged … [W]here direct proof is not available it is enough if the circumstances appearing in evidence give rise to a reasonable and definite inference; they must do more than give rise to conflicting inferences of equal degree of probability so that the choice between them is mere matter of conjecture… All that is necessary is that according to the course of common experience the more probable inference from the circumstances that sufficiently appear by evidence or admission, left unexplained, should be that the injury arose from the defendant's negligence. By more probable is meant no more than that upon a balance of probabilities such an inference might reasonably be considered to have some greater degree of likelihood’.[35]
[34]Holloway (1956) 94 CLR 470.
[35]Holloway (1956) 94 CLR 470, 480–1 (citations omitted). See also 477 per Dixon CJ.
The questions of whether an inference is open as a matter of probability and whether that inference is the more probable one are to be determined by considering the combined weight of all the relevant established facts rather than by considering each fact sequentially and in isolation from the other facts.[36]
[36]Chamberlain v The Queen [No 2] (1984) 153 CLR 521, 535–6; Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125, 129, 141; Mutual Community General Insurance Pty Ltd v Khatchmanian [2013] VSCA 144 [19].
Whether one inference is more probable than another may be affected by the judge’s view of the facts relied upon to support or contradict the competing inferences and why any evidence which is important to any of those inferences should be accepted or rejected.[37]
[37]Cf Box Hill [2015] VSCA 245 [37].
A judge’s finding as to the most reasonable and probable explanation for a state of affairs, if it is a correct finding, remains correct notwithstanding that other possible explanations for the known facts cannot be excluded.[38]
[38]Fuller-Lyons v New South Wales (2015) 323 ALR 639, 649 [47].
Where the inference propounded by a party involves allegations of impropriety or some other serious matter, s 140(2)(c) of the Evidence Act 2008 requires the court to take into account the ‘gravity’ of the matters alleged in deciding whether the inference is the more probable one. Section 140(2)(c) reflects the principles in Briginshaw v Briginshaw,[39] namely, that the strength of the evidence necessary to establish a fact on the balance of probabilities may vary according to the nature of what it is sought to prove.[40] While the standard of proof remains the balance of probabilities, the more serious an allegation is, the greater the degree of confidence the court must attain before being satisfied that the allegation is made out.
[39](1938) 60 CLR 336.
[40]Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449, 450.
Sloss J’s findings relating to Ground 1
At para 361 of her principal reasons, Sloss J stated that, in the face of their uncontradicted evidence about the third tranche of the Bond Monies, she was not satisfied that it was appropriate to draw any inferences that, from mid to late February 2001, Mr Marriner was aware of the manner in which Mr Jephson had directed Mr Penridge to disburse those monies. Accordingly, she was not satisfied that Mr Marriner directed Mr Jephson to apply the third tranche funds as he did. She concluded that Mr Jephson applied the funds to such of the creditors with whom he was dealing as he saw fit.
Sloss J then considered Mr Marriner’s instruction to Mr Penridge on 22 May 2001 to make the WS Group payment and concluded as follows:
The position is different, however, with the direction given by Mr Marriner to Mr Penridge on 22 May 2001. In the context of those dealings, I am satisfied that there is a proper basis for inferring that from at least 22 May 2001 or thereabouts, Mr Marriner must have had relevant knowledge of the action taken by Mr Jephson or the directions that he had given. As is explained below, this is because Mr Marriner made contact with Mr Penridge on 22 May 2001 and personally gave him instructions to disburse monies held on trust on the Erbacher file and make a payment of $80,000 to [the] WS Group.
… [I]t is most unlikely that Mr Penridge would have communicated any information to Mr Marriner about the source of those funds.
…
Given the contemporaneous evidence in the form of Mr Penridge’s file note, I am satisfied that the conversation between Mr Marriner and Mr Penridge took place in the manner and to the effect recorded in the file note.
Mr Penridge’s file note makes clear that when Mr Marriner contacted him on 22 May 2001 he knew that [W&W] held monies in its trust account for the Erbacher purchase. There was no evidence that Mr Marriner or any of the Marriner entities had separately deposited any monies with [W&W], in trust, pending settlement of the purchase of the Erbacher land. If, as Mr Marriner said when giving evidence at the trial, he had no knowledge of the manner in which Mr Jephson had directed Mr Penridge to disburse the third tranche bond monies, it is not apparent why Mr Marriner would make contact with Mr Penridge at all, let alone to arrange payment of the $80,000 from the Erbacher file. In making that observation, I am not (and should not be taken to be) relying on any aspect of constructive notice as traditionally understood. I am simply pointing to the absence of any obvious, or indeed logical, basis for Mr Marriner to make contact with Mr Penridge and discuss arrangements for the disbursement of monies from the firm’s trust account.
Furthermore, I note that knowledge on the part of Mr Marriner that [W&W] held monies in its trust account for the Erbacher purchase is consistent with what is pleaded in paragraph 53(a) … of the Marriner parties’ Defence …
In cross-examination, it was put to Mr Marriner that he was aware as at May 2001 that [W&W] were holding monies in respect of the Erbacher file for settlement. He responded in terms that he ‘would have perhaps been aware of it in principle’ but he was ‘not involved in the day to day accounting and financial matters.’ If he was aware ‘in principle’ that funds were held in the Erbacher file with [W&W] pending settlement, then in my view the inference is open that Mr Marriner must have known that those funds were not his to deal with as he saw fit. As I have noted, there was no evidence that he or any of the Marriner entities had deposited those monies with [W&W]. Nevertheless, knowing that funds were held in trust by [W&W] on the Erbacher file, Mr Marriner gave instructions to Mr Penridge to pay the sum of $80,000 to [the] WS Group.
In my view, the demonstrated knowledge on the part of Mr Marriner that [W&W] held monies in its trust account on the Erbacher file, taken together with the evidence of his awareness ‘in principle’ permits a strong inference to be drawn that Mr Jephson must have informed him of that fact or conveyed information to him at some stage that would lead him to believe that.
In order to prove knowledge of circumstances that would indicate the facts to an honest and reasonable person, ASD is not required to establish actual knowledge on the part of Mr Marriner that the funds he directed be paid were sourced from the third tranche bond monies. It is sufficient to establish moral obtuseness of the kind described by Gummow J in Elders Trustee or the Full Court in Grimaldi if the facts permit the Court to infer objectively and on the balance of probabilities that Mr Marriner knew the funds were ASD’s (or were otherwise funds to which he had no entitlement) but he nevertheless directed their disbursement.
I am satisfied that Mr Marriner ‘knew’ in the relevant sense that he had no authority to deal with the monies held by [W&W] on the Erbacher file. Nevertheless, Mr Marriner proceeded to instruct Mr Penridge to pay $80,000 of those trust monies to [the] WS Group. In so doing, he knowingly induced or immediately procured the innocent breach of trust by [W&W].
Accordingly, in respect of the direction given by Mr Marriner on 22 May 2001, I am satisfied that Mr Marriner had knowledge of circumstances which would indicate to an honest and reasonable person that the monies he directed Mr Penridge to pay to [the] WS Group from the monies held on the Erbacher file in [W&W’s] trust account were not his to use as he saw fit. In my view, knowledge of the nature of the funds necessarily carries with it knowledge that the payment Mr Marriner induced or procured is a breach of trust, and that is so even if his moral obtuseness prevented him from recognising the impropriety involved.
…
I have based the inference drawn (namely, that Mr Marriner knew the money on the Erbacher file being disbursed by Mr Penridge on his instruction was not his to deal with as he saw fit) on the admissions made in paragraphs 53(a) and 59(i) of the Marriner parties’ Defence coupled with the absence of any demonstrated or logical basis for holding a belief that [W&W] held money in trust for the Marriner parties.[41]
[41]Sloss J’s principal reasons [362]–[363], [368]–[375], [377] (citations omitted).
As stated at [14] above, on 23 July 2015, Sloss J gave judgment for ASD against Mr Marriner in the amount of $80,000 plus interest in the sum of $87,920.73 and made an order dismissing the Marriner parties’ counterclaim.
Parties’ submissions on Ground 1
Mr Marriner submitted that there was an insufficient evidentiary foundation to enable Sloss J to infer that Mr Marriner knowingly induced or immediately procured a breach of trust by W&W in relation to the WS Group payment. He submitted that, on the established facts, this inference was no more probable than other inferences which were exculpatory and that the choice between the competing inferences was a mere matter of conjecture. The exculpatory inferences were said to include that Mr Marriner was not aware that the trust funds to the credit of the Erbacher File stemmed from the third tranche of the Bond Monies or that Mr Marriner assumed or believed that the funds belonged to the purchaser of the Erbacher Land for whom W&W then acted, namely, Laguna Airport, a Marriner Group company.
In support of these submissions, Mr Marriner focused on paras 369–375 and 377 of Sloss J’s principal reasons[42] in which she stated that she relied on three matters in drawing the impugned inference. The first matter was Mr Marriner’s evidence that he may have been aware ‘in principle’ that the funds held by W&W were held in respect of the Erbacher File for settlement of that file.[43] Mr Marriner submitted that Sloss J erroneously treated his qualified statement as an acknowledgement that he was in fact aware that the funds were trust funds held by W&W in respect of the Erbacher File.
[42]See [80] above.
[43]See [63] above.
The second matter upon which Sloss J relied was the admission made in para 53(a) of the Marriner parties’ further amended defence and counterclaim.[44] Mr Marriner submitted that, read in context, para 53(a) did not constitute an admission that he was aware at the time of his conversation with Mr Penridge on 22 May 2001 that the funds credited to the Erbacher File were held on trust for ASD.
[44]See [66] above.
The third matter upon which Sloss J relied was the absence of evidence that the Marriner Group had made any payment to W&W to be held on trust for the purchase of the Erbacher Land. Mr Marriner submitted that Sloss J erred in using the absence of such evidence as a means of filling evidentiary gaps in ASD’s case that he was aware that the funds credited to the Erbacher File were held on trust for ASD.
In his oral submissions, senior counsel for Mr Marriner relied on a puttage issue which was not mentioned in Mr Marriner’s written case. Senior counsel submitted that the limited cross examination to which Mr Marriner was subjected regarding his conversation with Mr Penridge on 22 May 2001 and ASD’s failure to put to him crucial matters contributed to the absence of a sufficient evidentiary foundation to enable Sloss J to draw the impugned inference. Senior counsel gave the following examples of questions that could have been — but were not — put to Mr Marriner:
(a)‘Did you know how the money got into that trust account for Laguna Airport?’;
(b) ‘Where did that money come from?’;
(c) ‘Whose money did you regard it to be?’;(d)‘Why did you think you were entitled to give a direction for it to be used to pay a … Resort bill?’;
(e)‘Were you in fact aware [that funds were held in the Erbacher File pending settlement]?’; and
(f) ‘Did you know whose file [the Erbacher File] was?’
Senior counsel made the following further oral submissions about puttage:
It was not put to Mr Marriner [that] he knew there was $80,000 in trust before he telephoned [Mr Penridge]. It was not put to him that the purpose of his call was to instruct the $80,000 be paid to [the] WS Group. It was not put to him that he knew where the $80,000 came from. It was not put to him that neither he nor any company of his had put the $80,000 into the trust account. It wasn’t put to him that the funds to settle the Erbacher transaction had not come from one of his companies. It wasn’t put to him, ‘Explain how there was $80,000 in this trust account then’.
It wasn’t put to him that the only basis for his contacting Mr Penridge to give the instruction was that he knew there was $80,000 in trust and he must have known where it had come from. … It wasn’t put to him that his statement ‘I would perhaps have been aware of it in principle’ was not true and that he was in fact actually aware of it. … It wasn’t put to him [that] he knew the funds weren’t his. It wasn’t put to him [that] he knew the funds weren’t his to deal with as he saw fit.
It wasn’t put to him that [Mr] Jephson must have told him there was $80,000 in this trust account. It wasn’t put to him [that] he must have asked [Mr] Jephson where this money came from, how did it get into the trust account. It wasn’t put to him that he turned a blind eye as to who owned these funds and was morally obtuse or anything of that sort, even in layman’s language, as to where the $80,000 he was spending had come from and who owned it. It wasn’t put to him that he had no basis to assume that he could deal with those funds.[45]
[45]Transcript of Proceedings, Marriner v Australian Super Developments Pty Ltd (Supreme Court of Victoria Court of Appeal, S APCI 2015 0074, Tate ACJ and Kyrou and Ferguson JJA, 16 May 2016) 44–5.
Senior counsel contended that if the above matters had been put to Mr Marriner, Sloss J would have been in a more informed position to determine whether the impugned inference should be drawn. Senior counsel also contended that the absence of such puttage deprived Byrne J of the opportunity to observe Mr Marriner’s demeanour when responding, which would have been relevant to the fact-finding task. Senior counsel clarified that it was not being contended that the lack of puttage created unfairness in the Browne v Dunn[46] sense.
[46](1893) 6 R 67.
According to Mr Marriner, Sloss J erred in drawing the impugned inference in that she failed to have regard to the gravity of the allegation against him — that he knowingly induced or immediately procured solicitors to commit a breach of trust — in determining whether the civil standard of proof had been satisfied. Mr Marriner submitted that, although Sloss J referred to s 140(2)(c) of the Evidence Act 2008 and Briginshaw v Briginshaw[47] in her general discussion of the relevant legal principles in paras 306–307 of her principal reasons, she ultimately formulated — and applied — the following erroneous test:
[W]hat ASD must demonstrate is that the inference it seeks to draw, namely that Mr Marriner had knowledge of circumstances that would have indicated the relevant facts to an honest and reasonable person, is the more probable one which arises from the established facts.[48]
[47](1938) 60 CLR 336.
[48]Sloss J’s principal reasons [310].
Mr Marriner also contended that it was not legally possible for him to be liable to ASD pursuant to the Eaves v Hickson principle because the beneficiary of the funds held by W&W in relation to the purchase of the Erbacher Land was Laguna Airport rather than ASD. As we understand it, this submission proceeded along the following lines:
(a)On the basis that the Bond Monies belonged to ASD, W&W committed a breach of trust on 21 February 2001 when it credited $83,200 of those monies to the Erbacher File which, at that time, related to the purchase of the Erbacher Land by Laguna Airport rather than by ASD.
(b)Mr Marriner had no involvement in or knowledge of the breach of trust on 21 February 2001.
(c)From 21 February 2001, the funds credited to the Erbacher File belonged to the active client on that file, namely, Laguna Airport, even though W&W’s records continued to show ASD as the client.
(d)No breach of trust was committed by W&W on 22 May 2001 when it transferred $80,000 from the funds credited to the Erbacher File to the WS Group at the request of Mr Marriner because he had authority from Laguna Airport to deal with its money.
Mr Marriner argued that there is nothing in the principal reasons of the Court of Appeal that precludes the above submission being maintained in the present application. According to Mr Marriner, the Court of Appeal’s statement at para 146 of its principal reasons related to the funds in W&W’s ‘ASD; General Advices’ file rather than the Erbacher File. That paragraph was relevantly as follows:
[W]e do not consider that there is any basis for disturbing [Byrne J’s] finding that the third tranche was held on a solicitor’s trust for ASD. Our view is reinforced by the fact that the question whether ASD was the beneficiary of the solicitor’s trust was raised only in Marriner’s submissions in reply. Furthermore, and this is probably decisive, as regards the file involved, the bulk of the third tranche moneys paid to [W&W] were paid into account 96978 and [W&W’s] trust ledger for that file showed the client as ASD.[49]
[49]Court of Appeal’s principal reasons [146].
ASD submitted that the factual findings made by Sloss J were sufficient to justify the drawing of an inference that Mr Marriner knowingly induced or immediately procured a breach of trust by W&W in relation to the WS Group payment. In its written submissions, ASD listed the most pertinent of those factual findings. We will not list them here, but will incorporate them below in our reasons for rejecting Ground 1. ASD contended that, while Sloss J relied upon Mr Marriner’s evidence that he may have been aware ‘in principle’ that the relevant funds constituted trust funds and upon the Marriner parties’ admission in para 53(a) of their further amended defence and counterclaim, she took into account all of the factual findings that supported the drawing of the impugned inference.
According to ASD, Sloss J did not rely upon the absence of evidence that, prior to 22 May 2001, the Marriner Group had made any payment to W&W for the purchase of the Erbacher Land in order to fill any evidentiary gaps in ASD’s case that Mr Marriner was aware that the funds credited to that file were held on trust for ASD. Rather, so it was said, Sloss J drew the inference about Mr Marriner’s knowledge from other facts and merely stated that the absence of evidence of payment by the Marriner Group reinforced the correctness of that inference.
ASD submitted that, when Sloss J’s principal reasons are read as a whole, it is clear that she applied s 140(2)(c) of the Evidence Act 2008 and the principles in Briginshaw v Briginshaw in drawing the impugned inference.
Finally, ASD submitted that para 146 of the Court of Appeal’s principal reasons contains a general finding that W&W held all of the third tranche funds on trust for ASD and that this finding forecloses any submission by Mr Marriner that any part of those funds was held on trust for Laguna Airport.
Decision on Ground 1
The principles summarised at [69] to [72] above, as they apply to the WS Group payment of $80,000 on 22 May 2001, required Sloss J to determine whether the facts as found by her enabled her to infer that at the time that Mr Marriner requested Mr Penridge to make the payment, he had knowledge of circumstances which would have indicated to an honest and reasonable person (as distinct from merely putting that person on inquiry) that the payment would be made from monies held on trust for ASD and would thus constitute a breach of trust.[50] As such an inference would have reflected on Mr Marriner’s integrity, its seriousness had to be taken into account in deciding whether the inference was the more probable one based on the established facts.[51]
[50]Court of Appeal’s principal reasons [162]–[163].
[51]See [73]–[78] above.
The above issue had to be considered by Sloss J in the context of her finding that Mr Marriner did not have prior knowledge of or involvement in the various requests that Mr Jephson made to W&W for the disbursal of the third tranche of the Bond Monies. In our opinion, it was arguably open to Sloss J to find that the evidence of Mr Marriner and Mr Jephson concerning the lack of communication between them regarding Mr Jephson’s requests to W&W was implausible and that Mr Marriner had knowledge of those requests. However, as this issue was not the subject of a notice of contention by ASD, our analysis proceeds on the basis that Sloss J’s finding is correct.
In determining whether Sloss J erred in drawing an inference that, as at the time Mr Marriner requested Mr Penridge to make the WS Group payment, Mr Marriner had knowledge of circumstances which would have indicated to an honest and reasonable person that the payment would be made from monies held by W&W on trust for ASD and would thus constitute a breach of trust, it is necessary to examine what Mr Marriner knew as at that time.
First, on 11 March 1999, Mr Marriner knew that MEB required ASD to establish a bond in the amount of $1.61 million. As a director and the CEO of ASD, Mr Marriner knew that the Bond had been established with funds sourced from CBUS and that $1.61 million had been deposited in a set-off account with BOQ. As he directly negotiated with MEB, he also knew that the Bond could be reduced in three tranches.[52]
[52]The facts in this paragraph are set out at [27]–[29] above.
Secondly, on 22 June 1999, Mr Marriner knew that MEB had agreed to release the first tranche and that these funds would be used for works relating to the Resort.[53] As a result of his experience with the release of the first tranche, Mr Marriner was aware that the approval of ASD’s board was required in order to deal with the Bond Monies.[54]
[53]The facts stated so far in this paragraph are set out at [30] above.
[54]Sloss J’s principal reasons [326].
Thirdly, Mr Marriner knew that, during the course of 2000 and 2001, W&W acted as solicitors for ASD on various matters relating to the Resort.
Fourthly, on 28 July 2000, Mr Marriner knew that he had executed a contract on behalf of ASD to purchase land from Mr Erbacher. He knew that W&W acted for ASD in relation to that contract because the contract named W&W as ASD’s solicitors. Mr Marriner also knew that the abovementioned contract was terminated on 8 December 2000 because ASD’s board did not approve the purchase. Further, Mr Marriner knew that, on 8 December 2000, Laguna Airport executed a contract to purchase the Erbacher Land for $82,000. As Mr Marriner signed that contract on behalf of Laguna Airport, he knew that W&W was named as that company’s solicitors and that settlement would not take place until a new plan of subdivision was prepared and registered.[55]
[55]The facts in this paragraph are set out at [32]–[33] above.
Fifthly, Mr Marriner knew that, upon his resignation as a director and the CEO of ASD on 3 November 2000, he no longer had authority to deal with ASD’s property unless he was specifically authorised to do so.
Sixthly, Mr Marriner knew that, between 29 January 2001 and 6 February 2001, he had instructed Mr Penridge to arrange to have the whole of the residual amount of the Bond Monies released and that he had not informed ASD of this instruction. This was at a time when Mr Marriner knew that the Bond had been established by ASD and that he no longer had authority to deal with the Bond on behalf of ASD. Mr Penridge’s file note dated 12 February 2001 establishes that Mr Marriner was prepared to meet with Ergon Energy on 6 February 2001 to discuss cancellation of the Bond and that he agreed that such a meeting was not necessary as a result of the discussion between Mr Penridge and Mr Edwards of Ergon Energy. Without any authority from ASD to do so, Mr Marriner instructed Mr Penridge to write to Ergon Energy to request cancellation of the Bond and the release of the third tranche of the Bond Monies. Mr Marriner understood at this time that the third tranche of the Bond Monies would be released and that Mr Penridge was the person who was arranging the release.[56] Mr Marriner informed Mr Jephson of the substance of his conversation with Mr Penridge.[57] Mr Marriner depended upon Mr Jephson having up to date and accurate information about available funds to pay amounts owed by the Marriner Group to its creditors.[58]
[56]The facts stated so far in this paragraph are set out at [39]–[44] above.
[57]Sloss J’s principal reasons [328]–[331].
[58]Sloss J’s principal reasons [330].
Seventhly, prior to 22 May 2001, Mr Marriner knew that the Marriner Group had cash flow problems in relation to the Resort and that funds were being sourced from wherever they were available to meet demands from creditors. Mr Marriner also knew that the transfer for the acquisition of the Erbacher Land had not yet been executed and that settlement had not yet been scheduled. He also knew that the WS Group was a firm of consulting surveyors which was engaged in various aspects of the Resort project.[59]
[59]The facts in this paragraph are set out at [30], [65], [67] above.
Mr Penridge’s file note of his conversation with Mr Marriner on 22 May 2001 is set out at [60] above. As it is critical to the outcome of Ground 1, we set it out again:
I spoke with David Marriner who authorised me at 2.30 this afternoon to draw a cheque for the sum of $80,000.00 from [the] Erbacher file made payable to WS Group. The cheque was to be converted to a bank cheque and then deposited into WS Group’s account with the National Australia Bank.
The file note does not indicate who initiated the telephone call. As it does not record discussion on any other topic, it can be inferred that no other substantive issue was discussed. As such, it is unlikely that Mr Penridge called Mr Marriner to discuss the use of ‘$80,000.00 from the Erbacher file’, as there was no reason for him to do so at that time. It is more likely that Mr Marriner called Mr Penridge. On this basis, it is more likely that Mr Marriner knew prior to making the call that funds were held by W&W in its trust account for the purchase of the Erbacher Land than that he called to inquire whether W&W held trust funds that he could use. There is nothing to suggest that Mr Marriner would make an unexpected call to Mr Penridge to make such a general inquiry. Sloss J found that, when Mr Marriner contacted Mr Penridge, he knew that W&W held monies in its trust account for the purchase of the Erbacher Land.[60] That finding was clearly open to her.[61] Sloss J also found that it was most unlikely that Mr Penridge would have communicated any information to Mr Marriner about the source of the funds.[62] Sloss J made a further finding that Mr Jephson was the source of Mr Marriner’s prior knowledge that there were trust funds credited to the Erbacher File.[63] This finding is discussed at [129]–[130] below.
[60]Sloss J’s principal reasons [369].
[61]Mr Marriner did not challenge this finding in the written material he filed. The finding is set out in para 24 of the agreed summary that the parties prepared for the purposes of the present application. Further, in para 11 of their written case, the Marriner parties state that there is no dispute that, as at 22 May 2001, ‘Mr Marriner was aware that the Erbacher file trust account contained trust monies’ although they claim that the critical question is whether the evidence supported a finding that Mr Marriner was aware in the relevant sense that trust funds to the credit of the Erbacher File belonged to ASD. In his oral submissions, Mr Marriner contended that the evidence was equivocal as to whether he had prior knowledge that there were funds credited to the Erbacher File or gained the knowledge during the course of the telephone discussion with Mr Penridge.
[62]Sloss J’s principal reasons [363].
[63]Sloss J’s principal reasons [372].
At the hearing of the present application, Mr Marriner submitted that Sloss J erred in construing his guarded evidence that he ‘would have been perhaps aware … in principle’[64] that W&W was holding monies in respect of the Erbacher File for settlement of that file, as an acknowledgement that he was in fact aware of this information in principle. In our opinion, in view of the matters discussed at [107] above, this submission lacks merit. In any event, as an experienced business person, particularly in the acquisition and sale of land, Mr Marriner must have known that when a solicitor receives money to hold for a client — as distinct from paying the solicitor’s fees — the money must be held in a trust account for that client. It follows that Sloss J was correct in concluding that, as at 22 May 2001, Mr Marriner was aware that any funds held by W&W for the purchase of the Erbacher Land constituted trust funds and that the client on whose behalf those funds were paid to W&W was the beneficial owner of the funds.
[64]See [63] above.
In order for Sloss J to find that Mr Marriner was liable to ASD under the Eaves v Hickson principle in respect of the WS Group payment of $80,000 from trust funds held by W&W, it was not necessary for her to infer that Mr Marriner knew that those funds were held on trust for ASD. All that was required was for Sloss J to be satisfied that an honest and reasonable person who had the same knowledge as Mr Marriner would have concluded that the funds were held on trust for ASD. In our opinion, Sloss J was entitled to be so satisfied.
In the light of the subject matter of the Erbacher File for which the trust funds were held — the purchase of the Erbacher Land — the only potential beneficiaries of the trust funds were ASD and Laguna Airport.
Based on the facts known to Mr Marriner, ASD was by far the most likely beneficiary of the trust funds. Those facts included the following:
(a)Mr Marriner had instructed Mr Penridge to procure the release of the third tranche of the Bond Monies and understood as at 6 February 2001 that there would be no difficulty in those monies being released.
(b)The Erbacher File was created at a time when the Erbacher Land was to be acquired by ASD and therefore, at its inception, the client on that file was ASD.
Based on the facts known to Mr Marriner, it was extremely unlikely that Laguna Airport was the beneficiary of the trust funds. Those facts included the following:
(a)The Marriner Group, including Laguna Airport, was experiencing cash flow problems in relation to the Resort and funds were obtained from any available source to meet demands from creditors.
(b)As at 22 May 2001, settlement of the purchase of the Erbacher Land had not yet been scheduled and therefore there was no need for scarce funds from within the Marriner Group to be used to provide to W&W the substantial amount of $83,200 to be held on trust for the purpose of a future settlement and to lie idle until they were needed for that settlement. The fact that Mr Marriner instructed Mr Penridge to use trust funds of $80,000 indicates that he knew that the funds were not yet required for settlement.
ASD has succeeded on the main issue, albeit only to the extent of $80,000 rather than the entirety of the third tranche funds. Because the claim for the $80,000 that Mr Marriner directed [W&W] to pay was itself a component of the third tranche funds, and all of the defences raised regarding the third tranche funds responded to it, it could not reasonably be said that significantly less evidence or submissions would have been required on that claim alone. In my view, the remitter hearing was conducted efficiently by both sides, and most, if not all, of the time spent in Court on ASD’s claim in chief was required for it to make good the claim for the $80,000.
Similarly, with the Marriner parties’ counterclaim. Much of this part of the case was put forward as a defence to ASD’s claim in chief, as well as being a counterclaim. Having considered the issues raised at some length in the remitter reasons, I determined that each of those claims must fail in their entirety.
ASD contends that the Court should treat Mr Marriner’s characterisation of the counterclaims as ‘defensive’ as being an acknowledgment of the fact that there was a significant overlap on the facts between the claims brought by ASD (including those on which it did not ultimately succeed, namely the second tranche and capital expenditure claims and the third tranche claims except for the $80,000) and the counterclaims. I tend to agree with the submission made by the ASD parties to the effect that the overlap between the counterclaims (on which they succeeded) and the claims on which ASD did not succeed favours an award of costs in favour of ASD because the factual underpinnings of ASD’s claims had to be addressed in the counterclaims.
When viewed against the final outcome on the remitted issues, it is clear that the ASD parties have enjoyed considerably more success than the Marriner parties. That is, the ASD parties have succeeded on both the primary claim and on the counterclaim. In my view, as the successful party, it is appropriate that the ASD parties be awarded their costs of the remitter.[163]
[163]Sloss J’s quantum and costs reasons [145]–[150].
Sloss J’s findings relating to Ground 7
Sloss J held that it was not unreasonable for the Marriner parties to reject the 2012 Calderbank offer.[164] ASD has not sought to challenge that finding.
[164]Sloss J’s quantum and costs reasons [126].
Sloss J held that the offer of compromise did not comply with O 26 of the 2005 Rules and was not capable of acceptance in accordance with those rules.[165] However, she decided that the offer should be treated as a Calderbank offer (‘deemed Calderbank offer’) and that it was unreasonable for the Marriner parties not to accept the offer. On this basis, she determined that the Marriner parties should pay ASD’s costs on an indemnity basis insofar as they were incurred after the time the deemed Calderbank offer expired at 4.00 pm on 8 March 2013. Sloss J’s reasons were as follows:
Aside from the non-compliance with the [2005] Rules, the offer ASD made — to walk away completely and with the Marriner parties retaining the benefit of the costs order made by the Court of Appeal — was, in my view, an attractive one. Whilst the covering letter did not set out all of the reasons why ASD contended the offer was attractive and should be accepted, the basis for doing so had been canvassed at some length in the earlier Calderbank letter. I do not propose to re-visit each of the matters discussed under paragraphs (a) to (f) above in relation to the [2012 Calderbank offer]. Importantly, the Marriner parties were no longer required to pay $70,000 to ASD and they were entitled to retain the benefit of the costs order made in their favour by the Court of Appeal. Had they accepted, the ongoing litigation risk would have ceased and they would also have avoided the costs and expenses of the remitter hearing, and the prospect of them facing an adverse costs order from the original trial. In that regard, I note that in the Court of Appeal’s costs reasons, their Honours observed that Mr Marriner’s success on the appeal ‘was, to a significant extent, based on an argument about the effect of the alleged expenditure cap which was not advanced at trial.’
With the introduction of the Civil Procedure Act in 2010, the legislature made clear, if it was not already, that the parties to litigation, the practitioners representing them, and the Court are each required to promote the just, efficient, timely and cost effective resolution of the real issues in dispute. Viewed objectively, the substance of the offer ASD made was directed to furthering those objectives, in circumstances where the costs incurred by the parties in running the proceeding had reached the point where they now dwarfed the quantum of the relief to be determined on the remitter. In my view, the offer as made, even though not one that fell strictly within Order 26, was nevertheless one that invoked the principles discussed in decisions such as Calderbank.
… [T]he very reason why ASD made offers to settle the proceedings [was because it recognised] that little would be gained from pursuing the litigation in circumstances where the costs incurred had dwarfed the sums capable of being recovered.
In the present case, I am satisfied that the overarching purpose would be furthered by treating the offer of compromise made by ASD on 22 February 2013 as being effective as a Calderbank offer. In the circumstances, I am also satisfied that it was not reasonable for the Marriner parties not to accept the offer. Although the offer was not one that conformed strictly with Order 26, when the offer, the proposed orders and the covering letter were read together, the gist of what was being put forward for consideration by ASD was clear, as was the reason why it was put forward. If the Marriner parties were in any doubt, it would have been sensible for them to seek clarification.
In circumstances where ASD, by making an offer, has taken appropriate and timely steps in the litigation that were directed to furthering the overarching purpose, but the offer was not accepted by the Marriner parties even though it would have been reasonable for them to do so, it follows that any costs ordered to be paid by the Marriner parties are to be assessed on an indemnity basis. Under Calderbank offer principles, the indemnity costs would ordinarily be payable from the date of expiry of the offer, being 4.00 pm on 8 March 2013, rather than from 22 February 2013, being the date the offer was made, as would apply under Order 26. Accordingly, any costs ordered to be paid by the Marriner parties are to be assessed on an indemnity basis from 4.00 pm on 8 March 2013.[166]
[165]Sloss J’s quantum and costs reasons [135].
[166]Sloss J’s quantum and costs reasons [137]–[141] (citations omitted).
Parties’ submissions on Grounds 5, 6 and 7
Mr Marriner submitted that Sloss J erred in awarding the entire costs of both trials to ASD because, after those trials and an appeal to the Court of Appeal, ASD’s damages award of $80,000 was less than 10% of the amount originally claimed by it. According to Mr Marriner, having regard to the multiple and distinct claims that ASD had brought, its success in respect of only one of those claims warranted the making of an issues-based costs order which reflected each side’s relative success in the overall litigation.
In relation to the offer of compromise, Mr Marriner submitted that Sloss J erred in treating that offer as a Calderbank offer having regard to the fact that it did not set out any reasons as to why the Marriner parties should accept it. According to Mr Marriner, even if Sloss J did not err in this respect, she was wrong to conclude that the Marriner parties acted unreasonably in not accepting the deemed Calderbank offer for the following reasons:
(a)The Marriner parties were justified in being confident that they would succeed at the remitter trial having regard to the favourable findings of fact that were made by Byrne J and which were not disturbed by the Court of Appeal. ASD had a weak circumstantial case regarding the third tranche of the Bond Monies and the Marriner parties were entitled to a set-off in respect of the W&W settlement payment.
(b)The deemed Calderbank offer was not an attractive offer because it would have required the Marriner parties to bear their own substantial costs in circumstances where they had good prospects of achieving a much better outcome at the remitter trial.
(c)The remitted issues involved allegations which reflected on Mr Marriner’s integrity and thus he was justified in proceeding with the litigation in order to vindicate his reputation.
(d)Sloss J erred in relying on the CPA because her approach did not pay sufficient attention to the justice of the case, which is an important requirement in s 7 of the CPA.
ASD submitted that, as it succeeded in obtaining damages, it was entitled to its costs of both trials pursuant to the principle that costs follow the event. An issues-based costs order was said to be inappropriate as the claims in respect of which ASD was unsuccessful were intertwined with the claim in which it succeeded and the Marriner parties’ defences and counterclaim in respect of which ASD also succeeded.
In relation to the offer of compromise, ASD submitted that Sloss J appropriately characterised it as a Calderbank offer and correctly held that the Marriner parties acted unreasonably in not accepting it. ASD contended that, as the deemed Calderbank offer was made soon after the 2012 Calderbank offer, the two offers should be considered together. When the offers were so considered, they were said to provide strong reasons why the deemed Calderbank offer should be accepted.
Decision on Grounds 5, 6 and 7
In our opinion, Sloss J did not err in relation to the costs of the original trial.
As stated at [5] above, the original trial involved ASD’s capital expenditure claim and bond monies claim and the Marriner parties’ defences and counterclaim. ASD failed in relation to the bond monies claim on a basis that the Court of Appeal found was erroneous and, following the remitter trial, ASD was partly successful in respect of that claim. ASD was awarded part of the damages it claimed in relation to the capital expenditure claim but this damages award was set aside on appeal on a ground that had not been argued before Byrne J.[167] The Marriner parties’ defences and counterclaim were dismissed and this remained the position following the appeal to the Court of Appeal and the remitter trial.
[167]Court of Appeal’s principal reasons [218], [275]; Court of Appeal’s costs reasons [9].
Having regard to the matters set out at [247] above, the principle that costs follow the event justified ASD being awarded its costs of the bond monies claim and the counterclaim. At first glance, it might be thought that ASD should not be awarded its costs of the capital expenditure claim because that claim ultimately failed in its entirety. However, in the light of the fact that that claim succeeded in part before Byrne J and ultimately failed on a ground that had not been argued in the original trial, it is appropriate that the Marriner parties be required to pay ASD’s costs in respect of that claim.
In circumstances where the issues raised by the Marriner parties in their unsuccessful defences and counterclaim overlapped with the issues raised by ASD in its unsuccessful capital expenditure claim,[168] we do not consider that an issues-based costs order for the first trial was either viable or appropriate.
[168]Court of Appeal’s costs reasons [11].
It follows that Ground 5 cannot be made out.
We now consider the costs of the remitter trial. The principal issues dealt with at that trial were ASD’s bond monies claim for the net amount of $503,200 (representing the amount of $853,200 for the third tranche of the Bond Monies less the W&W settlement payment of $350,000) and the Marriner parties’ defences and related counterclaim. ASD was successful in resisting the Marriner parties’ defences and counterclaim and was awarded $80,000 in respect of the bond monies claim. Although that award was approximately 16 per cent of the amount claimed, pursuant to the principle that costs follow the event, ASD would be entitled to all of its costs unless the interests of justice required otherwise, such as where an issues-based order would be more appropriate.
In order to arrive at her decision that ASD was entitled to damages of $80,000 in respect of the bond monies claim, Sloss J was required to consider in detail all of the evidence relating to the establishment of the Bond in the amount of $1.61 million and the events relating to the release of the funds in the set-off account in the three tranches. As found by Sloss J, there was considerable overlap between the factual matters pertaining to the remitted issues on ASD’s claim and those concerning the Marriner parties’ defences and counterclaim.[169] This was not a case where the amounts in respect of which ASD was unsuccessful raised discrete evidentiary or legal issues such as to justify an issues-based costs order.
[169]Sloss J’s quantum and costs reasons [145].
Although ASD was not successful against the Marriner parties other than Mr Marriner, the claims against the other Marriner parties depended on the conduct and knowledge of Mr Marriner and did not raise separate substantive issues. Those claims took up only a very small portion of the remitter hearing.
In these circumstances, Sloss J was justified in requiring the Marriner parties to pay ASD’s costs of the claims and counterclaim in the remitter proceeding.
It follows that Ground 6 must be rejected.
Finally, we turn to Sloss J’s conclusion that the offer of compromise was capable of being treated as a Calderbank offer, her finding that the Marriner parties acted unreasonably in failing to accept that offer and her order that those parties must pay the costs incurred by ASD after 8 March 2013 on an indemnity basis.
The offer of compromise was intended to be read in conjunction with the covering letter and the minutes of consent orders. Viewed in this light, it contained the following usual features of a Calderbank offer: it set out an offer to settle the entire proceeding which was expressed clearly and was capable of acceptance; it was expressed to be made without prejudice save as to costs; it stated that the offer may be used in evidence on the question of costs; it was open for acceptance for a reasonable period; and it put the Marriner parties on notice that an indemnity costs order would be sought if the offer was not accepted within that period.
The fact that the offer of compromise did not set out any reasons as to why the Marriner parties should accept it does not preclude the offer from being treated as a deemed Calderbank offer. The inclusion of such reasons and their cogency are matters that go to the court’s assessment of the reasonableness of non-acceptance of the offer rather than to its validity.
In any event, the absence of any reasons in the deemed Calderbank offer as to why the Marriner parties should accept it is of no consequence in the present case because detailed reasons were set out less than five months earlier in the 2012 Calderbank offer. The only change in the parties’ circumstances between the making of the two offers was the Court of Appeal’s costs order dated 5 December 2012, which was taken into account in the deemed Calderbank offer. The Marriner parties addressed the reasons set out in the 2012 Calderbank offer in its response to that offer but did not respond to the deemed Calderbank offer. This is not surprising, as the merits of the respective cases of the parties had been canvassed extensively in the context of the 2012 Calderbank offer.
Sloss J discussed in detail the criteria in Hazeldene’s in relation to the 2012 Calderbank offer. She adopted that discussion for the purposes of the deemed Calderbank offer without addressing those criteria afresh. In our opinion, she was entitled to do so, as the two offers had much in common.
The three criteria in Hazeldene’s that are of particular relevance in the present case are: the stage of the proceeding at which the deemed Calderbank offer was made; the extent of the compromise offered; and the Marriner parties’ prospects of success assessed as at the date of the offer.
The deemed Calderbank offer was made on 22 February 2013, which was a short time after the making of the Court of Appeal’s costs order on 5 December 2012 and well before the commencement of the remitter trial on 19 September 2013. By that stage, the litigation had been extant for more than seven years and had resulted in two sets of reasons for decision by each of Byrne J and the Court of Appeal. The parties had incurred significant costs and the amount remaining in dispute was now very modest. The parties had the benefit of findings by Byrne J and the Court of Appeal and their respective analyses in the 2012 Calderbank offer and the Marriner parties’ response to that offer. Thus, the Marriner parties were well placed to assess their prospects of success on the issues to be determined by the remitter judge.
The deemed Calderbank offer contained an extremely generous offer of settlement as it would have enabled the Marriner parties to avoid potential liability in respect of the remitted issues and the costs of the remitter trial — effectively absolving the Marriner parties of any liability for damages or costs — while retaining the benefit of the Court of Appeal’s costs order. It made good commercial sense for the Marriner parties to accept the offer.
As for the prospects of success, viewed objectively, the Court of Appeal’s principal reasons indicated that Mr Marriner was at considerable risk of being found liable to ASD in respect of the WS Group payment. At the time the deemed Calderbank offer was made, it was not in dispute that Mr Marriner had instructed W&W to make that payment. In circumstances where the Court of Appeal found that the third tranche of the Bond Monies was held by W&W on trust for ASD and that W&W had committed a breach of trust in respect of those monies, Mr Marriner’s instruction clearly exposed him to liability pursuant to the Eaves v Hickson principle.
In the light of the above considerations, Sloss J was correct in finding that the Marriner parties had acted unreasonably in not accepting the deemed Calderbank offer.
In our opinion, Sloss J was correct in taking into account the provisions of the CPA in determining whether the Marriner parties acted unreasonably in not accepting the deemed Calderbank offer. That Act contains overarching obligations which seek to encourage parties to civil litigation to settle such litigation and to ensure that legal costs are reasonable and proportionate having regard to the amount in dispute.[170] It must follow that provisions such as these may, in an appropriate case, inform the question of whether non-acceptance of a Calderbank offer was unreasonable. In the light of the long and tortuous history of the present litigation and the alarmingly large costs that had been expended on it, this was an appropriate case for proportionality considerations to be taken into account. Those considerations were relevant to the overarching purpose of facilitating the just, efficient, timely and cost-effective resolution of the real issues in dispute.[171]
[170]CPA ss 22, 24.
[171]CPA s 7(1).
The Marriner parties were misguided in basing their assessment about the outcome of the remitter trial on the findings that Byrne J made in relation to Mr Marriner’s involvement with the disbursal of the third tranche of the Bond Monies. As discussed at [146]–[147] above, Byrne J did not make any finding in relation to Mr Marriner’s liability to ASD in respect of the WS Group payment.
For the reasons set out at [204]–[216] above, the Marriner parties were also misguided insofar as they believed that ASD had to prove an entitlement to damages exceeding $350,000 in order to obtain judgment.
We reject Mr Marriner’s submission that his desire for vindication had any bearing on whether the Marriner parties acted unreasonably in not accepting the deemed Calderbank offer. The remitted issues were framed by the Court of Appeal in neutral terms for the purpose of establishing the parameters of the remitter trial. It is true that Mr Marriner’s interests would be adversely affected if those issues were determined against him but that could not justify the rejection of a generous offer of settlement and pressing on with the litigation. If it were otherwise, any party who felt aggrieved by the nature of the allegations against him or her and who desired vindication would be justified in rejecting any offer of settlement that did not involve vindication. Clearly, that cannot be correct. If a party wishes to press on stubbornly with expensive and prolonged litigation on a point of principle which is unconnected to the legal merits of the party’s case, and refuses to accept a reasonable Calderbank offer, that party should expect to be visited with appropriate costs consequences.
Conclusion
For the above reasons leave to appeal will be granted but the appeal will be dismissed.
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SCHEDULE OF PARTIES
DAVID WELLESLEY MARRINER First Applicant
GOLDWORTHY PTY LTD Second Applicant
LAGUNA AUSTRALIA PTY LTD Third Applicant
LAGUNA AUSTRALIA PTY LTD Fourth Applicant
STAGE DESIGN PTY LTD Fifth Applicant
FULHAM HOLDINGS LTD Sixth Applicant
AND
AUSTRALIAN SUPER DEVELOPMENTS PTY LTD Respondent
119
19
0