Marriner v Australian Super Developments Pty Ltd
[2012] VSCA 171
•3 August 2012
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2010 0019
| DAVID WELLESLEY MARRINER & ORS (Pursuant to the attached schedule) | Appellants |
| v | |
| AUSTRALIAN SUPER DEVELOPMENTS PTY LTD (ACN 058 626 761) & ORS (Pursuant to the attached schedule) | Respondents |
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| JUDGES | NEAVE and MANDIE JJA and JUDD AJA |
| WHERE HELD | MELBOURNE |
| DATE OF HEARING | 17 & 18 November 2011 |
| DATE OF JUDGMENT | 3 August 2012 |
| MEDIUM NEUTRAL CITATION | [2012] VSCA 171 |
| JUDGMENT APPEALED FROM | Australian Super Developments Pty Ltd & Ors v Marriner & Ors [2010] VSC 41 |
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CONTRACT – contract for sale of joint venture project – term that joint venture vehicle would fund certain capital works not exceeding $4.7 million – meaning of term – whether director of joint venture vehicle breached duties owed as director and/or fiduciary by incurring excess expenditure.
TRUSTS AND TRUSTEES – joint venture – monies provided by joint venture vehicle to be lodged as security with electricity supply company – whether monies were held on trust for joint venture vehicle or as debt owing to joint venture vehicle – whether director of joint venture vehicle liable for breach of trust.
LEGAL PRACTITIONERS – solicitors – monies held by solicitor for client company disbursed upon direction – whether solicitor in breach of trust – whether director of joint venture vehicle liable for solicitor’s breach of trust.
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| Appearances: | Counsel | Solicitors |
| For the Appellants | Mr P J Bick QC with Mr R A Heath | Meerkin & Apel |
| For the Respondents | Mr S M Anderson S.C. with Mr A T Broadfoot | Holding Redlich |
NEAVE JA:
MANDIE JA:
JUDD AJA:
Introduction
This appeal and cross‑appeal arise out of trial division proceedings in which Australian Super Developments Pty Ltd (‘ASD’)[1] and its various subsidiaries claimed compensation from Mr David Marriner (‘Marriner’) and his associated companies, for amounts which Marriner had allegedly caused ASD to pay, in breach of trust and of the statutory duties he owed ASD as a director.[2] In those proceedings, Marriner and his associated companies also counterclaimed for damages arising out of alleged misrepresentations made by ASD and one of its associated companies, United Super Pty Ltd (‘United Super’). In the reasons which follow, we refer to Marriner and ASD as the parties to the appeal and cross-appeal, except where it is necessary to refer to associated entities. The other parties to the proceedings are identified in the attached schedule.
[1]Known as Staged Developments Australia Pty Ltd until May 2001.
[2]The proceedings involved two claims. There were originally three claims, but one of these was resolved: see Australian Super Developments Pty Ltd & Ors v Marriner & Ors [2010] VSC 41 [4] (‘Reasons’).
In essence, ASD claimed that Marriner had induced or procured payments made in breach of trusts of which it was the beneficiary. We discuss the nature of those trusts below.[3] ASD also claimed that an expenditure limit of $4.7 million, which was imposed on Marriner as Chief Executive Officer and Director of ASD, was exceeded by $824,890 and that payments were made in excess of the limit without the approval of the ASD Board of Directors (‘Board’).
[3]The trial judge referred to both a Quistclose trust and a solicitor’s trust: see, eg, Ibid [146]. As we explain below, there is some doubt as to whether breach of a solicitor’s trust was pleaded.
The payments were said to have benefited Marriner and/or his companies by increasing the value of the Laguna Quays resort (‘the Resort’), which Marriner had agreed to acquire on the winding up of a joint venture between ASD, Marriner and various corporate entities.[4]
[4]Reasons [32]–[36].
Marriner now appeals against the orders made by the trial division requiring him to pay $412,113 to ASD and dismissing his counterclaim for damages against ASD and the second to sixth respondents.[5] In its cross-appeal, ASD seeks an order that Marriner pay it the sum of $929, 800.
[5]Ibid [171]. The judgment on the counterclaim was delivered on 16 April 2010: see Australian Super Developments Pty Ltd v Marriner (No 2) [2010] VSC 66.
Background
United Super, the secondnamed defendant to Marriner’s counterclaim, was the trustee of the Construction and Building Unions Superannuation Fund (‘CBUS’). Before entering into the Laguna Quays project, CBUS and Marriner had been involved in a number of joint ventures, in which Marriner had provided his expertise as a property developer and CBUS had provided the funds. ASD was the vehicle through which the joint ventures were conducted.
United Super (in its capacity as trustee of CBUS) and Goldworthy Pty Ltd (‘Goldworthy’), a Marriner company, held equal interests in ASD. The other companies which played a role in the joint venture and their officers were helpfully described in the trial judge’s reasons as follows:
[United Super Pty Ltd[’s] directors included the third defendant by counterclaim Ralph Willis (after 13 April 2000) and the fourth defendant by counterclaim George Wason (after 5 September 1994). [CBUS], as a superannuation trust is subject to prudential regulation by APRA. It held the shares and units in ASD and the ASD trust from 1993 until 2000.
United Super Investments Pty Ltd (‘USI’), a wholly owned subsidiary of United Super which held the shares and units in ASD and the ASD Unit Trust after 2000 when the shares and, perhaps, the units, passed to it from United Super.
[ASD] … was, at all material times, the trustee of the Staged Developments Australia Unit Trust, established in 1993. It was the proprietor of part of the land upon which the Laguna Quays resort was conducted. Its shareholders and unit holders at all relevant times up to 2000 were Goldworthy and [CBUS], each holding six shares and sixty units. Thereafter all the shares were held by USI. The board of directors during the period 1999 to 2000 comprised appointees of each of the two venturers. The Marriner appointees were Gary Arthur Weaven, Ian Robert Court and Mr Marriner himself until they resigned on 3 November 2000. The [CBUS] appointees were Barry Frost, George Wason, Thomas John Supple Kane (to 28 January 2000) and Ralph Willis (from 27 November 2000). Mr Marriner was CEO of this company until 3 November 2000 when he resigned and the office was taken over by Ian Patience.
Matelda Oaks Pty Ltd, a wholly owned subsidiary of ASD was the proprietor of part of the land upon which the Laguna Quays resort was conducted. It was the trustee of the Victorian Property Trust.
ASD – Laguna Investments Pty Ltd, formerly called SDA Laguna Investments Pty Ltd (‘Laguna Investments’), a wholly owned subsidiary of ASD is a company whose responsibility was the Laguna Quays project.
Laguna Management Pty Ltd (‘Laguna Management’), a wholly owned subsidiary of Laguna Investments conducted the day-to-day operations of the Laguna Quays resort as agent for Laguna Investments.
Goldworthy Pty Ltd, the secondnamed defendant and secondnamed plaintiff by counterclaim, is a company controlled by Mr Marriner and of which he was director. Goldworthy held shares and units in ASD and the ASD Unit Trust respectively for the Marriner interests.
Fulham Holdings Ltd, the sixthnamed defendant, is a Marriner company which took an assignment of the debt owed by Laguna Investments to ASD under the 13 November 2001 agreements.
Laguna Australia Pty Ltd (‘Laguna Australia’), the thirdnamed defendant is a Marriner company wholly owned by Fulham Holdings which was incorporated in April 2000. This is the company which purchased the real estate comprising the Laguna Quays project and the shares in Laguna Investments.
Laguna Australia Airport Pty Ltd (‘Laguna Airport’), the fourthnamed defendant, is another Marriner company incorporated in October 2000 to own the airport which Mr Marriner wished to construct to service the Laguna Quays resort and the surrounding area.
Stage Design Pty Ltd (‘Stage Design’), the fifthnamed defendant, was a wholly owned subsidiary of ASD until, under cl 10 of the November 2000 heads of agreement, its shares were to pass to Goldworthy.
Cumberland Management Pty Ltd, a company wholly owned by ASD, was used by it for another joint venture project, the development of the Cumberland Lodge in Lorne.[6]
[6]Reasons [5]–[17].
By early 2000, CBUS was becoming unhappy with Marriner’s involvement in the joint venture and in mid 2000, the parties agreed to sever their relationship. The termination of the joint venture was accomplished by a series of agreements made in 2000 to 2001.
By Heads of Agreement entered into on 30 June 2000 between ASD, Matelda Oaks and Laguna Investments (both of which were wholly owned subsidiaries of ASD) and Laguna Australia (a Marriner company), ASD agreed to sell the Laguna Quays project to Laguna Australia (’30 June 2000 Heads of Agreement’). Marriner was not a party to the 30 June 2000 Heads of Agreement.
Under cl 9 of the 30 June 2000 Heads of Agreement, ASD agreed to:
forthwith and at its own cost and expense complete or procure the completion of the capital works described in the budget set out in Annexure 4 provided always that the liability of [ASD] to complete such works shall not exceed A$4.7 million.
The 30 June 2000 Heads of Agreement was superseded by a further agreement contained in a letter dated 19 October 2001 and the terms of the sale were settled and documented on 13 November 2001 when formal sale agreements were entered into.[7]
[7]Ibid [3].
The dispute between the parties concerned two matters. First, it was alleged that bond moneys provided by CBUS, paid into a set-off account in the name of Laguna Management opened with the Bank of Queensland (‘Bank’), and later released in three stages, were expended in breach of a trust of which ASD was the beneficiary. It was alleged that Marriner had knowingly procured or induced the breaches of trust, or alternatively, that he was liable for any misappropriation because he had breached his statutory duties as a director of ASD. The facts and legal issues relevant to the bond moneys claim are explained in more detail below.
The second matter related to Marriner’s expenditure of moneys on capital works at the Resort after the joint venture had been terminated. As we have said, ASD alleged that this expenditure exceeded a cap of $4.7 million imposed on Marriner by the Board and/or under cl 9 of the 30 June 2000 Heads of Agreement. Again the facts and legal issues relevant to the alleged breach of the expenditure cap are described in greater detail in a later section of these reasons.
Although separate claims were made relating to the bond moneys and the breach of the expenditure cap, there was an overlap between the two claims, which is explained below.
The bond moneys claim
Undisputed facts
The following summary of facts relevant to the bond money claim is based on the trial judge’s reasons.
In 1997, ASD entered into a joint venture with Village Roadshow Ltd (‘Village Roadshow’) to acquire the Resort. Initially, ASD and Village Roadshow were equal participants in the joint venture, but ASD later became involved in negotiations to buy Village Roadshow out. The proposed sale was referred to the Board for approval on 11 March 1999.
Village Roadshow 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 (‘the Bond’). At the Board meeting on 11 March 1999, Marriner informed Board members that $1.6 million would be required to cover the Bond and a further $400,000 was required to meet balance day adjustments (a total of $2 million).
The Board agreed to seek $2 million from CBUS.[8] On the same day, the CBUS investment committee resolved as follows:
to approve a further $2 million for Laguna Quays from the ‘special project’ funding allocation of $30 million, to cover $400,000 in settlement adjustments on purchase of the property and $1.6 million to underwrite a performance bond favoring [sic] the MacKay Electricity Board.
[8]Ibid [63].
Initially it was agreed that ASD would give its solicitors Freehill Hollingdale & Page (‘Freehills’) a bank cheque for $1.6 million which was to be held by them until 12 May 1999. It would then be paid to Village Roadshow if Village Roadshow had not received return of the Bond, or to ASD if the Bond had been returned.[9]
[9]Ibid [62].
On 12 March 1999, $2 million was transferred from CBUS into the ASD bank account with the National Australia Bank (‘NAB’). These funds were held in ASD’s bank account until 15 March 1999, when $1.61 million was paid by cheque to Freehills. The trust account receipt issued by Freehills recorded this as a ‘Deposit to secure Bank G’tee To Mackay Electricity Authority’. On the same day, ASD recorded the payment to Freehills in its general ledger as a loan from ASD to Laguna Investments.
There was then a two month delay. On 19 May 1999, Freehills wrote to DDH Graham, a merchant banker, advising that it would transfer $1.61 million into DDH Graham’s account so that it could arrange the issue of a new bond in favour of MEB in the name of Laguna Management. On the same day, Freehills wrote to MEB confirming that this would occur.
On 21 May 1999, the Bond was issued by the Bank for Laguna Management in favour of MEB. The Bank provided a guarantee facility to Laguna Management in the sum of $1.61 million for 10 years. As security for this facility, a letter of set-off was provided by Laguna Management in respect of a new account opened in its name on 20 May 1999. (It will be recalled that Laguna Management had no income, assets or liabilities, but acted as agent for Laguna Investments.)[10]
[10]Ibid [70].
An amount of $1,615,903.77 was then deposited by DDH Graham into the new Laguna Management set-off account. This was recorded in ASD and Laguna Investment accounts as a loan from ASD to Laguna Investments to fund its operations under the joint venture. There was no evidence as to how it was treated in the books of CBUS.[11] His Honour described Laguna Management’s treatment of the bond moneys as follows.
It will be recalled that Laguna Management had a nil balance sheet and recorded no transactions in its profit and loss account. The balance in the Laguna Management account was not shown as an asset in the Laguna Management balance sheet on 30 June 1999. The balance sheet of Laguna Investments on that date shows as a non-current liability, unsecured loans of $7,930,261. This is in fact the balance on that date of the Laguna Investments loan account shown in the general ledger of ASD. It appears from the ledger that this balance includes the sum of $1.61m deposited with Freehills on 22 March.[12]
[11]Ibid [70].
[12]Ibid [69].
Before the Bond was put in place, Marriner had negotiated an agreement with MEB to reduce progressively the amount required as security, if the consumption of electricity by the Resort was sufficient. It was agreed that the reduction would be made in three tranches.
As we explain below, ASD claimed that when the bond moneys were paid into the Laguna Management account, and/or when the second and third tranche repayments were made, they were held on trust for ASD.
The first reduction took place in 1999. The minutes of an ASD Board meeting held on 22 June 1999 recorded that MEB had agreed to release $400,000 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, $330,170 was released by inter-bank credit to ASD’s account with NAB, on the instruction of Mr Peter Jephson (‘Jephson’), who was then joint company secretary of ASD with Mr John Whalley (‘Whalley’).
Subsequently, in late 2000, Ergon Energy (the successor of MEB) reduced the Bond by a further $426,600 (‘the second tranche’). On 24 October 2000, Jephson wrote to the Bank instructing it to pay the second tranche as follows: $156,600 to JJ McDonald & Sons Engineering Pty Ltd (‘JJ McDonald’) and $270,000 to Cumberland Management Pty Ltd (‘Cumberland’), then a wholly owned subsidiary of ASD.[13]
[13]Earlier on the same day, he had written instructing the Bank to transfer the released funds to ASD’s account with NAB.
JJ McDonald was a contractor hired to undertake various works at the Resort. The payment to Cumberland was made to reimburse payments it had previously made to JJ McDonald for work done at the Resort. The circumstances in which Jephson instructed Cumberland (which had no involvement in the Laguna Quays project) to make those payments are discussed below.
ASD claimed, and both Marriner and Jephson denied, that Marriner directed Jephson to instruct the Bank to make the above payments out of the second tranche. On 30 November 2000, the payments were made in accordance with Jephson’s instructions.
In addition to being the company secretary of ASD, Jephson had worked for a number of other Marriner companies. His various roles were described by the trial judge as follows:
Mr Jephson had worked in the Marriner organisation since about 1994. He joined the joint venture team of ASD in 1996 and served as company secretary of ASD, Laguna Investments, LQ Management and Cumberland Management until he relinquished these positions on 19 January 2001. He was also company secretary of Laguna Australia from 5 February 2001 to 19 October 2001 and of Laguna Airport from 4 October 2000 to 19 October 2001. He was an employee of Stage Design from 22 January 2001 or thereabouts until on or about 19 November 2001.[14]
[14]Reasons [22].
The Bond was cancelled in early 2001, when the third and final tranche of $853,200 became available in the set-off account.
On 14 February 2001, Jephson sent a facsimile on Laguna Management letterhead instructing the Bank to pay this money to Wallace & Wallace (‘Wallaces’), a firm of solicitors which represented ASD in relation to the Resort. It is not disputed that Jephson had resigned as secretary of Laguna Management on 19 January 2001. He also ceased to be employed by ASD on that day, although he continued working for the Marriner Group until November 2001.
Following the receipt of the third tranche moneys by Wallaces, Jephson directed a partner in that firm, Mr Paul Penridge (‘Penridge’), to make various payments to meet debts owed to third parties. These amounts were disbursed progressively between February and June 2001. His Honour set out the history of these instructions as follows:
The Wallace & Wallace trust records show that the third tranche funds of $853,200 were received on 21 February 2001. The trust receipt for that sum bears a notation that it was credited to five files as follows:
File Number
Amount
95925 6,367.09 96835 21,709.12 98444 2,928.87 96989 83,200.00 96978 738,944.92 $853,150.00[15]
[15]The small discrepancy between this total and the receipt was never explained.
These files and details of the application of the money were described by Mr Penridge as follows:
File 95925 - This file is described as ‘Planning and Title Advices Club Villas’. The sum was applied in payment of a Wallace & Wallace account dated 28 December 2000 addressed to Laguna Airport.
File 96835 - This file is described as ‘Laguna Quays Airstrip Advices’. The sum was applied in payment of a Wallace & Wallace account dated 29 December 2000 addressed to ASD.
File 98444 - This file is described as ‘Laguna Australia Airport Pty Ltd purchased from ASD’. The sum was applied in payment of a Wallace & Wallace account dated 16 January 2001 addressed to Laguna Airport C/- 189 Flinders Lane, Melbourne.
File 96989 - This file is that dealing with the purchase of land for the runway by Laguna Airport from Mr Erbacher. In fact there were two contracts to purchase land from this vendor. This file deals with the purchase of an area of about 11 hectares being part of Lots 16 and 33 which was required for the runway extension. The purchase price was $82,000 and the sum $83,200 allocated to this file was paid into a separate trust account in the name of Erbacher in accordance with Mr Jephson’s instruction of 19 February as ‘settlement funds for Erbacher transaction’
Account 96978 - this was described as the ‘General Advices File’. The trust ledger for this file shows the client to have been ASD. It was from this account that payments were made at Mr Jephson’s direction.
For my present purposes, the position is that the third tranche funds were received by Wallace & Wallace for its clients ASD and Laguna Airport, and, with the possible exception of $86,500 which was paid to Mr Marriner’s solicitors in Colac, the funds were applied for the benefit of the Laguna Quays project.
There is no doubt[16] that these funds, totalling $853,200, were dealt with by Wallace & Wallace as directed by Mr Jephson, except for one payment. On 22 May 2001 the sum of $80,000 was applied at Mr Marriner’s own direction. With respect to the authority to give the instruction it is necessary that I examine the chronology in a little detail.
[16]Penridge was unable to point to a specific authorisation for the disbursement of five of the 39 payments, totalling $5,978.12, but no point was made of this.
On 20 February 2001 the third tranche funds totalling $853,200 were received by Wallace & Wallace and treated in its accounts as follows –
·$31,005.08 to payment of its costs in respect of files 95825, 96835 and 98444, as directed by Mr Jephson’s fax of 19 February.
·$82,300 to file 96989 for settlement of the Erbacher transaction, as directed by the same fax.
·$738,994.92, being the balance, to file 96978.
The instructions given to Wallace & Wallace on 19 February 2001 as to the application of the funds held in respect of file 96978 were subsequently varied or further instructions were given on 28 February 2001, 8 March 2001, 22 March 2001, 27 March 2001, 4 April 2001, 5 April 2001, 10 April 2001, 18 May 2001 and 16 June 2001. In each case the instruction was given by Mr Jephson, sometimes by fax from Stage Design letterhead, on two occasions by fax on Goldsworthy [sic] letterhead and on a number of occasions simply by his endorsement of an instruction to pay on a copy of the account to be paid.
With respect to the $82,300 lodged to file 96989, the position is rather different. The Erbacher purchase was not settled until some months later.[17] On 22 May 2001 Mr Marriner directed Mr Penridge to pay $80,000 from this fund in payment of an account of WS Group, the consulting surveyors engaged on various aspects of the Laguna Quays project. On 3 July 2001, when the time came to settle the Erbacher purchase, $82,000 was deposited in the Erbacher transaction account from an unknown source and this was paid out on 19 July 2001, presumably upon settlement.[18]
[17]The transfer of land is dated 26 June 2001.
[18]Reasons [125]–[127], [133]–[135] (emphasis in original).
At the trial, Jephson denied that his directions to the Bank regarding the second tranche, and to Wallaces about the third tranche, were made by him on Marriner’s instructions.
Although Marriner personally directed Wallaces to pay $80,000 to settle an account from the WS Group (surveyors who had worked on the Laguna Quays development), his instruction to pay this amount was not the subject of a separate claim.[19]
[19]Ibid [155].
By June 2001, all but $555.34 of the third tranche had been disbursed. Marriner ceased to be a director of ASD on 3 November 2000. However, for some time, he continued to be responsible for the management of the Laguna Quays project.
The basis of the bond money claims
His Honour described the pleadings in these proceedings as labyrinthine.[20] We agree with that description.
[20]Ibid [26].
The claims which ASD made in relation to the bond moneys were as follows.
(a) The sum of $1.61 million paid into the set-off account in the name of Laguna Management was provided to ASD for the specific purpose of securing the Bond. This gave rise to a trust under Barclays Bank Ltd v Quistclose Investments Ltd.[21] Thus, the bond moneys never became part of the general funds of Laguna Investments, but were at all times held by Laguna Management[22] (or possibly Laguna Investments) as trustee for ASD. It followed that when the funds were no longer required for the purpose of securing the Bond, they were to be held on ‘a second trust’ for ASD.[23]
[21][1970] AC 567.
[22]As pleaded, the trustee was Laguna Management. The judge also considered whether Laguna Investments was the trustee. Reasons [71]–[82].
[23]Ibid [71].
(b) Marriner ‘procured and induced’ a breach of trust by instructing Jephson to direct that JJ MacDonald and Cumberland be paid out of the second tranche moneys for the construction of an airstrip and associated work. It was also claimed that this was a breach of the statutory duties that Marriner owed ASD as a director and officer. As we explain below, there is an overlap between this aspect of the bond moneys claim and the claim that Marriner was liable for breach of the expenditure limit imposed on him by the Board.
(c) With knowledge that the bond moneys were held on trust for ASD, Marriner ‘procured and induced’ Laguna Management to pay the third tranche moneys to Wallaces. As his Honour pointed out, the difficulty with this claim was that ‘it can hardly be a breach of trust for a trustee, [said to be Laguna Management] to pay its fund to the beneficiary, ASD’;[24]
[24]Ibid [83].
(d) Marriner ‘knowingly induced and procured’ a breach of trust by Wallaces by instructing Jephson to direct Wallaces to make various payments from the third tranche. (As we discuss below, there was some uncertainty in the pleadings as to whether this was based on the existence of a solicitor’s trust or a pre-existing Quistclose trust.) With the exception of $86,500 paid to Marriner’s solicitors in Colac, these payments were applied to the Laguna Quays project. The details of these payments have been set out above.
(e) Marriner’s companies, Goldworthy, Laguna Australia, Laguna Airport and Stage Design, induced and assisted Wallaces’ breach of trust,[25] by giving instructions to disburse trust moneys to third party creditors.
[25]During the course of the trial, his Honour pointed out that the pleading was ‘a bit of a shandy’ in that it referred to inducing, procuring and assisting interchangeably. Counsel accepted that the appropriate terminology for the Barnes v Addy second limb claim was ‘assisting’, whilst the appropriate terminology for the Eaves v Hickson claim was ‘inducing and procuring’.
The claim that the bond moneys were held on a Quistclose trust was denied by the Marriner parties, which claimed that the funds in the set-off account were held by Laguna Management as agent for Laguna Investments, as a loan to that company from ASD. Thus the bond moneys were the property of Laguna Investments, subject only to the rights of ASD as an unsecured creditor. Marriner also denied that he or any of his corporate entities were liable for inducing or procuring any breaches of trust, which may have been committed by Jephson or Wallaces. He also relied on a number of other defences which are, to the extent necessary, discussed below.
The trial judge’s findings
The bond money claims were rejected by the trial judge, who made the following findings:
(a) although CBUS provided the funds for (among other things) the payment of the Bond, the funds were not held on a Quistclose trust;
(b) even if the bond moneys were held on a Quistclose trust for ASD, Marriner was not liable for procuring or inducing any breach of trust which occurred when Jephson directed the Bank to pay JJ McDonald and Cumberland out of the second tranche. (Nor had he breached the duty he owed to ASD as a director);
(c) no breach of trust occurred when Jephson directed payment of the third tranche to Wallaces;
(d) Wallaces did not commit a breach of solicitor’s trust by disbursing the third tranche in accordance with Jephson’s instructions; and
(e) even if the payments out of the third tranche were made in breach of a Quistclose trust or a solicitor’s trust, neither Marriner nor his associated companies Goldworthy, Laguna Australia and Stage Design had knowingly procured or induced that breach.
The bond money issues
The grounds of the cross-appeal relating to the bond moneys raise the following issues:
1. Were the bond moneys held on a Quistclose trust for ASD (cross-appeal ground 5)?[26]
[26]Cross-appeal ground 5 relates mainly to his Honour’s conclusion at [124] of his Reasons that the third tranche funds were held by Wallaces pursuant to the ordinary trust obligation that a solicitor owes to his or her client. It is said that his Honour should have held that the funds were held subject to a Quistclose trust.
2. Did Marriner procure or induce a breach of trust in relation to the second tranche funds (cross‑appeal ground 6)?
3. If Wallaces held the third tranche on either a solicitor’s trust or a Quistclose trust for ASD, should the judge have inferred that Marriner procured or induced a breach of that trust by instructing Jephson to direct the disbursement of the $853,200 held on behalf of ASD in Wallaces trust account (cross-appeal ground 3)? It was contended that his Honour erred in holding that it was necessary to show that Jephson had acted on the specific instruction of Marriner.
4. Did Marriner’s direction to Wallaces to pay $80,000 to the WS Group on 22 May 2001 amount to inducing or assisting Wallaces’ breach of trust (cross-appeal ground 2)?
5. Did the judge wrongly conclude that Goldworthy, Laguna Australia and Stage Design (the second to fourth respondents to the cross‑appeal) did not procure Wallaces to breach their obligations as trustees (cross-appeal ground 4) and were not knowing recipients of trust moneys?
We now examine each of these issues in turn.[27]
[27]Cross‑appeal ground 1, which argues that his Honour should have found that Marriner breached his director’s duties, is discussed later in these reasons.
Issue 1. Were the bond moneys held on a Quistclose trust?
His Honour’s reasons
The trial judge first considered the events between the receipt of funds by ASD from CBUS on 9 March 1999 and 21 May 1999 when the Bond was issued. He said that
it might be important to determine when it was that the suggested trust arose. But there was no evidence or submission as to this. For example, at the commencement of this period the funds were to be applied as contemplated by cll 6.4 and 6.5 of the sale agreement [with Village Roadshow]. There was no question, then, of the bond being reducible, so that the question as to the status of the funds to be released as a consequence did not arise. It may be, too, that, at this time, the question whether the bond should be provided to Laguna Management or Laguna Investments had not arisen ... It does not appear that, at that time or indeed at any time prior to the issue of the bond on 20 May 1999, anyone said anything or even turned their mind to the fate of any part of the funds which might be released as a consequence of a bond reduction. It seems that the first mention of this appears in cl 10(d) of the heads of agreement [covering Marriner’s acquisition of Laguna Quays] of 30 June 2000.[28]
[28]Reasons [75].
His Honour said that when ASD required funds for one of its projects, its practice was to make an informal request to Whalley, as the chairman and secretary of CBUS. The request was then dealt with by the CBUS finance committee. His Honour said that:
ASD was usually required to provide some justification for the funds requested and, for the purpose, would provide some indication of how the money was to be spent. Such was the case in March 1999 when the $2m was provided. It is therefore not surprising that the purpose for which the funds were provided was identified, as it was by both [CBUS] and ASD. Doubtless it was the expectation of both these parties that the funds would be so applied. And if they were not, this would be a matter of concern for [CBUS] rather than of ASD. The evidence showed that the funds in the hands of ASD were commonly applied to whatever project had an urgent need for them. This is how Mr Jephson, with Mr Marriner’s concurrence, managed the creditors of ASD and its various subsidiaries. Having regard to this fairly cavalier attitude to the separate corporate identities comprising the ASD group, it would be the exception rather than the rule that money in the hands of one of the operating subsidiaries would be earmarked by ASD sufficiently to constitute a trust. In these circumstances a clear indication of such intention would be required.
Throughout the period from March to May 1999, Laguna Investments was a wholly owned subsidiary of ASD. Its only directors, Mr Kane, Mr Weaven, Mr Marriner and Mr Frost were all directors of ASD. It was the company through which ASD carried out the Laguna Quays project. Mr Marriner, the CEO of ASD, was also the directing force behind decisions made by Laguna Investments for that project. In these circumstances, it is not easy to draw a line between the two corporations and their decision-making with respect to this project. The question whether money in the hands of Laguna Investments was held in trust for ASD would not, therefore, arise, except perhaps insofar as the financial control procedures established by the ASD Board on 26 March 1998 constrained the application of funds by Laguna Investments where the transaction exceeded $50,000.[29]
[29]Ibid [76]–[77].
His Honour noted that when the moneys which had been held in the ASD bank account were paid to ASD’s solicitors on 15 March 1999, they were recorded in ASD’s general ledger as a loan to Laguna Investments. His Honour said that:
Although it was clear enough that the expectation of the parties was that the money was to be applied for the purpose of acquiring the bond, there is nothing to indicate a reservation by ASD of an equitable interest. Rather the contrary. The money is treated as a further loan on the running account. The uncontradicted evidence of the accountants, Mr Whalley and Mr Blashki, was that, from an accounting point of view, the payment would not have been treated in this way if it were money paid on trust.[30]
[30]Ibid [78].
In relation to the intention of the parties, his Honour found that there was
no evidence of any express contemporaneous statement by or on behalf of either of the suggested parties to the trust which indicated the existence of the trust. It was simply understood by ASD and Laguna Investments that the money was required for and was in fact provided for the purpose of obtaining the bank bond.[31]
[31]Ibid [74].
Accordingly, his Honour held that the intention required for the establishment of a Quistclose trust had not been satisfied:
the sum of $1.61m standing in the set-off account in the name of Laguna Management was not held by it or by Laguna Investments on trust for ASD. It was money lent in turn by [CBUS] to ASD and by ASD to Laguna Investments, in each case with the expectation that it would be used for the obtaining of the bond. Laguna Management held the set off account as agent for Laguna Investments.[32]
[32]Ibid [80].
In his view, it followed that when the bond moneys were released, that money was the property of Laguna Investments, subject to the right of ASD as an unsecured creditor, to call for repayment of its loan.[33]
[33]Ibid [81].
Counsel’s submissions on appeal
ASD submitted that a Quistclose trust had arisen in favour of ASD because the moneys were advanced by ASD to Laguna Management for the specific purpose of providing the Bond. It relied on Gibbs ACJ’s[34] statement in Australian Conference Association Ltd v Mainline Constructions Pty Ltd (in liq) that the decision of the House of Lords in Quistclose:
is authority for the proposition that where moneys is advanced by A to B, with the mutual intention that it should not become part of the assets of B, but should be used exclusively for a specific purpose, there will be implied (at least in the absence of an indication of a contrary intention) a stipulation that if the purpose fails the money will be repaid, and the arrangement will give rise to a relationship of a fiduciary character, or trust.[35]
[34]As he then was.
[35](1978) 141 CLR 335, 353 (Jacobs and Murphy JJ agreeing, Stephen and Aickin JJ dissenting, but not on this issue). Reliance was also placed on the remarks of Lord Millet in Twinsectra Limited v Yardley [2002] 2 AC 164, 185.
Various matters were said to support the contention that ASD, Laguna Investments and/or Laguna Management intended that the bond moneys were to be used for the purpose of supporting the bank guarantee and had never intended that Laguna Management could use the moneys for any other purpose.
ASD relied on the fact that in the sale agreement between Village Roadshow and ASD and its associated companies, the parties agreed that if the performance guarantee could be discharged, the solicitors would ‘pay the proceeds of the Guarantee Cheque together with any interest thereon to [ASD] or as directed by [ASD]’.[36]
[36]The performance guarantee was defined as the performance guarantee issued to MEB in the sum of $1,610,600.
It pointed to the statement in the ASD Board Minutes of 11 March 1999, which noted that the loan was required from CBUS to meet the Bond and to the fact that when Jephson approached CBUS for the loan of $2 million, he told the Investment Committee that this was to cover the Bond of $1.6 million. The fact that the minutes of an ASD Board meeting on 7 May 1999 recorded that ‘significant concessions had been negotiated with the [MEB] to progressively reduce the $1.6 million deposit currently securing power usage arrangements’ was said to confirm that these funds were to be treated differently from other loans made by CBUS for the purposes of the Laguna Quays project. It was submitted that ‘[t]here would be no point in reporting such matters to ASD if the funds were to be applied back into the general operating costs of [Laguna Management] or were to be available to be freely disposed of.’
ASD relied on the evidence in cross-examination of Mr Ralph Willis, one of the CBUS appointees to its Board, that the provision of $1.6 million by ASD to Laguna Management was not just an ordinary loan, but ‘a special loan for a special purpose.’ It also relied on the evidence of Mr Barry Frost (‘Frost’) and Mr George Wason (‘Wason’), both directors of ASD, Laguna Investments and Laguna Management,[37] that the funds were provided solely for the purpose of providing the Bond and that if the funds were not required for the purposes of the Bond, they would be returned to ASD and Board approval would be required if they were to be used for any other purpose.
[37]Both were also directors of a number of the other companies: see attached schedule. Both Mr Wason and Mr Frost were also directors of United Super, which is the trustee of CBUS.
ASD also relied on answers in cross-examination given by Whalley, who at the relevant time was joint company secretary of ASD[38] along with Jephson, as well as company secretary of various ASD subsidiaries and Marriner companies. It submitted that Whalley had acknowledged that the funds which were the subject of the request to CBUS recorded in the Board minutes of 11 March 1999 were not for general operating costs. He said that the loan obtained from CBUS was for the purpose of the Bond ‘in the sense that explained the use to which these funds were to be put’. Marriner had also acknowledged in cross-examination that the funds were advanced by CBUS to ASD for the purpose of providing the Bond.
[38]He was also company secretary of a number of other companies.
ASD also relied on the fact that after the first tranche of bond moneys was returned to ASD, Marriner sought approval from the Board before these funds were re-applied. This was said to support the conclusion that the parties understood at the time when the moneys were deposited with the Bank, that they were impressed with a Quistclose trust in favour of ASD.
ASD criticised his Honour’s reliance on the evidence of Whalley and Mr Gregory Blashki (the accountant called as an expert witness by Marriner) that the money was treated for accounting purposes as a loan from ASD. It submitted that the accountants could not give evidence about the intentions of ASD and Laguna Management (or presumably of Laguna Investments) at the time the money was paid into the Laguna Management account.
The Marriner parties argued that even if it were accepted that ASD and Laguna Investments (or Laguna Management acting as its agent) had intended the loan to be used to satisfy the Bond, this was not sufficient to establish a Quistclose trust. The relevant question was whether the borrower had the freedom to dispose of the moneys as it saw fit. The $1.6 million was paid by ASD to Laguna Management for the broader purpose of funding the development of the Resort. It submitted that the advance in question was no different from any other resort‑related advance made by CBUS to ASD.
Did a Quistclose trust arise?
In Barclays Bank Ltd v Quistclose Investments Ltd,[39] the House of Lords held that money lent by Quistclose Investments Ltd to Rolls Razor Ltd, which was then in financial difficulties, for the specific purpose of paying a dividend which had been declared by the latter, and which was paid into an account opened for that purpose with Barclay’s Bank, was held on trust for Quistclose. The Bank was bound by the trust because it knew that the money was borrowed from Quistclose for the sole purpose of paying the dividend. Lord Wilberforce said:
Two questions arise, both of which must be answered favourably to the respondents if they are to recover the money from the bank. The first is whether as between the respondents and Rolls Razor Ltd. the terms upon which the loan was made were such as to impress upon the sum of £209,719 8s. 6d. a trust in their favour in the event of the dividend not being paid. The second is whether, in that event, the bank had such notice of the trust or of the circumstances giving rise to it as to make the trust binding upon them.
It is not difficult to establish precisely upon what terms the money was advanced by the respondents to Rolls Razor Ltd. There is no doubt that the loan was made specifically in order to enable Rolls Razor Ltd. to pay the dividend. There is equally, in my opinion, no doubt that the loan was made only so as to enable Rolls Razor Ltd. to pay the dividend and for no other purpose. This follows quite clearly from the terms of the letter of Rolls Razor Ltd. to the bank of July 15, 1964, which letter, before transmission to the bank, was sent to the respondents under open cover in order that the cheque might be (as it was) enclosed in it. The mutual intention of the respondents and of Rolls Razor Ltd., and the essence of the bargain, was that the sum advanced should not become part of the assets of Rolls Razor Ltd., but should be used exclusively for payment of a particular class of its creditors, namely, those entitled to the dividend. A necessary consequence from this, by process simply of interpretation, must be that if, for any reason, the dividend could not be paid, the money was to be returned to the respondents: the word ‘only’ or ‘exclusively’ can have no other meaning or effect.
That arrangements of this character for the payment of a person’s creditors by a third person, give rise to a relationship of a fiduciary character or trust, in favour, as a primary trust, of the creditors, and secondarily, if the primary trust fails, of the third person, has been recognised in a series of cases over some 150 years.[40]
[39][1970] AC 567.
[40]Ibid 579–580.
His Lordship rejected the proposition that a trust could not arise because there was also a debtor/creditor relationship between Rolls Razor and Quistclose.[41]
[41]Ibid 581.
The effect of the decision was that after the loan was made:
Quistclose had both a contractual right of repayment out of the general assets of Rolls Razor, as a general creditor and the beneficial interest in a fund, whether by way of resulting trust [because the purpose for which the trust was established had failed] or as the second limb of an express trust.
The circumstances giving rise to a Quistclose trust were further examined in Twinsectra Limited v Yardley.[42]
[42][2002] 2 AC 164 (‘Twinsectra’).
In that case, Twinsectra had lent money to Yardley, on the basis of an undertaking by Sims and Roper, a firm of solicitors, that the loan moneys would be held by them until the moneys were applied for the acquisition of property by Yardley[43] and would be used ‘solely for the acquisition of property’ by the borrower and ‘for no other purpose’.[44] Sims and Roper then paid the moneys to another solicitor (‘the second solicitor’) on Yardley’s instructions, after Yardley gave an assurance to Sims and Roper that the money would be used to buy property. The second solicitor was aware of the undertaking which Sims and Roper had given to the borrower. The loan was not repaid and the solicitor who had originally received the money went bankrupt. The lender took proceedings to recover the moneys from (among others) the second solicitor, on the basis that he could be held liable for the breach of trust by Sims and Roper.
[43]No specific property was intended.
[44][2002] 2 AC 164, 168 [9] (Lord Hoffman).The firm also undertook to repay the money with interest. The probable reason for this unusual undertaking was that one of its partners already owed Yardley money: at 181 [56] (Lord Millett).
The House of Lords held that a Quistclose trust had arisen because the undertaking given to Twinsectra indicated that the money was not to be at the free disposal of Yardley and that the solicitors would ensure that the money would only be paid out for the property acquisition.[45] The majority (Lord Millett dissenting) also held that the second solicitor had not acted dishonestly and was not liable for the breach of trust.
[45]Ibid 168 [12] (Lord Hoffman).
In a frequently cited passage from the judgment, Lord Millett described the circumstances in which a Quistclose trust arises as follows:
Money advanced by way of loan normally becomes the property of the borrower. He is free to apply the money as he chooses, and save to the extent to which he may have taken security for repayment the lender takes the risk of the borrower’s insolvency. But it is well established that a loan to a borrower for a specific purpose where the borrower is not free to apply the money for any other purpose gives rise to fiduciary obligations on the part of the borrower which a court of equity will enforce. In the earlier cases the purpose was to enable the borrower to pay his creditors or some of them, but the principle is not limited to such cases.
Such arrangements are commonly described as creating ‘a Quistclose trust’, after the well known decision of the House in Quistclose Investments Ltd v Rolls Razor Ltd[46] in which Lord Wilberforce confirmed the validity of such arrangements and explained their legal consequences. When the money is advanced, the lender acquires a right, enforceable in equity, to see that it is applied for the stated purpose, or more accurately to prevent its application for any other purpose. This prevents the borrower from obtaining any beneficial interest in the money, at least while the designated purpose is still capable of being carried out. Once the purpose has been carried out, the lender has his normal remedy in debt. If for any reason the purpose cannot be carried out, the question arises whether the money falls within the general fund of the borrower’s assets, in which case it passes to his trustee in bankruptcy in the event of his insolvency and the lender is merely a loan creditor; or whether it is held on a resulting trust for the lender. This depends on the intention of the parties collected from the terms of the arrangement and the circumstances of the case.[47]
[46][1970] AC 567.
[47]Twinsectra [2002] 2 AC 164, [68]–[69].
The fact that Twinsectra relied for its security on Sims and Roper’s undertaking, rather than intending to create a trust, was not inconsistent with the existence of a trust. As Lord Millett observed:
A settlor must, of course, possess the necessary intention to create a trust, but his subjective intentions are irrelevant. If he enters into arrangements which have the effect of creating a trust, it is not necessary that he should appreciate that they do so; it is sufficient that he intends to enter into them. Whether paragraphs 1 and 2 of the undertaking created a Quistclose trust turns on the true construction of those paragraphs.
…Arrangements of this kind are not intended to provide security for repayment of the loan, but to prevent the money from being applied otherwise than in accordance with the lender’s wishes. If the money is properly applied the loan is unsecured. This was true of all the decided cases, including the Quistclose case itself…
A Quistclose trust does not necessarily arise merely because money is paid for a particular purpose. A lender will often inquire into the purpose for which a loan is sought in order to decide whether he would be justified in making it. He may be said to lend the money for the purpose in question, but this is not enough to create a trust; once lent the money is at the free disposal of the borrower. Similarly payments in advance for goods or services are paid for a particular purpose, but such payments do not ordinarily create a trust. The money is intended to be at the free disposal of the supplier and may be used as part of his cashflow. Commercial life would be impossible if this were not the case.
The question in every case is whether the parties intended the money to be at the free disposal of the recipient: In re Goldcorp Exchange Ltd.[48] His freedom to dispose of the money is necessarily excluded by an arrangement that the money shall be used exclusively for the stated purpose, for as Lord Wilberforce observed in the Quistclose case:[49]
A necessary consequence from this, by a process simply of interpretation, must be that if, for any reason, [the purpose could not be carried out,] the money was to be returned to [the lender]: the word ‘only’ or ‘exclusively’ can have no other meaning or effect.[50]
[48][1995] 1 AC 74, 100 (Lord Mustill).
[49][1970] AC 567, 580.
[50][2002] 2 AC 164, 185 [71]–[74].
In Twinsectra, Lord Millett referred to the objective intention of the alleged settlor/lender as determining whether a Quistclose trust arose. In the Federal Court decision in Re Australian Elizabethan Theatre Trust,[51] Gummow J (as he then was) held that ‘[o]rdinarily, the relevant intention is that of the alleged settlor’, although his Honour accepted that in a situation such as arose in Quistclose, where the rights conferred by the settlor were for the benefit of third parties (the potential dividend recipients), it might be appropriate to consider the mutual intention of both settlor and trustee. Arguably it was therefore unnecessary for his Honour to take account of the intention of Laguna Investments (or Laguna Management) as well as that of ASD.
[51](1991) 30 FLR 491, 502 (Gummow J).
Be that as it may, we consider that his Honour correctly held that the question to be decided was whether ASD intended the funds to become part of the assets of Laguna Investments or its agent, Laguna Management. As he recognised, a Quistclose trust can co-exist with a contractual right to repay the debt.[52] However, as Twinsectra indicates, the fact that the parties intended that the money borrowed from CBUS by ASD and then lent by ASD to Laguna Management would be used to cover the bond moneys is not necessarily sufficient to establish the existence of a Quistclose trust.[53] What must be established is that ASD intended that it should retain a beneficial interest in the $2 million paid into the Laguna Management account. As this Court said in Legal Services Board v Gillespie-Jones:[54]
Critical to the establishment of the trust is an intention that the moneys are advanced for an exclusive and specific purpose and that those funds are not to form part of the assets of the trustee.[55]
[52]Ibid.
[53]For discussion of this point see Fiona R Burns, ‘The Quistclose Trust: Intention and Express Private Trust’(1982) 18 Monash University Law Review 147, 151 and following.
[54][2012] VSCA 68.
[55]Ibid [56], citing Re Australian Elizabethan Theatre Trusts (1991) 30 FCR 491, 502 (Gummow J); George v Webb & Ors [2011] NSWSC 1608, 82 [197]; Legal Services Commissioner v Brereton [2011] VSCA 241, [97].
In our opinion, his Honour correctly held that the bond moneys were not held on trust for ASD. Our reasons are as follows.
First, although the sale agreement between Village Roadshow and ASD contemplated that if the performance guarantee was discharged, any moneys received by Village Roadshow would be paid to ASD, this did not determine the character of the arrangement made between ASD and Laguna Management. It simply meant that if the performance moneys were returned, they became ASD’s property. ASD could then deal with the money as it saw fit, subject to any obligations it owed to CBUS.
Second, as his Honour pointed out:
No one suggested that the funds were held in trust for [CBUS] as the party which provided them in the first place. No party suggested any scenario other than the suggested trust or a simple loan. It is not said that Laguna Investments was the trustee: it is Laguna Management which is said to have breached its trustee duties.’ There was no evidence of any express contemporaneous statement by or on behalf of either of the suggested parties to the trust which indicated the existence of the trust. It was simply understood by ASD and Laguna Investments that the money was required for and was in fact provided for the purpose of obtaining the bank bond.[56]
[56]Reasons [74] (citations omitted).
Unlike the situation which arose in Quistclose, it was not contended that the effect of the $2 million advance by CBUS to ASD was that ASD held the moneys on a primary trust for CBUS and, if the trust failed because the moneys were not able to be used for the purpose of the Bond, on a secondary trust for CBUS (or perhaps more correctly, United Super which was the trustee company for CBUS). Rather, ASD claimed that it was the beneficiary of a trust of which Laguna Management was the trustee.[57] The evidence about the nature of the loan arrangements between ASD and CBUS, elided the question of whether a Quistclose trust arose in CBUS’s favour with the question whether Laguna Management held the bond money on trust for ASD. For example, ASD relied on a facsimile from Jephson to Mr Peter Gebert, an officer of CBUS, advising him that the CBUS committee had approved:
a further draw down of $2 million to assist with completion of the purchase of Laguna Quays, specifically to provide a performance bond of $1.6 million favouring the McKay Electricity Board and settlement adjustments of $400,000
and asking him to arrange an urgent transfer of $2 million to ASD’s bank account with NAB. The fact that CBUS intended the money to be used for that purpose did not necessarily determine whether ASD intended the money to be held by Laguna Management as a trustee for ASD.
[57]Such a trust might well have been an express trust, rather than a Quistclose trust. For a useful discussion on this and related issues see J Glister, ‘The Nature of Quistclose Trusts: Classification and Reconciliation’ (2004) 63 Cambridge Law Journal 632.
Moreover, even if ASD established that CBUS was the beneficiary of a Quistclose trust, and that this in turn determined the nature of the relationship between ASD and Laguna Management (which would presumably be an express trust), ASD would have been confronted with the problem that CBUS had advanced $2 million and not $1.6 million (the amount required for the Bond) to ASD.
Third, the fact that Marriner sought approval from ASD before applying the first tranche funds when they were returned is not inconsistent with ASD having treated this as a partial repayment of the loan made by ASD. This treatment of the bond moneys by ASD did not necessarily prove that ASD intended that Laguna Management would hold the bond moneys on trust for it.
Fourth, although the funds were borrowed from CBUS and lent to Laguna Management with the understanding that they would be used to cover the Bond, there were no contemporaneous statements made on behalf of ASD indicating that the moneys were only advanced to Laguna Management on the condition that they would be used solely for the purpose of the Bond. The failure to differentiate this loan from other loans made to Laguna Investments or Laguna Management distinguishes this case from the facts in Quistclose, where evidence of the existence of the trust was supported by contemporaneous statements which included the bank being told that the money was to be used only for the payment of the dividend. It also distinguishes it from the facts in Twinsectra, where the first solicitors undertook that the moneys would be used solely for the acquisition of property.
At first glance, the creation of the set-off account could be regarded as evidence that the moneys in the set‑off account were to be treated differently from other loans, thus making the situation somewhat analogous to the circumstances in Quistclose and Twinsectra. But the payment into the set‑off account was equally consistent with the fact that this was what the Bank required as a condition of providing the Bond to MEB.[58] Further, the amount deposited in the Laguna Management account exceeded the amount of the Bond.[59] This provides support for the view that the purpose of the account was not to differentiate the $1.6 million used to support the guarantee separate from other advances made by ASD to Laguna Investments or its agent.
[58]His Honour observed that this sum might have included bank charges but there was no evidence of this.
[59]The amount was $1,615,903.77: see Reasons [79].
Fifth, his Honour correctly asked himself whether the evidence showed an intention that these moneys would be treated differently from other moneys advanced for the Laguna Quays project. Much of the evidence relied upon by ASD related to the circumstances in which CBUS provided the loan to ASD. As we have already said, such evidence does not determine the basis on which ASD advanced the moneys to Laguna Management.
Even if evidence about the basis of the CBUS loan to ASD was relevant to the question whether ASD was the beneficiary of a trust, it was equivocal. Wason said in his witness statement that he understood the funds had been provided solely for the purpose of meeting the electricity guarantee and that he expected that Board approval would be sought prior to the funds being used for any other purpose. But he also said that:
This transaction, and the way it was recorded, was typical of how funds were requested by [ASD] and approved by [CBUS]/United Super, from time to time. At the time, [CBUS] was regularly providing funds to [ASD] to cover operating expenses, including in relation to Laguna Quays. I recall that it was then providing about $300,000 per month to cover the operating costs of [ASD] and its subsidiaries, which were reliant on such funding.
In his witness statement, Whalley said that the funds provided to the Bank were debited to the Laguna Investments loan account and the annual financial statements of ASD recorded funds lent by ASD to Laguna Investments from time to time. This included the bond money. In cross-examination, Whalley accepted that the funds requested from CBUS were not funds for general operating costs, but were provided for the Bond. However, he also said that ‘the funds that were being sought here were no different to other funds that were sought from time to time in relation to various matters at Laguna that required funding’. In cross-examination, Whalley said that the ASD Board Minute simply reflected the reason that the additional funding was sought and that this was part of the normal process.
Although Marriner conceded that the main purpose for which the $2 million was sought from CBUS was to provide the security for the Bond, he also said that ASD and CBUS had a flexible policy regarding repayment of loans by ASD to CBUS. In the absence of a resolution by ASD to return recovered loan moneys to CBUS, it was the practice to redeploy loan repayments into ASD projects which had the most urgent requirements.
Sixth, the evidence of Blashki, who was called as an expert witness by Marriner, was that the treatment of the loan in the Laguna Investment account indicated that it was lent by CBUS to ASD and then from ASD to Laguna Investments. If ASD had intended to treat it as trust moneys, it would have been put in a separate account and given a separate description.
We would reject ASD’s complaint that his Honour gave too much weight to the evidence of Whalley and Blashki about the accounting treatment of the bond moneys in the books of the various entities, although this evidence was not decisive as to the existence of a trust. It is true that even if Laguna Management was treated in company books as a debtor of ASD, rather than a trustee of the bond moneys, a debtor/creditor relationship and a trustee/beneficiary could have co‑existed. However, the fact that the bond moneys were treated in the same way as other loans in company accounts must have considerable weight in determining the intention of the parties.
Seventh, we note that his Honour observed that it was not until reference was made to the bond moneys in cl 10(d) of the 30 June 2000 Heads of Agreement that any attention was paid to it.[60] The fact that the bond money claim arose when the parties were negotiating the termination of the joint venture provides little assistance in determining the nature of the relationship between Laguna Management and ASD at the time when bond moneys were paid into the Laguna Management set‑off account.
[60]Ibid [75].
Finally (and we think that this point is determinative of itself), the primary purpose of the loan (that is the provision of the $1.6 million to secure the bank guarantee) had been satisfied. In Quistclose, Lord Wilberforce said that if the primary purpose of the trust (in that case the payment of the dividends) cannot be met, a secondary trust arises in favour of the lender.[61] But this principle does not apply if the purpose of the trust has been satisfied. As Lord Millett said in Twinsectra, once the purpose has been carried out, the lender has his normal remedy in debt.
[61]Note that in Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491, 500, Gummow J suggested that it might rather be an express trust with two limbs.
For these reasons, the claim in the cross-appeal that the moneys were held on a Quistclose trust is not made out.
Issue 2. If the bond moneys were held on a Quistclose trust, did Marriner procure or induce a breach of trust by Jephson relating to the second tranche funds?
His Honour’s reasons
ASD claimed that Marriner (through Jephson) had directed the Bank to pay the debts incurred to JJ McDonald and to Cumberland out of the second tranche moneys. Jephson was said to have acted under Marriner’s authority in arranging for the payment of these debts and consequently Marriner was liable for procuring and inducing the breach of trust.
Although his Honour held that the bond moneys were not held on a Quistclose trust, he went on to consider whether Marriner could be held responsible for procuring the breach of trust if, contrary to his view, a Quistclose trust had arisen.
There was an overlap between this claim and the claim that Marriner breached the duty he owed to ASD as a Director by causing it and a wholly owned subsidiary of ASD, Matelda Oaks, to expend money on capital works in excess of the $4.7 million expenditure cap imposed by the Board. The amount by which Marriner was said to have exceeded the expenditure cap included the payments to JJ McDonald and Cumberland Management totalling $426,000, which were made out of the second tranche repayment. This aspect of ASD’s claim is discussed at paragraphs [170] to [275] below.
His Honour was sceptical of Marriner’s evidence that he did not know what Jephson was doing to keep the creditors at bay.[62]
[62]Reasons [99].
He said that:
The Marriner parties … take the rather unattractive position that Mr Marriner had no role in this; Mr Jephson was acting as a free agent for the benefit of Mr Marriner and his companies …
My impression of Mr Marriner’s manner of dealing with creditors and the money of companies under his control is that he was involved in every aspect of his various projects, including Laguna Quays. It was he who planned the strategies required and he who actively participated in their implementation. I am satisfied, however, that his eye was on the big picture rather than the fine detail and that this applied particularly to his dealings with his creditors. So far as this project, at least, was concerned, creditors appear to have been an on-going problem. This caused Mr Marriner to conduct his dealings with them with little regard to the niceties of corporate identity. When money was required he was content to take it from any company which had it available, leaving the detail to be picked up by the accounting staff in the inter-company loan accounts. It seems, too, that Mr Jephson, whose task it was to deal with the creditors, was allowed to pursue, or at least not discouraged from pursuing, a similar approach. As he put it in cross examination, ‘... it’s all money out of the same – out of the same group of companies. That’s how I had to manage the cash flows of the companies‘. And it was consistent with Mr Marriner’s lack of concern for detail or, perhaps, by a conscious decision on his part not to know too much about these matters, that he gave Mr Jephson a fairly free rein. While it is true that Mr Marriner took an active role in agreeing upon the payment schedule for the JJ McDonald debt, it is significant that he called Mr Jephson to enquire whether there were available funds, before he committed to the letter of 16 October 2000. I accept the evidence of Dr Greig that, in this conversation which he heard on speakerphone Mr Marriner asked Mr Jephson whether the commitments in the letter would be able to be made of ASD and that Mr Jephson responded that he could see no reason why Mr Marriner should not sign the letter. There is no evidence that Mr Jephson told Mr Marriner that he intended to make the weekly pre-payments from the second tranche funds or that Mr Marriner directed him to do this. My impression of Mr Jephson is that he was a compliant participant in this, without troubling himself to know much beyond his particular task.
I must confess to considerable scepticism about this evidence. I think it exceedingly unlikely that Mr Marriner did not have a good idea of what Mr Jephson was doing to keep the creditors at bay and that, on occasions, it was his decision whether a particular account should be paid and from what source the money should be drawn. Ultimately, however, this is speculation.
I was invited by counsel for [CBUS] to treat Mr Marriner as an unreliable witness and to reject his evidence. I was reminded that he was often evasive and was inclined to make self-serving speeches when in the witness box. This I observed. I observed, too, that he showed himself to be emotional and even outraged that this proceeding was brought against him. I have already remarked at his cavalier approach to the niceties of corporate independence: he appeared to be content that money within his control be used for a purpose notwithstanding that the money was that of a company unconnected with that purpose.
I am, however, confronted with the uncontradicted evidence of both Mr Marriner and Mr Jephson. Notwithstanding my reservations, I will act upon this evidence. I conclude that Mr Marriner did not direct Mr Jephson to apply the second tranche funds as he did. Mr Jephson, having access to these funds, applied them to such of the creditors with whom he was dealing as he saw fit. The claims against Mr Marriner which depend upon his responsibility for the acts of Mr Jephson, therefore, must fail.[63]
[63]Ibid [97]–[101].
Counsels’ submissions on appeal
Although JJ McDonald had contracted with Laguna Management (probably acting as Laguna Investments’ agent) to carry out works at the Resort,[64] on 16 October 2000 Marriner signed a letter of comfort prepared by JJ McDonald under which Laguna Management and ASD agreed to cover JJ McDonald’s outstanding invoices and agreed that Laguna Management would pay $90,000 per week in advance ‘to cover direct costs incurred, as a pre-payment for contract works undertaken after 16 October 2000 for a maximum period of 8 weeks’ (’16 October
2000 Agreement’).[65] That agreement was made in response to pressure by Dr Christopher Greig (‘Greig’), the managing director of JJ McDonald, because progress payments on works done at the Resort had not been made.
[64]The contract was originally an oral one. A written agreement was made between these parties in March 200, but it was dated 3 November 1999: see ibid [87].
[65]The letter also acknowledged that Laguna Management and ASD were ‘jointly and severally liable for and obligated to pay [JJ McDonald’s] debt’.
ASD contended that, but for the breach of the duty committed by Marriner when he signed the 16 October 2000 Agreement making ASD contractually liable for the debt owed to JJ McDonald, the second tranche would have been transferred to ASD. For that reason, Marriner was said to be liable to ASD in the sum of $426,000.
In considering this argument, his Honour stated that:
The question here is whether the payments were not for the benefit of ASD. In the course of final address counsel for [CBUS] said that Mr Marriner ought not to have entered into the agreement with JJ McDonald by signing the letter of 16 October 2000 for payment of the outstanding and future debts. I am inclined to agree but this is not pleaded as a breach of duty.[66]
[66]Reasons [96].
In support of its cross-appeal, ASD argued that his Honour had wrongly found that the entry into the 16 October 2000 Agreement was not pleaded as a breach of duty. That issue is discussed below.
As a secondary argument, ASD argued that his Honour had wrongly held that Marriner was not liable for any breach of trust which occurred when Jephson instructed the Bank to pay JJ McDonald and Cumberland out of the second tranche moneys.
Marriner argued that the payments to JJ McDonald and Cumberland could not have been made in breach of trust, because they were made to discharge a debt owed by ASD and therefore benefitted that company. Further, even if the payments were made in breach of trust, there was no evidence that the breach was instigated by Marriner. The allegation that the breach had been knowingly procured or induced by Marriner was a serious attack on his integrity. Under the principle in BriginshawvBriginshaw,[67] powerful evidence would be required to support that claim. Further, his Honour’s findings of fact on this issue should not be set aside because they were neither ‘glaringly improbable’ or ‘contrary to compelling inferences’.[68]
[67](1938) 60 CLR 336, 361. See also Helton v Allen (1940) 63 CLR 691, 701.
[68]Fox v Percy (2003) 214 CLR 118, 128 [29] (Gleeson CJ, Gummow and Kirby JJ).
Conclusion on issue 2
Because his Honour correctly concluded that the amount paid into the set‑off account was not held on a Quistclose trust for ASD, Marriner cannot be held liable for knowingly inducing a breach of trust by Jephson. If a Quistclose trust had arisen, it would have been necessary to decide whether Marriner was liable for procuring or inducing a breach of trust which occurred when Jephson directed the Bank to make payments out of the second tranche bond moneys to JJ McDonald and Cumberland. The basis on which a third person may be held liable for inducing a breach of trust is discussed under issue 3 below.
The trial judge did not discuss the authorities on the liability of third parties for inducing a breach of trust, having positively found that Jephson did not act under Marriner’s instructions.
The relevant evidence was as follows. Whalley, Jephson and Marriner all said that Jephson had generally acted independently of Marriner in making arrangements for the payment of debts.
In his witness statement, Whalley said that during the period that Jephson was an employee of ASD, his duties required him to monitor receipts and outgoings and to manage the cash flow of each project. When there was a delay in funding by CBUS, Jephson often met pressing demands ‘by funding from income and surpluses from other business activities including inter‑company loans.’ Marriner had instructed his executive staff that they should discharge their responsibilities without constantly referring back to him. He instructed his staff that he expected to be informed on a needs basis, but not on issues of detail.
In cross-examination, Whalley said that he had not had any discussion with Marriner or with Jephson about the payments made to Cumberland to meet the JJ McDonald debt and did not know that payments had been made out of the second tranche until around 2007. He also said that it was Marriner and Jephson who had been involved in ‘negotiating the second tranche of the electricity guarantee moneys.’
Jephson said that he was first employed by Marriner in 1994 and that:
Marriner instructed me that the management of his business interests was to be conducted in such a way that I should only report to him when something out of the ordinary had arisen which required his assistance or authority to resolve. Marriner told me he required me to be self-reliant and to use my initiative.
He also said that while it was his role to manage the cashflow of ASD, ‘[i]f I had issues which needed to be raised in relation to the cashflow of ASD, then I would consult Marriner’.
Jephson did not appear to appreciate that it was not until Marriner signed the 16 October 2000 Agreement that ASD became liable to make payments to JJ McDonald. In his witness statement, he said that after CBUS stopped providing funding for the Laguna Quays project, ASD had to obtain the funds from elsewhere. He had directed Cumberland, a wholly owned subsidiary of ASD, which was not involved in the Laguna Quays project, to make three payments to JJ McDonald because he knew Cumberland had surplus funds and ASD did not.
He deposed that on 24 October 2000, he had sent a letter to Ergon Energy, the successor to the MEB, to remind it that the second tranche money was due, and had copied that letter to the Bank. Later that day, it had occurred to him that it was unnecessary to deposit the second tranche in the ASD account with NAB because the money could be transferred to discharge the debt owed to JJ McDonald and to Cumberland to reimburse it for the money it had already paid to meet JJ McDonald’s earlier invoices. He said he did not discuss any of the payments which he had made with Marriner and that he had no reason to believe that Marriner was aware of them at the time.
He was extensively cross-examined about the circumstances in which he had directed that Cumberland pay JJ McDonald, and had later directed the repayment of Cumberland out of the second tranche. He said that he could not recall speaking to Marriner about the Cumberland transfer. It was put to him that he had previously told the trial judge that he now recalled the 16 October 2000 Agreement. There was then the following cross-examination.
Counsel: You recall that you had to make a transfer on 17 October 2000, don’t you?‑‑‑Yes, that’s right.
Counsel: I am suggesting to you that the person who told you to make the transfer, was David Marriner?‑‑‑I seem to recall I had this letter, and if this letter has got Mr Marriner’s authorisation, he signed it as authorising it, then I have no need to speak to him. He has authorised the payment.
Counsel: Yes. You’ve got this letter though because it was sent to you by Mr Marriner on the fax, is that right?‑‑‑I don’t know whether Mr Marriner sent it, I am not sure.
Counsel: But in response to the answer you just gave to me, I suggest to you that the reason that you were content to send the $90,000 to J.J McDonald on 17 October, is because this letter dated 16 October 2000 had been signed by Mr Marriner, is that right?‑‑‑I just stated that to you, he’d authorised the payment.
Counsel: He authorised the payment, thank you. The fact is that Mr Marriner’s signature on the document was sufficient authorisation to you to send the money?‑‑‑Yes.
Counsel: Does that apply to the subsequent instalments that were due on 24 October and 31 October?‑‑‑I presume so, there’s a schedule - there’s a schedule here of payments that he made, six payments or eight payments of $90,000 a week I think was said in Clause 4 of this letter.
That’s right?‑‑‑That’s just the on-going adherence to that authorisation.
Jephson denied that he had written to Ergon Energy and the Bank about the reduction of the guarantee after speaking to Marriner. He said he could not recall why he had initially told the Bank to pay the amount into the ASD account and later the same day, had instructed the Bank to pay JJ McDonald and Cumberland. He denied that this change was made because he had spoken to Marriner about the second tranche of the bond moneys.
His Honour then asked ‘You don’t know why you sent this new letter?’ Jephson said that his reason for changing his direction to the Bank might have been to save some money on FID[69] and BAD[70] taxes if money had gone into the ASD bank account and then been paid out of it to JJ McDonald and Cumberland.
[69]Financial Institutions Duty.
[70]Bank Account Debits.
Marriner’s evidence was that neither Jephson nor any other person discussed the recovery of the second tranche moneys with him. There was no discussion with him about how these moneys should be expended and he was not informed about what had been done with the money. He had not given any instructions to anyone as to how to deal with them.
In cross-examination, Marriner said that he had asked Jephson whether they had the money to meet a payment of $90,000 due to JJ McDonald, after being pressured by Greig to pay the amount owed to JJ McDonald. He said that he had phoned Jephson:
because I didn’t want to put him in a position that he didn’t have the resources to make that payment the next day, and he - and they were - they were uncertain of that and so I put him on speaker and I said to Stephen - to Chris Gregg that he can confirm it, and he did.
Marriner said that he thought that the question of whether there was money to meet the payment was ‘all at that time that I discussed with Peter.’ He did not recall whether he had discussed with Jephson whether Laguna Management or ASD could meet the other payments required by the 16 October 2000 Agreement but ‘he certainly would have got the documents later’.
He was taken to the letter which he signed on 16 October which provided that ‘[t]he first advance payment [of $90,000] will be made by … electronic funds transfer to J.J. McDonald & Son Engineering Pty Ltd on 17 October 2000’. He said the only thing he could recall was asking Jephson ‘whether we were in a position or whether we had available funds to make that payment’. He was then cross-examined on this issue as follows:
Counsel: You see the instruction here on 17 October, is for funds to be transferred by the Cumberland Lorne Resort, $90,000 to J.J. McDonald?‑‑‑Yes.
Counsel: This is the instruction that you gave Peter Jephson is it not?‑‑‑Well he would have been aware of the 90,000 payment, but I wouldn’t have given him any particular direction to the way in which he was meeting his financial - how he was actually making the payment, no I wouldn’t have.
ASD raised a further argument. It submitted that the agreement of 19 October 2001 was expressed to be an interim agreement and was in fact replaced by other agreements which contained no releases, namely, the final suite of agreements entered into between the parties on or about 13 November 2001. ASD relied upon cl 11.1 of the Sale of Shares Agreement between ASD and Laguna Australia dated 13 November 2001 which provided:
Entire agreement
This agreement constitutes the entire agreement between the parties regarding the matters contained in it and supersedes any prior representations, understandings or arrangements made between the parties, whether oral or written.
We do not consider that the ‘replacement’ of the agreement of 19 October 2001 by the subsequent final agreements has the effect of extinguishing the operation of cl 11(b) of the earlier agreement. We would reject the contention that the cancellation of the 30 June 2000 Heads of Agreement and the release of claims thereunder under cl 11(b) could be cancelled merely by virtue of these final agreements being entered into and without express provision to that effect. Nor, in our opinion, does a reasonable construction of cl 11.1 of the Sale of Shares Agreement lead to that conclusion. All that cl 11.1 provides is that the agreement supersedes prior representations, understandings or arrangements made between the parties, whether oral or written. We do not think that the phrase ‘prior representations, undertakings or arrangements’ extends to a prior binding agreement or, at least, to a provision of the kind contained in cl 11(b) of the agreement dated 19 October 2001. We think that it would be a very surprising consequence if language of this generality were to have the effect of reviving a previously cancelled agreement and liabilities under that agreement. However, our rejection of that submission would not have assisted Marriner having regard to our conclusion that he is not protected by the release in cl 11(b).
Conduct of ASD leading to the 19 October 2001 agreement
Marriner said that, at trial, he relied on affirmative defences resting upon the misleading conduct of ASD and United Super in the period leading to the 19 October 2001 agreement and that, according to these defences, ASD and United Super failed to disclose an intention to sue Marriner or his companies to recover the bond moneys as well as an amount equal to the excess capital expenditure.
The judge summarised these defences as follows:
(xiii)Prior to the entering into of the 19 October 2001 agreement, ASD and United Super made certain representations to Laguna Australia which were false, as a consequence of which Laguna Australia has suffered loss which it sets off against the ASD claims.
(xiv)The representations caused Laguna Australia to assume that the subject-matter of the sale to it included the debt owed by Laguna Investments to ASD in respect of the bond money and that Fulham would later take an assignment of this debt. ASD and United Super are estopped from denying these matters.
(xv)The representations constituted misleading and deceptive conduct contrary to the Trade Practices Act 1974 (Cth) ss 51A and 52, and the Fair Trading Act 1999 ss 4(1) and (9) as a consequence of which Laguna Australia has suffered loss.
(xvi)By an entry in the relevant accounts, on or about January 2002, the asset of ASD, being the debt owed by Laguna Investments to it, representing the second and third tranche funds, was changed to a third party receivable. In the circumstances, this constituted unconscionable conduct in contravention of the Trade Practices Act s 51AA, the Fair Trading Act s 7 and the unwritten law. As a consequence, Laguna Australia and Fulham Holdings Ltd suffered loss which they set-off against the claims of ASD.
The judge dealt with these defences in the following terms:[123]
The representation upon which the Marriner parties rely is that ASD and [CBUS] had or would release all claims against Mr Marriner, Goldworthy, Laguna Australia and Fulham Holdings arising out of or relating to the Laguna Quays project. It is then said that ASD and [CBUS] had no such intention. This defence, to a large extent, depends upon a rather complicated conspiracy theory mounted on behalf of the Marriner defendants, a theory which also underlay the defences of estoppel and that relating to unconscientious conduct.
In brief, it was said that, at the time that [CBUS] and ASD were agreeing the final arrangements for the sale of the Laguna project to Laguna Australia in September and October 2001, they had in mind that they would sue Mr Marriner or his companies to recover the bond money misappropriated and the excess capital expenditure which he had made. They did not disclose this intention at the time. He then caused his company to enter into the October 2001 agreement and the formal agreements entered into on 13 November 2001 to complete the sale, thinking that no such claim might be made.
There are many difficulties with this analysis. Perhaps the most obvious is that I find that ASD and [CBUS] were not guilty of this duplicity. At the time the agreements were entered into in October and November 2001, their thinking was to look to the Bank of Queensland to recover the bond money on the basis that the bank had paid it out inappropriately. Whatever might have been the strength of this contention, it was later seen as without prospect and attention shifted to Mr Marriner. Much evidence was led about a reversal entry in the ASD accounts made in January 2002. The evidence demonstrated that this entry was suggested by the auditors and for good reason. The factual basis for these defences turns out to be totally insubstantial.
[123]Reasons [119]–[122].
Marriner’s grounds of appeal in relation to the judge’s above conclusions set out at length the bases of their challenge to those conclusions. The grounds read as follows:
22. The learned trial judge erred in finding that the evidence adduced in support of the estoppel defence was ’totally insubstantial‘.
23. In making that finding, in respect of the allegation that ASD in the relevant negotiations failed to disclose intended claims against Marriner, the learned trial judge failed to take into account these matters and circumstances —
(a) in respect of Jephson’s application of the 2nd Tranche Sum, ASD never had any claims against the Bank of Queensland;
(b) the evidence of Patience that, in advance of the ASD board meeting on 15 August 2001 he formed the view that Marriner was liable in respect of the bond moneys (which moneys included the 2nd Tranche Sum paid to McDonald);
(c) the ASD board meeting on 15 August 2001, at which the board referred to Marriner having ’wrongly expended moneys‘, and at which it discussed what action ’could and should be taken against Mr Marriner‘ (see exhibit 108 [13 CS 5292f]);
(d) the written evidence of Wason that, as at 6 September 2001, the directors of ASD were considering legal action against Marriner ’about the electricity guarantee funds‘ (which funds included the 2nd Tranche Sum));
(e) the ’focus notes‘ prepared by Patience, in which he recommended the ’integration‘ of the bond moneys issues into the final agreement with the Marriner parties;
(f) the undisputed fact that, in advance of the meeting on 6 September 2001, Patience gave his ’focus notes‘ to the directors of ASD;
(g) the evidence of Willis that, in advance of the meeting on 6 September 2001, Frost decided that the ASD directors would not raise the bond moneys issue with Marriner at that meeting (notwithstanding Willis’ desire to so);
(h) the evidence of Paence that, at the meeting on 6 September 2001, no one raised the bond moneys issue with Marriner;
(i) the ASD board meeting on 18 September, at which the directors focused on Marriner and the Bank of Queensland in terms of recovering the bond moneys;
(j) the evidence of Patience that ASD’s directors instructed him not to raise the bond moneys issues with Marriner;
(k) the debt schedule prepared by Patience on 21 September 2001, in which Marriner is listed as a debtor to ASD in respect of the 2nd Tranche Sum;
(l) Patience’s memorandum to the ASD directors dated 8 October 2001, in which he recommended the finalisation of all outstanding issues in the proposed deal with Marriner;
(m) the facts and matters identified in paragraphs 19(b) to 19(f) above;
(n) the undisputed fact that, after 5 September 2001 no one disclosed to Marriner that ASD might pursue him in respect of the application of the bond moneys;
(o) the evidence that, in order to stem operational losses, ASD wanted to sell the Resort as quickly as possible;
(p) the undisputed evidence that Marriner was the only prospective purchaser of the Resort;
(q) the unchallenged evidence of Marriner that he would not have proceeded with the purchase of the Resort unless the bond moneys issue had been addressed and resolved in his favour; and
(r) the other relevant facts and mailers identified in section .3 of the Defendants’ closing submissions dated 15 September 2009.
24. In light of these matters and circumstances, and the principles identified in section 1.2 of the Defendant’s closing submissions dated 15 September 2009, the learned trial judge should have found that—
(a) in the negotiations leading to the October 2001 Agreement, Marriner raised squarely the issue of claims and liabilities;
(b) Marriner asked ASD to disclose all such matters so that they could be incorporated in the proposed agreement;
(c) ASD thus came under a positive duty to respond accurately and truthfully to Marriner’s direct enquiries in this regard;
(d) ASD did not disclose the putative claim against Marriner in respect of the 2nd Tranche Sum;
(e) in these circumstances, ASD represented that Laguna Australia would acquire inter alia the release of the claims the subject of the Plaintiffs’ proceeding (including the Capex claim);
(f) ASD also represented that Fulham Holdings Ltd would become entitled in place of ASD to the full benefit of the debt the subject of the Laguna Investments loan account no, 1- 7080 (which debt included the amount in respect of the 2nd Tranche Sum);
(g) in reliance upon these representations, Laguna Australia and Fulham entered into the relevant deeds and contracts in November 2001;
(h) each of the Defendants suffered detriment as a result of ASD’s departure from the assumptions it engendered (including exposure to the claims in the proceeding as well as loss of the contemporaneous opportunity to change ASD’s views in respect of these matters); and
(i) ASD is thus estopped from bringing and prosecuting the Capex claim.
25. In making that finding, in respect of the allegation that ASD in the negotiations failed to disclose the removal of part of the inter‑company debt the subject of the debt assignment deed dated 13 November 2001, the learned trial judge failed to take into account these matters and circumstances —
(a) the ASD books disclose that on 1 August 2001, ASD reversed $1,279,000 from loan account no. 1-7080 (being the loan account by which ASD lent funds to Laguna Investments);
(b) this reversal sum was equal to the 2nd & 3rd tranches of the electricity bond moneys;
(c) at the ASD board meeting on 15 August 2001, the directors considered the proper accounting treatment of the electricity bond moneys;
(d) the uncontradicted evidence of Whalley that, as at 6 September 2001, he believed and expected that the debt the subject of loan account no. 1-7080 included an amount equal to the 2nd Tranche Sum and the 3 Tranche Sum;
(e) the evidence of Frost that, as at 6 September 2001, Marriner wanted to acquire this debt;
(f) in the period between 4 and 10 September 2001, Frost instructed Lewis (an internal accountant or bookkeeper) to treat the bond moneys sum as a receivable in the accounts of ASD;
(g) the written evidence of Frost that this instruction reflected ASD’s intention to recover the moneys from Marriner;
(h) in the course of the negotiations, ASD did not disclose this intention to Marriner;
(i) in the same negotiations, ASD did not disclose the loan account reversal to Marriner;
(j) throughout these negotiations, ASD knew that Marriner’s interests wanted to acquire the entire debt the subject of loan account no. 1-7080;
(k) Fulham executed the debt assignment deed dated 13 November 2001;
(l) Fulham took that step on the basis that ASD had not made any material changes to the inter-company debt;
(m) pursuant to that deed, in April 2002, ASD determined ’conclusively the amount of the debt the subject of the assignment; and
(n) the amount so fixed did not include an amount equal to the 2nd and 3rd Tranches of the electricity bond moneys.
26. In light of these matters and circumstances, and the principles identified in section 1.2 of the Defendants closing submissions dated 15 September 2009, the learned trial judge should have found that —
(a) in the negotiations leading to the execution of the agreements and deeds in mid November 2001, the Marriner parties assumed that the relevant loan account debt included the amounts referable to the 2nd and 3rd tranches of the electricity bond moneys;
(b) the Marriner parties assumed that, through the acquisition of the loan account debt, they would resolve all issues and possible claims in respect of the 2nd and Tranches of the electricity bond moneys;
(c) Although it knew as much, ASD did not disclose to the Marriner parties (i) the loan account reversal and (ii) the putative claims against them in respect of these tranches of the electricity bond moneys;
(d) ASD should have disclosed these matters to the Marriner parties before Laguna Australia and Fulham entered into the relevant deeds and agreements;
(e) ASD thus represented that under the proposed assignment of debt Fulham would become entitled in place of ASD to the full benefit of the debt the subject of loan account no. 1-7080 (which debt included the amount in respect of the 2 Tranche Sum);
(f) in reliance upon these representations, Laguna Australia and Fulham entered into the relevant deeds and contracts in November 2001;
(g) each of the Defendants suffered detriment as a result of ASDs departure from the assumptions it engendered (including exposure to the claims in the proceeding as well as loss of the contemporaneous opportunity to change ASD’s views in respect of these matters); and
(h) ASD is thus estopped from bringing and prosecuting the Capex claim.
27. Further the learned trial judge failed to provide any or adequate reasons for the finding that the evidence adduced in support of the estoppel defence was ‘totally insubstantial‘.
F. The learned trial judge’s rejection of the unconscionable conduct allegations
28. The learned trial judge erred in finding that the evidence adduced in support of the unconscionable conduct allegations was ’totally insubstantial‘.
29.In making that finding, the learned trial judge failed to take into account the matters and circumstances set out in paragraphs 13 and 15 above.
30. In light of these matters and circumstances, and the principles identified in section J of the Defendant’s closing submissions dated 15 September 2009, the learned trial judge should have found that—
(a) During the negotiations in late 2001, the Marriner parties made it clear that they wanted to resolve all of claims and liabilities (including the claims in respect of the 2nd Tranche Sum).
(b) Notwithstanding the plain request to disclose all ’undisclosed liabilities‘, the ASD parties failed to disclose the intention to pursue the Marriner in respect of claims referable to the electricity bond moneys.
(c) The Marriner parties entered into the October 2001 Agreement in the mistaken belief that the ASD parties were resolving all claims (including the claim in question).
(d) The non-disclosure was deliberate and unconscientious, particularly where Marriner had pressed ASD to disclose all liabilities for the purpose of resolving all matters between the parties.
(e) Laguna Australia and Fulham entered the relevant agreements in the mistaken belief that the ASD parties were resolving all claims (including the claim in question); The non-disclosure was deliberate and unconscientious, particularly where Mr Marriner had pressed ASD to disclose all liabilities for the purpose of resolving all matters between the parties.
(f) ASD failed to disclose the loan account reversal to the Marriner parties.
(g) Fulham thus executed the debt assignment deed in the mistaken belief that it would acquire the entire debt owed by Laguna Investments to ASD (including an amount based on the 2nd Tranche Sum).
(h) In contravention of section 51AA of the TPA, the ASD parties knowingly exploited these mistakes in order to sell the resort to Marriner and preserve the ability to pursue him in respect of the electricity bond moneys.
(i) In removing part of the debt from the loan account, and doing so without disclosure to Fulham, ASD contravened section 51AA of the TPA.
(j) Accordingly, ASD’s reliance upon the ‘conclusive debt fixing mechanism in the debt assignment deed is unconscientious.
(k) Further ASD has no standing to prosecute the Capex claim.
31. Further the learned trial judge failed to provide any or adequate reasons for the finding that the evidence adduced in support of the unconscionable conduct allegations was ’totally insubstantial’.
As can be seen, these defences relied upon a complex web of facts and inferences. Marriner in his written outline submitted that the judge ‘did not grapple at all with the detailed evidence regarding these matters.’ He referred to a number of aspects of the evidence upon which he relied at trial and added that this evidence was the subject of detailed analysis in his closing submissions at trial. Marriner submitted that the judge had failed to provide adequate reasons for his decision to reject these defences. When it came to oral submissions by the parties, probably by reason of time constraints, there was little, if any, argument about the misleading conduct, estoppel and unconscionable conduct defences.
With respect to the learned trial judge, we think that it is clear that his Honour failed to provide adequate reasons for rejecting these defences and we would have to reluctantly conclude that he did not evaluate, or fully evaluate, the considerable body of evidence involved. As we have decided to remit the question of Marriner’s liability for breach of the solicitor’s trust to the Trial Division, it is appropriate to also remit this aspect of the matter to the same judge in case any of these defences are open to be relied upon (as to which, having regard to the state of the pleadings, we express no opinion).
Reimbursement of freeholding costs out of the second tranche sum
The judge summarised this defence as follows:[124]
By cl 10(d) of the June 2000 heads of agreement, any security held by an authority with respect to the Laguna Quays project was to be applied towards the costs of converting Crown leasehold land to freehold land. The work performed by JJ McDonald for which payment from the second tranche funds were made were freeholding costs.
[124]Reasons [29].
We refer to and repeat paragraphs [201] to [204] above, dealing with how the judge rejected that defence. We find no error by the judge. We would therefore reject ground 35 of the amended notice of appeal.
Counterclaim
There was a counterclaim by Marriner, Goldworthy, Laguna Australia and Fulham Holdings. The counterclaim sought damages and/or declarations based on the same or similar matters as those to which we have referred in paragraphs [288] to [293] above. In the amended notice of appeal, grounds 36 and 37 relate to the counterclaim. The relevant appellants contend that the judge erred in failing to decide the counterclaim or in dismissing the counterclaim without deciding the same and that the judge should have made certain findings as set out in ground 37.
It is appropriate to remit these matters on the same basis as referred to in paragraph [293].
Conclusion
The broad result is that the appeal succeeds and that the orders made below on 16 April 2010 must be set aside. The cross‑appeal succeeds in part and the issues that we have identified must be remitted to a judge in the trial division.
We will hear submissions from the parties as to orders for costs after they have had an opportunity to consider these reasons.
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SCHEDULE OF PARTIES
BETWEEN
| DAVID WELLESLEY MARRINER | First Appellant/First Respondent by Cross-Appeal [First Defendant/First Plaintiff by Counterclaim] |
| GOLDWORTHY PTY LTD (ACN 007 348 754) | Second Appellant/Second Respondent by Cross-Appeal [Second Defendant/Second Plaintiff by Counterclaim] |
| LAGUNA AUSTRALIA PTY LTD (ACN 092 398 617) | Third Appellant/Third Respondent by Cross-Appeal [Third Defendant/Third Plaintiff by Counterclaim] |
| LAGUNA AUSTRALIA AIRPORT PTY LTD (ACN 094 660 616) | Fourth Appellant [Fourth Defendant] |
| FULHAM HOLDINGS LIMITED (ACN 006 558 158 | Fifth Appellant [Sixth Defendant/Fourth Plaintiff by Counterclaim] |
| STAGE DESIGN PTY LTD (ACN 060 623 903) | Sixth Appellant/ Fourth Respondent by Cross-Appeal [Fifth Defendant] |
- and -
| AUSTRALIAN SUPER DEVELOPMENTS PTY LTD (ACN 058 626 761) | First Respondent/Appellant by Cross-Appeal [Plaintiff/First Defendant by Counterclaim] |
| UNITED SUPER PTY LTD (ACN 006 261 623) | Second Respondent [Second Defendant by Counterclaim] |
| RALPH WILLIS | Third Respondent [Third Defendant by Counterclaim] |
| GEORGE WASON | Fourth Respondent [Fourth Defendant by Counterclaim] |
| BARRIE FROST | Fifth Respondent [Fifth Defendant by Counterclaim] |
| IAN PATIENCE | Sixth Respondent [Sixth Defendant by Counterclaim] |
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