O'Connor v O'Connor

[2022] NSWCA 97

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:

O’Connor v O’Connor [2022] NSWCA 97

Hearing dates:

27 April 2022

Decision date:

17 June 2022

Before:

Bell CJ; Ward P; Leeming JA

Decision:

Appeal dismissed with costs.

Catchwords:

APPEAL – plaintiffs claimed damages for breach of agreement to issue shares – primary judge dismissed claim but indicated alternative case which might succeed – whether primary judge ought to have upheld claim based on alternative case – whether alternative case subject of concession at trial – whether concession wrongly elicited by primary judge – whether concession ought be permitted to be withdrawn on appeal – appeal dismissed

Legislation Cited:

Civil Procedure Act 2005 (NSW), s 56

Cases Cited:

Brunninghausen v Glavanics (1999) 46 NSWLR 538; [1999] NSWCA 199

Dovuro Pty Ltd v Wilkins (2003) 215 CLR 317; [2003] HCA 51

Fingleton v The Queen (2005) 227 CLR 166; [2005] HCA 34

Fox v Percy (2003) 214 CLR 118; [2003] HCA 22

Minister for Local Government v Blue Mountains City Council (2018) 97 NSWLR 1132; [2018] NSWCA 133

O’Connor v O’Connor [2017] NSWSC 1648

O’Connor v O’Connor [2018] NSWCA 214

Percival v Wright [1902] 2 Ch 421

Ridolfiv Rigato Farms Pty Ltd [2001] 2 Qd R 455; [2000] QCA 292

SLE Worldwide v WGB [2005] NSWSC 816

Smits v Roach (2006) 227 CLR 423; [2006] HCA 36

United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1; [1985] HCA 49

University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481 at 483; [1985] HCA 28

Category:

Principal judgment

Parties:

Morgan Benedict O’Connor (First Appellant)
Michael Stack (Second Appellant)
John Joseph O’Connor (Respondent)

Representation:

Counsel:
C Birch SC, I Chatterjee (Appellants)
D Studdy SC, T Boyle (Respondent)

Solicitors:
Coleman Greig Lawyers (Appellants)
Webb Henderson (Respondent)

File Number(s):

2021/00268236

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity – Commercial List

Citation:

[2021] NSWSC 1056

Date of Decision:

24 August 2021

Before:

Hammerschlag J

File Number(s):

2019/00236226

Judgment

1. THE COURT: This appeal turns on its own facts and the course taken at trial. The primary judge promptly produced a judgment after a five day hearing which dismissed the plaintiffs’ claims based on an oral contract and dismissed the proceeding. However, his Honour went on to make tentative findings in the alternative (although there was an issue as to whether they were findings at all), and to suggest that there were “powerful considerations” that would have favoured the plaintiffs had their case been different, and were it not for repeated concessions that that different case was not pursued. For the most part, the concessions were made during the plaintiffs’ counsel’s final address.

2. In this appeal, no challenge is made to the dismissal of the claim based on the oral contract alleged by the plaintiffs. However, it is said that the primary judge was wrong to regard the case as confined by a concession, wrong to have elicited a concession from counsel who then appeared for the plaintiffs which narrowed their case, and wrong not to have decided the case favourably to the plaintiffs on the basis his Honour indicated in the alternative. If necessary, it was said that this Court should permit any concession to be withdrawn.

3. For the reasons which follow, we would dismiss the appeal.

Background

4. The nature of the appeal means that most of the evidence need not be summarised, because there was no challenge to any of the findings of fact or the reasoning which was dispositive of the principal claims advanced by the plaintiffs. However, it will be necessary to address in some detail the pleaded case as filed and as amended during the hearing, and (especially) the concessions made by counsel.

5. The defendant, Mr John Joseph O’Connor, founded Diona Pty Ltd in 1980 (Diona). Diona provided earth-moving services in the building and construction industry. At all material times, Diona had four ordinary shares, three of which were owned by John and one by his wife Margaret.

6. The plaintiffs and appellants are Messrs Morgan Benedict O’Connor and Michael Stack. Morgan is John’s younger brother; Michael is unrelated. All three men immigrated to Australia from Ireland many years ago. Morgan and Michael worked for Diona, and Morgan was a director from 1993 to 2000.

7. Following a series of conversations between the three men in 2004 or 2005, three things occurred:

1. Each of Morgan and Michael transferred $150,000 to Diona;

2. Morgan was reappointed as and Michael became a director of Diona;

3. Each of Morgan and Michael began to execute personal guarantees for Diona’s liabilities.

8. None of the above was controversial. Diona’s general ledger included entries on 26 October 2005 and 13 December 2005 for the transfers of $150,000, described as “Shareholders Investment OCE” and “Injection of Funds Mike Stack” respectively. “OCE” is to be understood as a reference to OC Excavations Pty Ltd, a company of which Morgan has since 2002 been the sole director. There seems to have been some inconsistency in how Diona treated those funds, but nothing turns on this. ASIC records showed that Morgan and Michael became directors of Diona on 9 January 2006. Tendered at trial were a series of guarantees signed by Morgan and Michael. The total liabilities guaranteed by the men was said to be in excess of $15,000,000.

9. What was controversial was the quid pro quo for the above. Morgan and Michael said that they were each promised a shareholding of 8.33% of Diona. John said that he promised to transfer to Morgan and Michael an 8.33% share in Diona’s “plant and equipment”, and that if after ten years the men were still working for Diona, he would “consider” making them full shareholders.

10. No shares were ever issued to Morgan or Michael. From time to time various shareholder agreements were drafted and exchanged, but none was executed. Some attempted to grapple with the concept of an interest in the plant and equipment, including by a shareholders’ agreement and by converting preference shares. The details were summarised by the primary judge at [40]-[62] and need not be summarised here. The primary judge said at [45] of one draft that:

“this agreement seeks to implement the concept of a shareholding in Diona’s property, plant, and equipment for ten years by creating a class of shares to be valued by reference to those assets for ten years and thereafter on the total value of the company. This idea of a shareholding in only property, plant and equipment can also be expressed as a shareholding in the company’s assets, excluding goodwill.”

11. Some years later, there was a falling out between the men, which the primary judge considered had been prompted in part by interventions by John’s son, David, who had (in around 2009) been appointed as General Manager and as a director. By members’ resolutions on 30 July 2013 and 1 August 2013, each of Morgan and Michael was removed as a director.

12. In 2014, Michael commenced proceedings against Diona and John seeking among other things orders that Diona “issue a share certificate to [him] representing 1/12^th or 8.33% of its share capital and that it record that interest in its share register”. By mid 2015, there were two other proceedings in the Supreme Court concerning the affairs of Diona and companies related to the three men. All three proceedings were compromised by an undated Deed of Settlement and Mutual Release found by the primary judge to have been entered on 29 July 2015. The Deed recited that “[Morgan] and [Michael] allege that they are each one twelfth equity shareholder in Diona” (Recital L). The settlement involved, inter alia, payments by Diona to Morgan and Michael of $1,380,000 and $1,680,000 representing a compromise of claims including their claims for shares in Diona. The deed included releases in standard terms.

13. At around the same time as he was negotiating the settlement of the disputes with Morgan and Michael, John was engaging in negotiations with Calibre Group Ltd. A confidentiality agreement was provided in October 2014, following which there were discussions culminating in Calibre submitting a “Non-Binding Indicative Offer” in May 2015 and a “Revised Non-Binding Indicative Offer” on 31 July 2015. The former involved a price of $81,200,000, the latter a price of up to $90,000,000, subject to conditions upon which nothing turns for present purposes. A share sale agreement between John and Margaret and Calibre was executed on 29 October 2015. It was common ground that Morgan and Michael were not told of the negotiations with Calibre.

14. In 2017 Morgan and Michael brought proceedings against John and Diona seeking preliminary discovery of John’s negotiations with Calibre. They failed at first instance but succeeded on appeal; we shall return below to one aspect of that litigation.

15. In July 2019, Morgan and Michael sued John by Statement of Claim filed in the General List in the Equity Division of this Court. An order was made transferring the matter to the Commercial List in September 2019. The plaintiffs sought an inquiry to determine the amount of equitable compensation or alternatively an account of profits in respect of the sale of shares in Diona to Calibre. There were also claims for statutory unconscionability, and for a declaration that the release in cl 8 of the Deed of Settlement and Mutual Release was unenforceable, neither of which need be summarised, because no point was ultimately taken based on the releases in the deed, and statutory unconscionability played no part in the appeal.

16. The statement of claim also sought a declaration that John owed Morgan and Michael a fiduciary duty to inform and keep them informed of any matter that substantially affect the value of the shares in Diona, up to and including the time of completion of the Deed of Settlement and Mutual Release.

17. It is convenient to defer summarising the allegations in the statement of claim, which directly informed the exchanges between the plaintiffs’ counsel and the primary judge which are central to this appeal.

18. On 4 March 2020, by consent, questions of liability were ordered to be heard separately and in advance of any questions of quantum.

Reasons of the primary judge

19. It is convenient first to deal with the reasons given by the primary judge for dismissing the plaintiffs’ primary claim and explaining the alternative basis on which success might have been obtained, before turning to the way the trial proceeded.

20. The plaintiffs’ primary case was an oral agreement involving an entitlement to shares in Diona in 2005. This was rejected by the primary judge, based on reasons informed by his assessment of Morgan’s and Michael’s demeanour. No challenge was made to that aspect of the decision in the grounds of appeal.

21. The primary judge also rejected John’s claim that all that had been promised was an entitlement for him to consider making Morgan and Michael shareholders if they worked for his company for a decade, paid $150,000 and made themselves personally liable for its debts over that period. His Honour summarised this aspect of his reasoning at [23]-[24]:

“I find that John agreed to transfer to them, upon payment, what he described as a share in Diona’s property, plant, and equipment, and that after a period of ten years he would procure the issue to them of a full shareholding. If I had been called upon to do so, it is highly likely that I would have found, in the circumstances of this case, that even though they were at the time not full shareholders, John nevertheless had a fiduciary duty to disclose the Calibre offer to Morgan and Michael. But the case was not fought on this basis.

So to have found would, of course, have said nothing of the quantum, if any, of any equitable compensation to which they might be entitled as a consequence of John’s breach.” (emphasis added)

22. Paragraph [112] of his Honour’s judgment should also be noted. There, his Honour held that:

“I have a feeling of actual persuasion that he promised them a full shareholding after ten years, if they were still with Diona. I am, however, not persuaded that he caveated this last promise in terms that it was solely up to him after 10 years.” (emphasis added)

23. It is best to reproduce the entirety of the alternative reasoning, which appears at [134]-[141] (there is a divergence between the paragraph numbering of the reasons authenticated by his Honour’s Associate and those published on CaseLaw after [66]; in what follows, references are to the paragraphing on CaseLaw):

“[134] Leaving aside the precise nature of the interest in Diona which Morgan and Michael acquired for payment of their money and the other commitments they gave, the facts of this case bear a striking resemblance to those in Brunninghausen, in that:

• by the time of the Calibre approach, both Michael and Morgan had been removed as directors, leaving John and David as the only directors;

• John was the controlling shareholder of Diona and it appears that Margaret played no active role;

• John had a close family relationship with Morgan and a close personal relationship with Michael which had extended over many years;

• John’s position conferred on him the exclusive advantage or opportunity to receive the Calibre offer and take the benefit of it;

• his legal status made him the repository of information affecting the true value of Diona;

• Morgan and Michael had been removed as directors; and

• it is not in issue that Morgan and Michael were not told of the Calibre offer.

[135] I do not consider that Brunninghausen is authority for the proposition that a director and shareholder in John’s position can have no fiduciary duty to persons in the position of Morgan and Michael, simply because their interest, at the time of the Calibre approach, in Diona was not as full and equal shareholders. Whether such a duty is present depends on whether the law will impose it because of the specific facts.

[136] Morgan and Michael may not have had a right to an immediate full shareholding in Diona, but they did have a clear and discernible interest in Diona. Their interest was in Diona’s enterprise so far as it consisted of property, plant, and equipment, coupled with the opportunity after ten years to become full shareholders.

[137] The agreement could have been implemented in one of a number of equally effective ways. Equity would have had no difficulty in moulding an order to recognise and give effect to their interests.

[138] The value of their interest and opportunity was undoubtedly related to the underlying value of Diona, even if restricted for ten years to the value of its property, plant, and equipment. Additionally, they had the prospect (John referred to it as a carrot in front of their noses) of becoming full shareholders. By the time of the Settlement Deed, this was barely six months away.

[139] John had information about Calibre and he knew that Morgan and Michael did not have it. Michael and Morgan were in a special position of vulnerability to John. Knowledge of the Calibre approach may have given them a powerful seat at the negotiating table.

[140] I consider that there are powerful considerations to support the conclusion that he owed them a fiduciary duty and breached it, even though they were not, and were not yet entitled to be, full shareholders.

[141] I emphasise that this would say nothing of the value of their interest or whether they sold it for less than it was worth.” (footnote omitted)

24. Three things may be noted about that passage.

Status of alternative “findings”

25. First, Dr Birch SC, who appeared for Michael and Morgan in this Court, accepted that it needed to be read in conjunction with [23]-[24] of the primary judgment extracted at [21] above. The language employed by the primary judge in those paragraphs, namely “highly likely that I would have” and “[s]o to have found” raises a real question as to whether his Honour’s observations in [134]-[141] amounted to what could in truth be described as “findings” as opposed to possible alternative findings.

The significance of Brunninghausen v Glavanics

26. Secondly, the references by the primary judge to Brunninghausen are to Brunninghausen v Glavanics (1999) 46 NSWLR 538; [1999] NSWCA 199, in which this Court addressed the circumstances in which, contrary to the “rule” in Percival v Wright [1902] 2 Ch 421, a director may owe a fiduciary duty directly to a member, as opposed to a fiduciary duty to the director’s company. If, as the primary judge indicated, Morgan and Michael were not shareholders, but were entitled to become shareholders in the 2015, then his Honour was saying that the same considerations would lead to John owing fiduciary obligations to them when he was negotiating to sell the entirety of Diona’s shares to Calibre.

27. The principles in Brunninghausen v Glavanics are familiar in disputes concerning businesses operated by small private companies. They were unquestionably familiar to the parties in this litigation, because of the 2017 proceedings seeking preliminary discovery mentioned above. Morgan and Michael’s application for preliminary discovery was refused at first instance: O’Connor v O’Connor [2017] NSWSC 1648, but an appeal was allowed and discovery ordered: O’Connor v O’Connor [2018] NSWCA 214.

28. Both at first instance and on appeal in the applications for preliminary discovery, Morgan and Michael relied on Brunninghausen. The judge at first instance recorded at [19]:

“the plaintiffs contend that the first defendant owed fiduciary obligations to them as shareholders, or as persons entitled to be shareholders. In this regard, the plaintiffs rely upon the decision of the Court of Appeal in Brunninghausen v Glavanics [1999] NSWCA 199; (1999) 46 NSWLR 538. If there was indeed a fiduciary relationship between the first defendant and the plaintiffs, it is clear that the first defendant would not have been entitled to enter into the settlement without first disclosing matters of which he was aware which might affect the value of the shares.”

29. On appeal, this Court considered Brunninghausen v Glavanics at [42]-[54] and concluded at [55]:

“It was principally on the basis of the decision in Brunninghausen that the appellants in the present case argued that it ought to appear to the court that they may have been entitled to make a claim for relief against the respondents.”

30. Mr DeBuse of counsel, who ran the trial before the primary judge from which this appeal was brought, also ran the unsuccessful application for preliminary discovery at first instance, and was led by senior counsel in the appeal.

The rejection of John’s case and the notice of contention

31. Thirdly, the reasoning at [136] that Morgan and Michael had “a clear and discernible interest in Diona” which extended to “the opportunity after ten years to become full shareholders” was inconsistent with John’s case that the oral agreement conferred a discretion upon John whether to make Morgan and Michael shareholders. By grounds 2, 3, 4 and 5 of his notice of contention, John challenged the finding of a contract in the terms found by the primary judge. He maintained that the judgment should be affirmed on the basis that Morgan and Michael had no entitlement to any shareholding, but merely enjoyed the prospect that John might “consider” making them full shareholders, with the consequence of there being no ongoing fiduciary obligation after they were removed as directors and ceased to work for Diona.

32. The primary judge did not give full reasons for his alternative, tentative or possible conclusions. However, the reasoning which evidently informed them emerges clearly enough from an exchange in closing submissions with counsel appearing for John:

“HIS HONOUR: Just let me tell you, I don’t believe him [John] for a number of reasons. Firstly, it’s directly contradicted by documents which are largely but not completely contemporaneous with the original agreement. Secondly, the ten-year agreement, leaving it to his discretion, doesn’t make sense. Thirdly, it doesn’t appear in any document until it’s put … in a minute in September 2013 and in his affidavit, which is sworn in 2020.

…

At the moment, I don’t think whatever agreement Mr O’Connor made contained an element which allowed him to decide whether these ‘boys’, as he called them, would get their shares after ten years at his whim. You may want to address that, but it may not affect the outcome of the case …”

33. It is ordinarily preferable for a judge not to make statements before the case is over to the effect that one party or the other is not believed. When language is used to that effect, it is usually implicit that the statement is made for the purpose of testing a submission and inviting counsel to address it. Indeed, in the present case, if that were not understood, his Honour made it clear by qualifying his position with the words “[a]t the moment” and inviting further submissions on the point (“You may want to address that …”), such that on a fair reading of the exchange as a whole his Honour was merely exposing his preliminary views on John’s credibility. Even so, it would have been preferable, especially in litigation which turned on a disputed oral agreement, for the difficulties confronting acceptance of John’s evidence to have been drawn to counsel’s attention without reference to his Honour not believing him (carrying with it the implication that his Honour had formed a concluded view at that stage).

34. Grounds 2, 3, 4 and 5 of the notice of contention should be rejected for substantially the reasons stated by the primary judge in the exchange reproduced above, to which may be added the fact that the rejection of John’s case was a conclusion turning upon his assessment of John’s testimonial evidence, to which the strictures associated with Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 apply. In short, far from being glaringly improbable that there was an entitlement to shares after a decade’s service as directors, contribution of capital and provision of personal guarantees, it is decidedly improbable that the oral agreement struck by the three men imposed substantial obligations upon Morgan and Michael over a decade, but gave them no entitlement to become shareholders at the end of that period. That conclusion is contrary to the draft agreements and correspondence exchanged between the parties during the time all three men were directors of Diona which is summarised in the judgment at first instance, which by way of example included the concept of converting preference shares, inconsistently with John reserving to himself a discretion.

35. Grounds 2, 3, 4 and 5 of the notice of contention are unavailable to sustain the judgment. We will make reference to ground 1 of the notice of contention later in these reasons. We turn now to the main issues on the appeal, which turn on the pleaded case and the course of the trial.

The pleaded case

36. The Statement of Claim alleged an oral contract pursuant to which, in exchange for the $150,000 and entering into guarantees, John “would cause an agreed proportion of the capital of Diona to be issued or transferred to each of the plaintiffs”. There was an alternative pleading that John promised to “transfer to each of the plaintiffs an interest in the defendant’s shareholding in Diona equal to 1/12^th or 8.33% interest in the capital of Diona at the time”. The plaintiffs also advanced a claim based on an estoppel by representation, upon which they had detrimentally relied, the result of which was expressed as follows:

“34. In the premises the Defendant is estopped from denying:

34.1. That the plaintiffs were shareholders of Diona;

34.2. That he held or controlled the shareholding to which they were entitled;

34.3. That he held a position as trustee as well as/or alternatively a fiduciary obligation to them in relation to that shareholding.”

37. The pleading went on to identify the way in which the shareholding in Diona was held for the plaintiffs:

“The Plaintiffs’ Respective Shareholdings in Diona

35. In the premises and as from at the latest of 9 January 2006, the first plaintiff held a shareholding in Diona equivalent to 8.33% of Diona's total share capital (‘the First Plaintiff’s Shareholding’).

36. Further and or in the alternate, and as from at the latest of 9 January 2006 the defendant held on trust for the first plaintiff, shares equivalent to 8.33% of the total shareholding of Diona (‘the First Plaintiff Trust Property’).

37. In the premises and as from at the latest of 9 January 2006, the second plaintiff held a shareholding in Diona equivalent to 8.33% of Diona’s total share capital (‘the Second Plaintiff’s Shareholding’).

38. Further and or in the alternate, and as from at the latest of 9 January 2006 the defendant held on trust for the second plaintiff, shares equivalent to 8.33% of the total shareholding of Diona (‘the Second Plaintiff Trust Property’).”

38. The agreements, representations, estoppels and detrimental reliance were said to give rise to fiduciary duties thus:

“Fiduciary Duties as a result of Agreements and Representations

58. In the premises, and as a result of:

58.1. the respective Plaintiffs’ Agreements; and/or

58.2. the Defendants Representations; and/or

58.3. estoppels arising from the respective Plaintiffs’ Agreements and/or the Defendants Representations; and/or

58.4. the plaintiffs’ detrimental reliance on the respective Plaintiffs’ Agreements and/or the Diona Representations;

the defendant owed each of the plaintiffs fiduciary obligations as a trustee of the Plaintiffs’ Trust Property the content of which was not affected by the breakdown in relationship as between the plaintiffs on the one hand and the defendant on the other.”

39. Nowhere in the pleaded case was a claim that Morgan and Michael were entitled to something less than the parcel of ordinary shares representing 8.33% of the issued share of Diona. Indeed, we did not regard this as being in issue on appeal. Rather, the gravamen of the appellants’ case was that the case as run permitted and indeed entitled the plaintiffs to judgment on the alternative basis indicated by his Honour at [133]-[140] of the primary judgment. It is to be borne in mind that ordinarily the pleadings will define the issue for determination, but that does not preclude the parties choosing to litigate additional issues. Much was sought to be made by the appellants of the decisions by John to engage on the merits with the alternative case, which was raised by the primary judge during the hearing.

The first four days of the trial

40. Ultimately, the outcome of this appeal turns on what occurred on the fifth and final day of the trial. However, in order to address some of the submissions based on (a) the way in which the trial expanded beyond the issues identified in the pleadings, and (b) what was said to have been the erroneous “insisting” by the primary judge to obtain concessions from counsel for Morgan and Michael, it is necessary to address what had earlier occurred.

41. The opening was informed by a 38 page document “Outline of Submissions for the Plaintiffs”. The point was made, strongly, that the pleaded defence contained a bare denial of the existence of an agreement, and thus the plaintiffs emphasised the improbability of Morgan and Michael doing all they had done without the benefit of any agreement whatsoever. Thus it was said:

“124. No case is advanced in the Defence for a different agreement with further conditions to the one pleaded in the Defence. The agreement is simply denied as are the representations. However, the absence of an agreement is wholly inconsistent with Morgan and Michael participating in Diona as though they were shareholders, and negotiations in which it appears to be assumed as agreed that:

a. Both Morgan and Michael were entitled to be directors;

b. They were entitled to share on the value of the enterprise in the event of a sale of the whole of the enterprise; and

c. They were entitled to a payment calculated not on what they invested but on the value of Diona’s assets.”

and

“126. The agreement pleaded is not alleged in the Defence to fail for any reason nor is it alleged to be subject to any prohibition or uncertainty. If the agreement was alleged to have failed for failure to satisfy a condition, then that should have been specifically pleaded. If there was alleged to be uncertainty with respect to a term essential to an agreement, then that should also have been identified by a pleading that such term was missing or not agreed. The Defence contains the baldest of denials as a result to the extent the defendant’s case seeks to go beyond putting the plaintiffs to proof, it should not be permitted.” (reference omitted)

42. In addition to the cases based on the oral agreement and estoppel, pages 19-22 summarise “The Joint Venture”. The submission then stated:

“131. Overall the chronology set out above provides a cogent chain of factual support which together establish the existence of the 8.33% interest agreement, either as the result of a specific agreement or an estoppel. Alternatively, it establishes a joint venture between Morgan, Michael and John.”

43. On the first day, during the plaintiffs’ opening, there was the following exchange:

“HIS HONOUR: Assuming in your favour that you establish the oral agreement, leaving aside questions of - I don’t know what the issues are going to be, but leaving aside questions of certainty or whatever - I don’t know, whatever might be run against you - but let’s just assume that you establish the oral agreement. Let’s just make the hypothesis that if you do that, then you win.

DEBUSE: Yes.

HIS HONOUR: But if you fail to establish the oral agreement, then how can you win?

DEBUSE: We can win on the basis that there were representations from 2005 through to 2012 which we incurred liabilities - we became directors; we gave millions and millions of dollars of guarantees and we sacrificed the interests of..(not transcribable)..

HIS HONOUR: I understand all of that. But if you don’t establish the clear representation that you were to be a shareholder, which is much the same as the agreement, how will you win?

DEBUSE: The representations are also made, for example, in the shareholders agreement which I’m taking you to. Each of John O’Connor, Margaret O’Connor, Michael Stack and Morgan O’Connor own shares in the company, and is a representation that we own shares. Now, it may be that we own shares on particular conditions, but we can deal with those conditions if they are alleged against us. They’re not, but if they are alleged against us, we could deal with them, because we could say, ‘Well, how does it make any difference in circumstances where our shareholding is acquired?’ We had shares. The rights that attach to those shares may be the subject of some disagreement. But since all of the shares were acquired without disclosure--

HIS HONOUR: One thing is clear. Whatever else you may be entitled to, you don’t have shares.”

44. There was interruption on the AVL link, following which the transcript records:

“HIS HONOUR: One thing is clear. As a matter of law, you don’t have shares.

DEBUSE: Yes, but we do have an equitable interest--

HIS HONOUR: Yes, that may be.

DEBUSE: --which is held on trust, the equitable interest being--

HIS HONOUR: That may be, but you are not a shareholder, so you are--

DEBUSE: We are not a--

HIS HONOUR: You may have a bundle of rights, which it is, and you may have an entitlement to require those to take steps to put you in a position of a shareholder on a particular deal, but the one thing you are not is a shareholder.

DEBUSE: Yes, your Honour. I absolutely accept - we rely on the--

HIS HONOUR: Yes, so--

DEBUSE: --equity.”

45. Mr DeBuse then said there were two ways in which he could win if he failed on contract. He referred to contract by estoppel, and to a submission that “this isn’t a case in which we have to say that we are shareholders that come within the Brunninghausen principle.”

46. Relatively shortly thereafter, Mr DeBuse clarified what may have been put in the portion not recorded in the transcript. The primary judge returned to the non-contractual bases on which the plaintiffs were advancing a case and the following exchange ensued:

“HIS HONOUR: … He has your property in his hands and he sold it in breach of a trust. That’s the case?

DEBUSE: That is certainly a straightforward analysis that is available. We have put it a number of ways. I appreciate your Honour would interpret that certainly the simplest way for us.

HIS HONOUR: I want to know each and every other way beyond that way. Tell me now.

DEBUSE: That not only was there a contract which creates in a trust but that he represented circumstances which as a result of our detrimental alliance we acquired a trust interest, by way of a proprietary interest of 8.33% on the same terms. That there was an agreement that as a result of our involvement and the involvement of DRS, which amounted to a joint venture between John, Michael and Morgan, that it would be a sharing in the question in the value of the shares of Diona, and that on selling those shares he breached that joint venture agreement via a UDC type argument.

HIS HONOUR: That may be so, but this was not mentioned, the term ‘joint venture’ didn’t come up in your opening Mr DeBuse you’re going to have to articulate this case not in some rough-edged way. You’re going to have to articulate this with precision.

DEBUSE: I’ll do that. Your Honour I think understands that part of the case that deals with the agreement. Going to my submissions at p 32 of the plaintiffs’ documents, and your Honour should have a folder of the plaintiffs’ documents, and in my submissions we contend that it is an interest held on trust and that John acquired that interest. We then say that he had a fiduciary duty and we go through the obligations of a fiduciary, in particular in relation to disclosure.

HIS HONOUR: Disclosure doesn’t come up. What’s disclosure got to do with it? You’re not claiming non-disclosure. You’re not seeking misleading or deceptive conduct. He took your property and he sold it, and now you want him to account for the value he got for it.

DEBUSE: We certainly do want that.

HIS HONOUR: You keep on saying that, but what else can you say?

DEBUSE: We can say that he also represented that he had - he took up property because if your Honour extends that to the case that we make as a representational case, then he took our property as well, and if your Honour accepts that we are running a case, and I’ve outlined it - I’m just trying to find the joint venture pleading - where I put in the joint venture - it is headed ‘Joint Venture’ at p 19.

HIS HONOUR: Where do you plead this in the statement of claim?

DEBUSE: We plead this in the statement of claim at--

HIS HONOUR: Mr DeBuse, on second thoughts don’t bother. Let’s just get on with the case.”

47. The reference to “UDC” was to United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1; [1985] HCA 49, which holds that fiduciary obligations may exist between persons who have actually embarked on a joint venture although prior to their entering a partnership agreement. The reference to page 19 of the written submissions contained the submission reproduced above that the plaintiffs were suing, in the alternative, upon a joint venture. His Honour seems to have been correct to say that there had been no reference to a joint venture in the oral opening. However, that was express in the plaintiffs’ written opening submissions.

48. In the course of objections, the point flagged in the plaintiffs’ submissions about the mere denial of the oral agreement became live. There was a further issue based on whether the defendant had sufficiently pleaded the release in the Deed. This led to senior counsel for John seeking and obtaining an adjournment for the purposes of amending his defence. Senior counsel for John then engaged with the mere denial of the oral agreement, bearing in mind that extensive evidence had been served of the terms of the oral agreement for which he contended. There was this exchange:

“STUDDY: … Can I just make this point arising out of a point my learned friend has made both in his written submissions and I think this morning. We have never said that we have not relied upon uncertainty. We have not said that the agreement was not concluded, but it is very clear from Mr O’Connor’s affidavit, which was filed and was served last year, that the agreement which he says was concluded, the oral agreement, which is in paras 72 to 74 of his affidavit, and that was that they would get 8.33% of the plant and equipment and that, if everybody worked hard, et cetera, in ten years time he would consider converting that to an 8.33% shareholding in the traditional sense.

HIS HONOUR: The complaint is that you’ve got evidence on of some other allegedly oral agreements on two other occasions and you haven’t pleaded the existence of any such an agreement as discharging any agreement that may have been entered into originally. So the point is taken against you that that evidence is inadmissible because it doesn’t relate to a real issue in the case.”

49. The primary judge granted an adjournment, with a costs order in favour of the plaintiffs. The amended defence articulated the oral agreement, which provided merely that if the plaintiffs contributed $150,000 and contributed to the growth of the business over ten years, then their investment in Diona’s plant and equipment “may” convert to an 8.33% shareholding.

50. The trial resumed on the second day on that basis. John did not take any point about the releases in the Deed; the result was that Morgan’s and Michael’s anticipatory pleadings setting aside the releases based on a allegations of misleading and deceptive conduct and statutory unconscionability did not arise. Each of Morgan, Michael, John and his son David gave evidence and was cross-examined.

51. After three days of evidence, and immediately before an adjournment for the purposes of preparing written submissions, there was the following exchange:

“HIS HONOUR: Okay. Now let’s just deal with another question. Supposing I found that the true position is neither that for which you contend, nor that for which the defendants contend, and that the true position is that the parties entered into a binding agreement under which the plaintiffs were entitled to and paid for an interest, however articulated, equivalent to a financial interest in the underlying tangible assets of the company, which would after a period of ten years, not at Mr O’Connor’s discretion, but would after ten years convert to a full shareholding, then you lose, is that right?

DEBUSE: No. We still say there’s a loss of opportunity. That would be a loss of opportunity case.

HIS HONOUR: No, you have framed your case and have motivated your case entirely on the basis that you have a full 8.33% shareholding. You have not contended for another alternative agreement, and indeed as you point out Mr Studdy hasn’t contended for one, and a provision about non-performance of said agreement, which wouldn’t arise on this footing, was not permitted in the defence according to your objection. You have pointed this out on day one.

DEBUSE: Yes, I understand what you’re saying to me. What I’m saying is that even on the construction of - if your Honour came to the view of the agreement that your Honour is putting to me, it would be correct that your Honour would be finding that we didn’t have the interest contended for. The question the would be is the pleading that we have sufficient to encompass a fiduciary obligation in those circumstances?

HIS HONOUR: No, no.

DEBUSE: If I can only rely on my pleadings.

HIS HONOUR: Even if there was a fiduciary obligation which may have arisen in relation to such a deal, you have articulated your case and articulated it only on the footing of a full shareholding, and you tell me that your damage is what should be attributed to what they got plus, or it should be attributed, that they should have the equivalent pro rata share value paid by Calibre less what they got.

DEBUSE: That is what I’ve said to your Honour.”

52. The day concluded as follows:

“HIS HONOUR: I’m telling you that one thing you need to grapple with when you start, when you make your submissions - and I’m giving you and Mr Studdy the opportunity to consider this, because you’re going to have a day off, you have opened, we have discussed and as I read your pleading you disavow the notion that they had an interest less than a full equity shareholding so that if they did not have an interest in a full equity shareholding, your case fails. So that if I were to believe or find that he bound himself to give them this interest - and no one is arguing that that agreement would be void for vagueness, that if he bound himself to give that kind of interest and that interest would convert to a shareholding in 2016, as at the date that they sold or as at the date that there was a breach of fiduciary duty, if one is so found, even though there may have been a fiduciary duty and it may have been breached, you will lose.

DEBUSE: I appreciate I have to address all circumstances in which I will lose, your Honour.

HIS HONOUR: You follow the import of what I’m saying, Mr DeBuse?

DEBUSE: I do, your Honour and two things I’m trying not to do is make submissions off the cuff now or--

HIS HONOUR: I don’t want you to. I must say, I would have thought that you would be able to, at this stage, tell me why and if it’s a loss of opportunity case, but I’m not even going to press you on that. You’ve been busy cross-examining all day and I’ll let you give thought to that. Mr Studdy, if I were to find that there was a valid and binding agreement as Mr O'Connor articulates it with the caveat or amendment that I did not accept that their entitlement to the conversion after ten years was discretionary, but would follow as part of the interest and I found that there was a fiduciary duty in the light of the existence of that interest to tell about, that is to tell about the Calibre offer, I need to know what the defendant’s position in relation to that is.

STUDDY: I understand, your Honour.

HIS HONOUR: More particularly, whether it is open for the Court so to hold in the way that the case has been run and defended.

STUDDY: We’ll certainly have a lot to say on that, your Honour.

HIS HONOUR: Yes. All right, I’ll adjourn until 10.15 on Monday morning, 9 August.”

53. Pausing there, the judge was indicating that he expected to hear from the parties when they made closing addresses two things:

1. From the plaintiffs, whether their case was confined to the pleaded oral agreement that they were entitled to 8.33% shareholdings in Diona, and in particular, whether it extended to an entitlement to something less than a full shareholding, but which nonetheless was an interest which would convert to a shareholding in 2016, which gave rise to a breach of fiduciary duty when the deal with Calibre was negotiated and executed.

2. From the defendant, whether if the plaintiffs sought to expand that case, whether it could be permitted. That would turn upon the pleaded case, and the way in which the trial had extended beyond the pleaded case.

The fifth day of the trial

54. The hearing resumed on 9 August 2021, and the primary judge confirmed at the outset that he had received the plaintiffs’ outline of closing submissions. Those submissions did not repeat the claim based on a joint venture. They emphasised the all-or-nothing way in which the parties had approached the oral agreement, and stated:

“There is no middle ground and the plaintiffs’ do not contend that anything less than a promise of a shareholding in Diona by [John] is sufficient to satisfy the duty and obligations that they need in addition to establish their claim. On the other hand the plaintiffs submit that a further agreement with respect to a limit on the value of the shares is not pleaded.”

55. This was confirmed in oral submissions. On Monday 9 August 2021, submissions commenced at 10.15am and Mr DeBuse addressed, entirely uninterrupted, until the morning tea adjournment, and then for a period thereafter without interruption. This occupied pages 300-321 of the transcript. In the second half of that period of uninterrupted address, counsel returned to the questions raised by the primary judge on the previous Thursday afternoon:

“We state and from what I’ve briefly seen in the defendant’s submissions, both parties accept that they have forensically chosen to put diametrically opposed cases, and neither of them argue for a potential hybrid agreement. We say there’s an agreement within respect to shareholding and once you find that we say we’re entitled to succeed. They say it was not an agreement in respect of a shareholding and that we had no rights to a shareholding and therefore we fail. That is I think using your Honour’s words the two universes. The Morgan and Michael universe and the John universe.

Now your Honour put a series of propositions to me on Thursday. We fail if what was agreed to be given was not an agreement with respect to the creation of rights against Diona. If your Honour comes to the conclusion that whatever happened it wasn’t intended to be the creation of a shareholding or what law describes as a shareholding then we fail, and we have to accept that. But we say everything, the circumstantial case surrounding those events of 2005 in our submission support our case.”

56. In the words emphasised above, counsel gave what could only be understood as a considered answer to the question posed 4 days earlier. Read in context, it is difficult to see how it was anything other than renouncing any claim other than one based on an entitlement to be 8.33% shareholders.

57. It also cannot be said that the concession was extracted in any way as a result of an ill-considered answer to a question from the Bench. The answer was volunteered, after three days out of court, with ample opportunity for consideration and obtaining instructions. It was also entirely consistent with the closing written submission referred to at [54] above.

58. There may have been good forensic reason for that choice. It must have been plain from the questions posed by the judge, and the response given by Mr Studdy that he would have a lot to say on the potential expansion of the case, that submissions based on that case would give rise to a dispute about the way the case had been run, the potential for the need for a late application to amend, with the possibility that it might be refused, and then, perhaps most significantly of all, the risk of creating a perception that the plaintiffs needed an amendment if they were to succeed. It may be that the plaintiffs had no desire for judgment to be reserved and for the judge to commence composing a judgment immediately after rejecting their amendment. It may be that the plaintiffs thought their best prospect for success was their anticipation (as it turns out, correct) that John’s evidence as to the terms of his agreement would not be accepted, and that in those circumstances, the judge would find in their favour on their pleaded case. Thus it is far from inconceivable that the plaintiffs made an understandable, rational forensic decision not to go down the path raised for their consideration by the trial judge.

59. In any event, the appellants – part of whose appeal extends to an application to withdraw a concession made by experienced counsel – have adduced no evidence that the course taken by counsel was contrary to his instructions.

60. As noted above, Mr DeBuse was permitted to complete his oral submissions without interruption. After some short exchanges concerning relief, the primary judge returned to the pleading and the various agreements alleged. His Honour said:

“HIS HONOUR: When, in para 19(3) and in para 24, you talk of, or the document pleads, an agreed proportion of the capital of Diona and, in the second one, an interest in the defendant’s shareholding in Diona equal to one-twelfth or 8.33% in the capital, you are there talking about a full share in the share capital of Diona?

DEBUSE: Yes.

HIS HONOUR: You are not talking about any other alternative, such as a conceptual interest in the underlying assets of Diona, coupled with any agreement which might require that interest to transmogrify into a full shareholding interest in Diona after ten years?

DEBUSE: No.

HIS HONOUR: So if the conversation in 2005 was an agreement other than an unconditional agreement by Mr O’Connor that your clients would get an 8.33% shareholding, full shareholding in Diona, you lose?

DEBUSE: Yes, but with respect, that’s possibly - if what was agreed was that we had any other right than a property right, immediate and factual right to have shares which had the characteristic of a share, we lose.

HIS HONOUR: No, Mr DeBuse, on Thursday I told you I need precision.

DEBUSE: Your Honour--

HIS HONOUR: You have said you are not contending for any other agreement. Now I’m going to require you to give me precision.

DEBUSE: Your Honour, and I am.

HIS HONOUR: No, you’re not.

DEBUSE: Now—

HIS HONOUR: Listen carefully please.

DEBUSE: Of course.

HIS HONOUR: Listen carefully. This is very important. You are contending only for an agreement for an unconditional immediate share in the full shareholding interest in the share capital of Diona.

DEBUSE: Yes.

HIS HONOUR: If you don’t establish that, you lose.

DEBUSE: Yes.

HIS HONOUR: Now that means, so that you and I understand each other entirely correctly, that if I were to find that there was a binding agreement between Mr O’Connor and your clients that he would give them an interest which would have the financial and proprietary characteristics of giving them an 8.33% interest in the underlying assets of Diona consisting of its plant and equipment, irrespective of whether he gave them an undertaking ten years later to give them a full shareholding, you will lose.

DEBUSE: Yes. Put on those terms, yes, that would not be what we say we were offered.

HIS HONOUR: I understand. But if I was so to find, you’re not embracing that as any possible--

DEBUSE: No.

HIS HONOUR: --fallback position?

DEBUSE: No. Because I do not want your Honour to think that - we accept that we have to win on an interest which is a shareholding, and it can’t be some different conceptual thing that is not a shareholding.

HIS HONOUR: Right. So when you talk about shareholding, let us then be under no illusion. When you mean a shareholding, you mean shares which are shares issued in accordance with the constitution of the company being a full ordinary share being the only class that existed in 2005?

DEBUSE: Exactly, and in our submissions I go through to the point that whilst there was a power, and there’s no doubt there was a power under the articles at the time to alter the class of shares, there was no provision for different shares.

HIS HONOUR: I understand that. Just so that we know, there is no partway midway position. If I don’t find that there was an express oral agreement in late 2005 for the issue to both of Mr Morgan O’Connor and Mr Michael Stack, 8.33% in the then existing share capital of Diona, you will fail even if there was a binding contractual arrangement to some other effect?

DEBUSE: Yes, correct.

HIS HONOUR: Yes?

DEBUSE: Yes.

HIS HONOUR: Right?

DEBUSE: Yes.

HIS HONOUR: No buts, caveats, or otherwise.

DEBUSE: The only thing that I’m just cautious about is I don’t want it to - we can’t say that we are getting anything but share, we don’t say anything but a share, that we had ..(not transcribable)..share of the capital.

HIS HONOUR: Whatever they called it, if Mr O’Connor called it a share, if I don’t believe him and I say that he called it a share, but what he had in mind was an interest or a share in presenting the value of the company’s plant and equipment, you will lose.

DEBUSE: No, we won’t lose in that circumstance.

HIS HONOUR: Yes, you will.

DEBUSE: Because--

HIS HONOUR: That is not a share in the share capital of the entity.

DEBUSE: We will not lose in that circumstance, not because of the reason that your Honour just gave, but because if he had in mind, because we do not care and the real problem with this case is what he had in mind.

HIS HONOUR: Mr DeBuse, if I find that the agreement fell short of him promising you then and there 8.33% of the ordinary share capital of Diona, you lose.

DEBUSE: Yes.

HIS HONOUR: Right.

DEBUSE: But just returning to what your Honour put to me, it is important that this case has been so much more about what is in John O’Connor’s mind--

HIS HONOUR: No, no. Getting to that, it doesn’t matter what was in his mind. Right? This will turn on the objective assessment of what flows from what was said, right?

DEBUSE: And--

HIS HONOUR: But if I don’t believe, if I come to the conclusion that I do not feel a sense of actual persuasion that Mr O’Connor did not restrict it or that your clients’ conversation is such that there was no reference to a share in the underlying equipment and plant of the company, you lose.

DEBUSE: Yes. But can I just say one thing about that? It’s nothing to do with the point that your Honour’s making. But your Honour isn’t just--

HIS HONOUR: You don’t think so.

DEBUSE: No, but your Honour thinks I’m talking about the conversation. As I tried to outline, the conversation has to be understood in context, purpose, what was available, all those things. I know that your Honour probably knows that, but I just wanted--

HIS HONOUR: Mr DeBuse, the reason I’m having this debate with you and discussion with you is so that the transcript will adequately reflect that if you fall short of proving an entitlement and conditional immediate entitlement to a full share in the share capital of the company, but you do prove a valid and binding 45 agreement under which Mr O’Connor would give you a share described as that but incorrectly described as that in the underlying entity, and that you would get a full share after ten years, you will lose.

DEBUSE: Yes.

HIS HONOUR: Right. When you have in your address to me referred to shares, what you connote are full shares, that is fully paid up shares in the ordinary share capital of Diona as it was constituted in or about December of 2005.

DEBUSE: I’m not - yes, but just to make it clear, through a division of John’s shares into - I think it’s 400--

HIS HONOUR: It doesn’t matter. When you talk of shares--

DEBUSE: Yes, it is. Yes. When I talk about shares, the shares that I am talking about are shares which would be registered in the--

HIS HONOUR: Ordinary full paid shares in the share capital of Diona as it was constituted in December of 2005.

DEBUSE: I’ve said yes to that proposition. I’m accepting it.”

61. In each of the four passages emphasised above, counsel confirmed the limited case being advanced by the plaintiffs. If those passages were considered in isolation, they might be open to a reading of an attempt by the judge to confine the plaintiffs’ case. They cannot, however, be read in isolation. It is also important to bear in mind that they followed (a) the judge having sought (and not obtained) clarity and precision as to the nature of the plaintiffs’ case in opening; (b) the judge exposing a possible alternative case on the previous Thursday and (c) the plaintiffs’ written and oral submissions explicitly renouncing any such case and confirming that there was “no middle ground” in terms of the diametrically opposed contentions of the parties as to the terms of the oral agreement, both of which the primary judge ultimately rejected.

62. There followed this exchange:

“HIS HONOUR: Right, okay. Now that follows that if Mr O’Connor and your clients agreed or on a proper construction of what was said, they would get shares in Diona but the rights of those shares would not be pari passu with other shares in the entity. That is, they would not be equivalent rights to the shares then held by the other shareholders including Mr and Mrs O’Connor, you will lose.

DEBUSE: I don’t want to - I’m not entirely sure about that because there may have been a restriction in the mind of John O’Connor on dividends and good will but not - which he would have been in a position to, through his 75% shareholding, to have restricted our rights--

HIS HONOUR: Mr DeBuse, please, in the interests of everyone, could you please pay attention to what I’m asking you, and I would really be grateful if you would then attend to it and answer it.

DEBUSE: Yes. They would have, in 2005 when the agreement was made, have had to have had each and every right that each and every other shareholder had, including a right to either wind up the company and get the capital--

HIS HONOUR: Anything short of a full pari passu entitlement, rights equivalent to the shares then held by Mr O’Connor, anything less than that fails.

DEBUSE: Yes.

HIS HONOUR: Now that means that even if Mr O’Connor was a trustee for your clients of interests which might be reflected as a share less than pari passu with his own, and he was a trustee of those shares in 2015 when the shares were sold to Calibre, you lose.

DEBUSE: Yes, because we would not have in those circumstances a fiduciary obligation which arises out of any entitlement.

HIS HONOUR: Now why would that be, exactly? Explain to me why that would be.

DEBUSE: Because if we don’t have a shareholding which is a pari passu shareholding, then the obligation of Mr O’Connor would have to be judged against whatever right it is that we sought to have advanced, and your Honour can’t do that because we do not have a case for some other rights.

HIS HONOUR: I know. I know. That’s why I’m getting clarity … [his Honour then turned to one of the draft shareholders agreements].”

63. The concluding exchange exposed very squarely the possibility that a fiduciary duty might be owed by John to Morgan and Michael even if the oral agreement fell short of entitling the men to parcels of ordinary shares. It is possible that the judge was making it clear beyond argument that there was a potential case which could give rise to a fiduciary obligation and which fell short of an agreement giving an immediate and legal entitlement to ordinary shares, so that counsel could not be mistaken as to what was being renounced. Once again, counsel explained, consistently with his earlier written and oral submissions that “we do not have a case for some other rights”.

Grounds of appeal

Ground 1 – dismissing the claim on the basis of the concession

“1. His Honour erred in dismissing the appellants’ claim on the ground that the appellants’ claim was entirely based upon establishing an agreement for an immediate grant to the appellants of shares in the company, Diona Pty Limited and where:

(i) His Honour found that the appellants and the respondent did make an agreement in 2005/2006 to grant the appellants a clear and discernible interest in the company Diona, which would crystallise after 10 years in the opportunity to become full shareholders of 8.33% of the issued shares in the company for each appellant (judgment at [135]); and

(ii) His Honour further found that the agreement in fact created powerful considerations in favour of finding the respondent owed a fiduciary duty to disclose to the appellants the approach that had been made by Calibre Pty Limited prior to the respondent entering into an arrangement with the appellants whereby they surrendered any interest they had in the company Diona Pty Limited (judgment at [139]); and

(iii) His Honour ought, in the circumstances, to have made a finding in favour of the appellants that they had established liability against the respondent for the relief claimed in the Statement of Claim.”

64. Ground 1 invites the appeal to be allowed based on the findings and reasoning at [134]-[141]. But that reasoning was unavailable in light of the concessions made on behalf of Morgan and Michael. It also presupposes that what was said by the primary judge amounted to “findings”. For reasons already noted, that is far from evident on a reading of the reasons for judgment as a whole.

64. The role of a court is to decide the dispute presented to it. A concession may relieve the court from resolving that aspect of the dispute, because the effect of a concession is to remove one or more issues from the dispute.

65. It is trite that “[t]he adversarial system of litigation operates upon the basis that a party is generally bound by the conduct of counsel”: Smits v Roach (2006) 227 CLR 423; [2006] HCA 36 at [46] and that “[e]xcept in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so”: University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481 at 483; [1985] HCA 28.

66. A concession as to a question of law does not bind the Court. For example, the parties may be agreed that a statute bears a particular meaning, or one of two meanings; in such a case the Court is not restricted to the meanings suggested by the parties. As was said in Dovuro Pty Ltd v Wilkins (2003) 215 CLR 317; [2003] HCA 51 at [89], parties do not have the power, whether by concession or otherwise, to require a court not to apply the law. A recurring example is the agreement of parties that a court has jurisdiction. It is clear that the parties’ agreement does not relieve the court from determining for itself that its jurisdiction has been enlivened: see Minister for Local Government v Blue Mountains City Council (2018) 97 NSWLR 1132; [2018] NSWCA 133 at [51] and the authorities referred to there.

67. But one question which is very largely left for the parties to formulate is the ambit of their own dispute. It is ordinarily for the plaintiff to identify one or more causes of action on which the plaintiff seeks relief, and it is ordinarily open to the plaintiff, at some later stage, to confine its claim, or indeed to abandon aspects of its claim. In the same way, a defendant may admit aspects of a plaintiff’s case. For example, not uncommonly, a defendant may admit liability to a claim, leaving only a contest as to quantum. In such circumstances, the court ordinarily has no role in determining whether the defendant was indeed liable while the concession is in place.

68. When that occurs, the “real issues” in the proceedings – being the points in issue between the parties to which the obligations in s 56 of the Civil Procedure Act 2005 (NSW) apply – thereby shrink. Indeed, it is open to the plaintiff to renounce its claim altogether, and when the parties are agreed that litigation should be dismissed, then absent some additional requirement (such as leave in the case of a plaintiff under a disability, or in a representative proceeding) the Court will give effect to the concession.

69. On the other hand, if the parties agree that their dispute does extend to a particular issue, then it is ordinarily not for the Court to interfere. As Hayne J put it in Fingleton v The Queen (2005) 227 CLR 166; [2005] HCA 34 at [196]:

“the respondent expressly conceded that the Court could and should entertain the point which is decisive of the appeal. Effect must be given to that concession. It is not a concession about the Court’s jurisdiction. That would not bind the Court. But, after Crampton, there is no question about the Court’s jurisdiction. The respondent not making the submission that the point now raised was given up by the appellant at trial, or cannot now be raised, it is not for this Court to say of its own motion that the appellant is barred from making the argument.”

71. In the present case, one may pass over the less unequivocal statements in the plaintiffs’ opening. By the time of final address, the plaintiffs unequivocally renounced in both their written and oral submissions the possible alternative case formulated the previous Thursday afternoon for their consideration by the primary judge. While that concession remained in place, the primary judge was obliged to proceed on the basis that the plaintiffs’ claim was confined in that way. This Court is likewise bound when determining this appeal by way of rehearing. It was and is not open for the proceedings to be determined contrary to the plaintiffs’/appellants’ concession while that concession remains in place.

72. Ground 1 is not made out.

Ground 2 – the conduct of the hearing

“2. His Honour erred, by insisting during the conduct of the hearing, that:

(i) the appellants unequivocally indicate whether or not they must lose the case if His Honour was to make a finding that the agreement between the appellants and the respondent was not to grant the appellants an immediate 8.33% shareholding in the company for shares pari passu with those held by the other shareholders at 2006 but instead found an agreement to grant an interest in the company that would crystalise in the issue of shares after a period of 10 years; and

(ii) By treating such concessions as were made by counsel for the appellants as a binding concession relieving the Court of the duty of determining the case on any alternative findings of fact; and

(iii) By seeking concessions from counsel for the appellants that their case ought fail if they did not establish an agreement to issue shares fully pari passu with the rights of other shareholders, when such condition or limitation was not necessary to the existence of the duty pleaded by the appellants.”

73. Ground 2 is the reason that much of the earlier exchanges at trial have been reproduced above. A deal of the oral address in this Court on appeal focussed upon the exchanges on the first and fourth days of the trial.

74. We cannot agree that the concessions which matter were “insisted upon” or otherwise elicited in any improper way. It is true that there are passages in the exchanges during the opening of the trial, and at the conclusion of the fourth day, which may suggest that the primary judge was frustrated by what was perceived as the unhelpfulness of some of counsel’s answers. It is difficult to express a concluded view about that, because much may turn on the manner and tone with which the questions were asked. For example, depending on its tone, the statement at the end of the opening “let’s just get on with the case”, may or may not have conveyed a measure of dissatisfaction with the assistance the court was receiving. It is also true that there were some errors in what had been advanced by the judge. In particular, the statement on the second day that there had been no mention of a case based on a joint venture was correct if confined to the oral submissions, but disregarded the references to a joint venture in the written opening submissions. But one of the reasons for raising the point was to ensure that the judge fully understood the case being advanced. It is to be borne in mind that the judge was presented with a court book with more than 4000 pages, that the plaintiffs’ opening submissions were 157 paragraphs over 38 pages and that after a lengthy opening occupying around half of the first day, a case based on a joint venture had not been mentioned. The point of questions such as those posed by the judge was to cut through the mass of material and identify the real issues in the case, as well as to expose any misunderstandings his Honour may have had as to those issues, so that both parties could be heard. That was entirely proper and to be expected in commercial litigation conducted by experienced counsel in the Commercial List of this Court.

75. But all of that may be put to one side. At the conclusion of that fourth day, a Thursday, after the evidence was complete, the judge made it quite plain that he was not asking for an immediate answer, that he appreciated that counsel had been preoccupied by cross-examination, but that he did expect a definitive answer to how the plaintiffs framed their case when the hearing resumed the following Monday. His Honour listened to the entirety of the plaintiffs’ final address, without interruption, for the first half of the Monday. It was during that address that the concessions were volunteered.

76. This ground is not made out, once it is seen that the judge raised the issue squarely at the conclusion of the evidence on the Thursday afternoon, and the concession was volunteered by counsel in written and oral submissions the following Monday.

77. The Court was entitled to be told, unequivocally, whether there was an alternative basis on which the plaintiffs advanced their claim. After a four day adjournment, the Court was told unequivocally that there was not. Both the primary judge and John were entitled to rely on that concession. That is dispositive of this ground.

Ground 3 – withdrawal of the concession

“3. If and to the extent that it be determined that counsel for the appellants at trial conceded that the claim ought be dismissed unless it was established that the agreement between the parties made in 2005/2006 was for the issue of shares to the appellants ranking pari passu with all other shares issued in the company and no other form of interest in the company’s undertaking would enliven the respondent’s fiduciary duty, the appellants ought be given leave to withdraw the concession in circumstances where:

(i) The concession was pressed from counsel for the appellants who sought to qualify such concession;

(ii) The concession was made in final oral address after the evidence had been led, and witnesses cross-examined;

(iii) His Honour proceeded to make factual findings in regard to the alternative findings of fact, different from those contended for by either the apellants or the respondent;

(iv) His Honour proceeded to make determinations as to the matter on the alternative findings of fact, as if no concession had been made.”

78. Ground 3 seeks to withdraw the concession. We do not accept, for the reasons given above, that it was “pressed from counsel”, or that counsel qualified it in any way. We have reproduced extensively the passages relied on by the appellants as qualifications. They do not detract from what was conceded, expressly and repeatedly, in the course of his closing submissions and then in the five passages emphasised above. Senior counsel for the appellants, Dr Birch, emphasised that the concession was made after the conclusion of the evidence. He was right to do so. It is a matter which goes to the exercise of the discretion to grant leave, because it reduces the scope for prejudice to the defendant.

79. The principles were restated after a careful review of authorities, including appellate authorities rejecting a more liberal approach seen in some English decisions, by White J in SLE Worldwide v WGB [2005] NSWSC 816 at [56]-[57]:

“It is legitimate and it may be necessary to consider whether the party making the admission did so deliberately, or whether he did so in error, whether the significance of the admission has changed since it was made, for example by reason of other amendments, (Silver v Dome Resources NL at [12]), or whether new evidence has come to light. In this case there is no suggestion that the admission was made in error. There has been no change to the pleadings which has altered the significance of the admissions. It is not suggested that new evidence has come to light which justifies their withdrawal. Where a party, who is legally advised and does not suffer any disability, deliberately and without mistake, admits liability in whole or in part, and there are no relevant changes of circumstance, prima facie, justice or fairness to both parties does not require that it be allowed to change its mind. That is why admissions made with deliberateness and formality are not ordinarily permitted to be withdrawn.

I therefore start from the position that the admissions deliberately and formally made should not be permitted to be withdrawn, unless sufficient cause is shown why they should be.”

80. White J referred at [64]-[65] to what had been said by McPherson JA in Ridolfiv Rigato Farms Pty Ltd [2001] 2 Qd R 455; [2000] QCA 292 at [27] to the effect that ordinarily an explanation would be required of how an admission came to be made and why it should be withdrawn.

81. In this appeal, the appellants have (understandably) placed great weight upon the alternative basis articulated by the primary judge at [134]-[141]. However, there is no evidence or explanation as to how the concession came to be made. The record establishes that the plaintiffs declined to advance the broader case articulated at the conclusion of the Thursday afternoon both in writing and orally on the following Monday. It is on the cards that explicit advice and instructions were given on the issue. This is exactly the thing which might be expected to have been the subject of a conference on the Thursday afternoon or the Friday. It may very well be that the written submissions were prepared as they were on the basis of express instructions. For the reasons outlined above, this may have been a deliberate forensic choice by the plaintiffs. None of this was the subject of any evidence. It follows that the ordinary position that an explanation should be given by way of evidence as to why an admission should be withdrawn, referred to by McPherson JA and White J, has not been made out.

82. In any event, even if the concession were permitted to have been withdrawn, the appellants would need to have confronted the fact that they were not still involved in Diona ten years after the actual agreement as found by the primary judge in [23] of his reasons, supplemented by what he held at [112] which has been set out at [22] above. Because the potential alternative case was not pursued, the significance of the fact that Michael and Morgan ceased their involvement in Diona in 2014 which was less than 10 years after the oral agreement or agreements between them and John, as found by the primary judge, was not explored. On its face, that was a condition to any entitlement to a shareholding after 10 years and this was the issue which was raised by ground 1 of the notice of contention. Complex issues may have arisen in relation to the reasons why Michael and Morgan had ceased to be involved in Diona by the time of that key date. These matters were also not explored in the reasons for judgment and they did not arise on the pleaded case. This consideration provides a further reason why the concessions should not be permitted to be withdrawn.

83. Leave should not be granted to withdraw the concessions. Ground 3 is not made out.

Ground 4 – conclusion

“4. His Honour ought to have determined that the respondent breached a fiduciary duty owed to the appellants by not informing them of the approaches by Calibre Pty Limited to purchase the shares and/or business of Diona Pty Limited at the time the respondent was negotiating with the appellants to acquire from them any interest they held in Diona Pty Limited.”

84. Ground 4 is conclusionary, and falls with the preceding grounds.

Orders

85. The result is that the appeal should be dismissed. But we would add that this appeal illustrates that ordinarily a court ought not express views on causes of action which have not been raised for determination. Doing so went beyond the function of resolving the controversy between the parties. Doing so was also potentially unfair to the respondent, who in light of the plaintiffs’ concession has had no opportunity to be heard against the findings and reasoning expressed, albeit tentatively, in the section of the judgment titled “Alternative basis”.

86. There being no reason for costs not to follow the event, the appeal should be dismissed with costs.

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Decision last updated: 17 June 2022