Polley v Zollo - [2019] SADC 76

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
POLLEY & ANOR v ZOLLO & ORS
[2019] SADC 76
Judgment of His Honour Judge Slattery
13 June 2019
CONTRACTS
EQUITY - EQUITABLE REMEDIES - EQUITABLE COMPENSATION - BREACH OF FIDUCIARY OBLIGATIONS
The plaintiff, Neil Polley, suffers from paraplegia caused by injuries sustained in a motor vehicle accident and in respect of which he received a substantial damages award. He also suffers from dyslexia. The second plaintiff is the corporate trustee of Mr Polley’s self-managed superannuation fund (SMSF). The first defendant, Mr Zollo, was formerly a licensed builder but that licence was cancelled in 1997. He later became a bankrupt. In 2012, Mr Zollo gave an undertaking to this Court that he would not be involved as a director in any company that was a licenced building contractor. The second defendant was formerly a licenced builder and its builder’s licence was suspended in 2015 because of the activities of Mr Zollo. The third defendant is purportedly the trustee of an SMSF settled for the benefit of Mr Zollo as the only member.
In or about August 2014 Mr Polley and Mr Zollo agreed to form a joint venture for the development of housing and accommodation specifically for persons with a disability. The agreed terms of the joint venture were that Mr Polley would through the second plaintiff as trustee, provide funds from his SMSF and Mr Zollo would provide his expertise as a builder and developer to identify suitable blocks of land in the Adelaide Metropolitan area to purchase and develop as disability housing. Once a block was selected and purchased, Mr Zollo was to arrange, supervise and act as the builder in any construction that took place on the land. To the knowledge of Mr Zollo, Mr Polley had no experience in building matters and so he completely relied upon the skill, expertise and knowledge of Mr Zollo in the use of his own funds that he was to outlay for the purchase of the land and for the completion of the building work. It was a term of the joint venture agreement that once property was developed and sold, the first charge upon the proceeds of sale was the repayment of the capital provided by Mr Polley’s SMSF.
Subsequently, in December 2014, Mr Polley and Mr Zollo agreed for the incorporation of SA Disability Housing Pty Ltd (SADH) as the legal entity or vehicle to proceed with their joint venture agreement. Each of them were shareholders of that company and Mr Polley was the only director. Although Mr Zollo did not inform Mr Polley of his inability to be a director of SADH, Mr Zollo acted thereafter as if he was a director of that company and in all things, Mr Polley deferred to his skill, expertise and experience as a builder in the operation of that company.
On 22 December 2014, SADH purchased property at 22 Whysall Road Greenacres for $345,000, the whole of which was provided by Mr Polley’s SMSF through the second plaintiff. The Whysall Road property was purchased following the recommendation of Mr Zollo and that was accepted by Mr Polley. The improvements on the Whysall Road property were demolished and the property maintained all at the cost of Mr Polley.
In early February 2015, Mr Zollo located property at 72-74 Muller Road Greenacres and advised Mr Polley that it should be purchased by the joint venture. The purchase of that property was settled on 22 May 2015 and Mr Polley, through the second plaintiff as the trustee of his SMSF, paid the whole of the purchase price and stamp duty costs for such purchase.
Prior to the settlement of the Muller Road property, orders were made by the Commissioner for Consumer Affairs in South Australia suspending the builder’s licence of Mr Zollo’s company Built It Pty Ltd following enquiries that had been on foot since 2014 about the involvement of Mr Zollo in that company; these orders were publicly proclaimed.
Mr Zollo failed or refused to inform Mr Polley of the undertakings that he had given to this Court in 2012, of the investigations commenced by the Commissioner during 2014 and then the pronouncement of the Commissioner about Built It Pty Ltd and the suspension of its builder’s licence because of his conduct. Mr Zollo failed or refused to inform Mr Polley of his own incapacity to fulfil his obligations under the joint venture agreement. Notwithstanding, at a time prior to 22 May 2015, Mr Zollo represented to Mr Polley that in consideration of everything that he had done and would do in the joint venture, and to maximise the benefits to it, the Muller Road land should be held in the names of the trustees of their SMSFs, that a portion of the land should be transferred in specie to his own SMSF and that by doing so, Mr Zollo’s entitlement to a 50% of the balance of profit after expenses in respect of that land would be satisfied.
Notwithstanding Mr Zollo’s knowledge that he was prevented from performing any of his obligations under the joint venture agreement, the second plaintiff as the trustee of Mr Polley’s SMSF became the owner of 76/100 parts of the Muller Road land and Mr Zollo’s SMSF trustee became the owner of 24/100 parts of that land. At that time, Mr Polley only understood that the Muller Road land was to be held in the names of the two trustees of separate SMSFs. He did not understand that there was to be an absolute conveyance of a proportionate interest in that land to Mr Zollo’s interest. Mr Polley understood that the Muller Road land was to be developed in accordance with the parties’ joint venture agreement.
At the same time, Mr Zollo identified to Mr Polley a further joint venture opportunity to purchase land at North East Road Hillcrest. Mr Zollo represented to Mr Polley that the vendor was known to him, it was in a position of financial difficulty, it had to sell the property at a very favourable price to the purchaser and it was indebted to Built It Pty Ltd, his building company.
Without informing Mr Polley, Mr Zollo then entered into contracts for the purchase of the Hillcrest land and then, purportedly in fulfillment of his fiduciary duties owed to Mr Polley, agreed to assign the contracts to the joint venture in consideration of the payment of the sum of $130,000 to him. At that time, Mr Zollo was aware that Mr Polley understood that the sum of $130,000 was a part payment for the purchase of the Hillcrest land whereas it was a payment directly to Mr Zollo of a fee for the assignment of the contracts to purchase the Hillcrest land.
Mr Zollo knew, as was the fact, that the vendor of the Hillcrest land was unknown to him, did not owe anything to Mr Zollo or to Built It Pty Ltd and that the purchase price was an arm’s length market value. Mr Zollo also knew that the whole of the purchase price and the sum of $130,000 was paid by the second plaintiff Neil Polley Holdings Pty Ltd as trustee of Mr Polley’s SMSF at a time when Mr Polley did not understand the operation and effect of the assignment agreement. At that time, Mr Zollo was also aware that by earlier entering into the contract to purchase the Hillcrest land, he was usurping an opportunity belonging to the joint venture to his own benefit. He further knew that he was incapable of bringing anything to the joint venture because of undertakings, orders and other pronouncements preventing him from doing so, but he failed or refused to disclose that information to Mr Polley, his co-joint venturer.
The plaintiffs claim against the defendants for orders for restoration to the second plaintiff Neil Polley Holdings Pty Ltd of the sum of $130,000 together with interest thereon and the 24/100 part interest held by AZ Holdings Pty Ltd in the Muller Road land.
Held:
1. The relationship of the joint venturers was fiduciary in nature.
2. Mr Zollo owed to Mr Polley a fiduciary duty of loyalty which included an obligation of good faith and disclosure, an obligation not to be in conflict with his duties as a joint venturer and an obligation not to make a profit from the business of the joint venture except with the consent of his co-joint venturer.
3. The actions of Mr Zollo in procuring for the defendant AZ Holdings Pty Ltd the benefit of 24/100 of the property at Muller Road were misleading and breached the fiduciary duty of loyalty owed to Mr Polley because of Mr Zollo’s failure to inform Mr Polley that he was incapable of performing his obligations under the joint venture due to orders made against him and his company Built It Pty Ltd and the undertakings given to this Court in 2012.
4. The statements made by Mr Zollo to Mr Polley about the most advantageous way to develop the Muller Road land were misleading because they did not disclose that the 24/100 part of that land to be held by AZ Holdings Pty Ltd was an impediment to the development of the land and Mr Zollo was not entitled to any benefit because he was incapable of fulfilling his duties as a joint venturer.
5. The conduct of Mr Zollo in breach of his fiduciary duties of loyalty to Mr Polley in respect of the Muller Road land meant that the registered proprietorship of that land by AZ Holdings Pty Ltd was unconscionable and as a result, the plaintiffs are entitled to a declaration that AZ Holdings Pty Ltd holds its interest in that land under a constructive trust in favour of the second plaintiff.
6. The second plaintiff is entitled to an order for the transfer to it of the benefit held by AZ Holdings Pty Ltd in the Muller Road land irrespective of any improvements on or benefits to that portion of the land made by the defendants since purchase.
7. The defendant AZ Holdings Pty Ltd was at all material times knowingly concerned in the breaches of fiduciary duty committed by Mr Zollo.
8. In obtaining a transfer of the Hillcrest land to Built It Pty Ltd, Mr Zollo breached his fiduciary duty of loyalty owed to Mr Polley under the joint venture.
9. In obtaining an assignment fee in the amount of $130,000 in respect of those contracts for the Hillcrest land, Mr Zollo further breached his duty of loyalty owed to Mr Polley.
10. The breaches of fiduciary duties committed by Mr Zollo have resulted in benefits to him in the amount of $130,000 and a benefit to AZ Holdings Pty Ltd of an interest in the Muller Road land.
11. The plaintiffs are entitled to an order in their favour for repayment by Mr Zollo of the sum of $130,000 and that AZ Holdings Pty Ltd transfer to the second plaintiff the whole of its interest in the Muller Road land.
12. The misleading statements made by Mr Zollo to Mr Polley in respect of the Muller Road land caused Mr Polley to agree for the second plaintiff to enter into the transaction to allow 24/100 of that land to be transferred to AZ Holdings Pty Ltd; in so doing, Mr Polley relied on the statements made to him by Mr Zollo which were made in trade or commerce, within the business of the joint venture.
13. The conduct engaged in by Mr Zollo breached the standards required under s 18 of the Australian Consumer Law (ACL) and consequently the Court is empowered to make orders in favour of the plaintiffs under ss 236 and 243 of the ACL. There is no apportionable claim against the defendants under Part VIA of the Australian Competition and Consumer Act.
14. The defendants pay to the second plaintiff damages for breach of fiduciary duties and under s 236 of the ACL.
15. The Court will hear the parties as to consequential and other orders and in relation to costs and interest.
Superannuation Industry Supervision Act 1993 s 10, s 15, s 62, s 65, s 70B-70E, s 71, s 82, s 84; Australian Consumer Law Chapter 2, s 18, s 20, s 21, s 22, Divisions 3 and 4 of Part 5.2, s 236, s 243; Real Property Act s 69(a), s 71; Disctrict Court Civil Rules 6 DCCR 223; Birks, An Introduction to the Law of Restitution, (1985); Misrepresentation Act 1967 s 7; Competition and Consumer Act Part VIA, s 87CA, CB and CD, referred to.
Briginshaw v Briginshaw (1938) 60 CLR 336; Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170; Macks v Viscariello [2017] SASCFC 172; United Dominions Corporation Ltd v Brian Pty Ltd 60 ALR 741; Meinhard v Salmon (1928) 164 NE 545; United Dominions Corporation v Brian Pty Ltd 60 ALR 741; Battye v Shammall (2005) 91 SASR 315; S P Hywood Pty Ltd v Standard Chartered Bank Ltd (Perry J, 22 December 1992, unreported); Drane v Evangelou & Ors [1978] 1 WLR 455; In re Vandervell’s Trusts (No. 2) [1974] Ch 269; Hospital Products v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64; Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516; [2001] HCA 68; Commissioner of State Revenue (VIC) v Royal Insurance Australia Ltd (1994) 182 CLR 51; [1994] HCA 60; Dyer v Dyer (1788) 2 Cox 92; Napier v Public Trustee (WA) (1980) 32 ALR 153; Gibbons v Wright (1954) 91 CLR 423; Blomley v Ryan (1956) 99 CLR 362; Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 92 ALJR 918, discussed.
Birtchnell v. Equity Trustees, Executors& Agency Co. Ltd (1929) 42 CLR 384; Derry v Peek (1889) 14 AppCas 337; Ward v Hobbs (1878) 4 AppCas 13; Ex Parte Whitaker (1875) LR 10 Ch App 446 ; Re Eastgate; Ex Parte Ward (1905) 1 KB 465; Barclay’s Bank Ltd v Cole [1967] 2 QB 738; Bradford Third Equitable Benefit Building Society v Borders [1941] 2 All ER 205; Water Board v Moustakas (1988) 180 CLR 491; University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481; Banque Commerciale SA en liq v Akhil Holdings Limited (1990) 169 CLR 279; Calverley v Green (1984) 155 CLR 242; Consul Developments Pty Ltd v DPC Estates (1975) 132 CLR 373; Keith Henry & Co Pty Ltd v Stuart, Walker & Co Pty Ltd (1958) 100 CLR 342; Louth v Diprose (1992) 175 CLR 621; Tanwar Enterprises Pty ltd v Cauchi (2003) 217 CLR 315; Gibson Motorsport Merchandise Pty Ltd v Forbes (2006) 149 FCR 569; Warman International Ltd v Dwyer (1995) 182 CLR 544; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; Maguire v Makaronis (1997) 188 CLR 449; Re Dawson (deceased); Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211; McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; Target Holdings Ltd v Redferns [1996] AC 421; Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534; Grimaldi v Chameleon Mining ML (No 2) (2012) 200 FCR 296; Dark Industries Inc v Décor Corporation Pty Ltd (1993) 179 CRL 101, considered.

POLLEY & ANOR v ZOLLO & ORS
[2019] SADC 76
Part One

The first plaintiff, Neil Polley (Mr Polley), is the sole director and shareholder of the second plaintiff. The second plaintiff is the corporate trustee of the Neil Polley Superannuation Fund. Mr Polley is a paraplegic as a result of injuries sustained by him in an accident. He is also dyslexic, has real difficulties reading documents and because of these conditions he is easily confused.[1] The Neil Polley Superannuation Fund is a self-managed superannuation fund (SMSF).
[1] There was no medical evidence put before the Court concerning Mr Polley. These observations were apparent to me from when Mr Polley gave evidence in Court.
Mr Polley became aware of the first defendant, Alex Zollo (Mr Zollo), in about 2012 at a time when Mr Polley was attempting to redevelop property owned by him at Edwardstown. He was introduced to the Mr Zollo by a Mr Savage. There was then some minor involvement of Mr Zollo in the attempt by Mr Polley to obtain approvals for the development of that property which was partly residential and partly industrial. The overall aim of Mr Polley was to develop specialist properties devoted to the disabled. These initial attempts met with no success.
In 2014, he was again introduced to Mr Zollo and over a period of time an agreement that has been generally described as a joint venture arrangement was reached between them. The terms of the joint venture were that Mr Zollo, who represented to Mr Polley that he was a person carrying on business through his companies as a builder and property developer, would enter into a joint venture agreement with the plaintiffs for the development of real estate assets into living accommodation for persons with a disability. Under these arrangements, the plaintiffs would provide the funding and Mr Zollo was to provide the development and building skills, expertise, capacity and knowledge in order to purchase property and then improve it as disability housing.
At the time of the making of this agreement, Mr Polley had no experience in any aspect of the development of property in the manner intended. He entirely relied upon the skill and judgment of Mr Zollo in entering into any arrangement for the purchase and improvement of real property. That reliance arose out of his belief in the representations made to him by Mr Zollo at that time to the effect that the defendants would be able to identify appropriate properties, to attend to all necessary applications, obtaining of approvals, drawing of plans, retaining of necessary trades and all other tasks attendant upon the construction of the improvements on the property which would be directed to a form of disability housing.
The funds intended to be provided by the plaintiffs were held in the member’s account of Neil Polley in the self-managed superannuation fund of which the second plaintiff was the trustee. Some time later, the third defendant was incorporated, purportedly as a trustee of a self-managed superannuation fund of Mr Zollo. I will deal with that matter later in these reasons.
The first property purchased under this arrangement was at 32 Whysall Road Greenacres. It was purchased in the name of SA Disability Housing Pty Ltd (SADH). That company was incorporated on 8 December 2014 and Mr Polley and Mr Zollo were the sole shareholders of that company. Mr Polley was the only director. In reality, Mr Zollo acted also as if he was a director of that company. The business of SADH was operated out of the offices of Mr Zollo at Melbourne Street North Adelaide. It was there that all the business of SADH was transacted.
The Whysall Road property was purchased by SADH for $345,000 and the funds for the purchase and associated costs were all provided by the second plaintiff. At the insistence of Mr Polley, Whysall Road was sold in March 2015 and the proceeds of sale were returned to the second plaintiff.
In February 2015, Mr Zollo informed the plaintiffs that he had identified a property at 72 and 74 Muller Road Greenacres that was suitable for property development. Mr Zollo executed a contract of sale on behalf of SADH for a purchase price of $900,000, all of which was to be provided by the second plaintiff. Mr Zollo advised Mr Polley that the Muller Road property should be held in the superannuation funds of the parties, and there would be an advantage for the parties in retaining a portion of the land to be developed in specie. The plaintiffs accepted this advice and as part of the joint venture business, he proceeded to enter into an agreement for the purchase of that land in accordance with that advice. However, on 6 May 2015, the third defendant was incorporated and on 22 May 2015 an agreement was allegedly executed under which the second plaintiff would be the registered proprietor of four allotments on the Muller Road land and the third defendant would become the registered proprietor of a proposed lot five. Settlement occurred on 22 May 2015 in accordance with that arrangement and the whole of the purchase price for the purchase of each of the five allotments was provided by the second plaintiff. No consideration was provided by the first, second or third defendant, notwithstanding that the third defendant became the registered proprietor of 24/100 of the property.

During the course of the joint venture Mr Zollo identified properties at 417 and 419 North East Road Hillcrest that were for sale. At that time, Mr Zollo owed fiduciary duties of loyalty to the plaintiffs arising out of the existence of their joint venture arrangement. Notwithstanding, Mr Zollo purported to first purchase these properties in the name of the second defendant. He then purported to offer the transaction to the plaintiffs as part of the joint venture on the basis that the property had been purchased at a discount on price by the second defendant from a vendor in financial distress and in circumstances where, in that state of financial distress, the vendor had entered into the transaction as a means of allowing the Mr Zollo to recoup monies owed to him personally by the vendor.
Those representations were untrue. The vendor treated the contract as being at arm’s length; it had no connection to or with Mr Zollo, was not indebted to Mr Zollo and was not in financial distress. The statements made by Mr Zollo to Mr Polley about these properties were untrue, were misleading and were made in an occasion of a breach of fiduciary duty of loyalty which required full disclosure owed to Mr Polley by Mr Zollo under the joint venture.
The plaintiffs relied upon those representations in making the decision to include the Hillcrest property transactions as part of the joint venture arrangement. Then, as part of a further arrangement in relation to the Hillcrest land, Mr Zollo represented to the plaintiffs, who believed those representations and relied upon them, that in light of all of the work that he had done in procuring the Hillcrest land contracts, those contracts should be assigned to the joint venture for valuable consideration to be paid to Mr Zollo. In turn, Mr Zollo arranged for Mr Polley to pay an assignment fee for each contract of $65,000, $130,000 in total. Mr Zollo saw to the preparation of deeds of assignment and in reliance upon the statements of Mr Zollo, the plaintiff paid the assignment fees, but at the time understood this was part of the consideration for the purchase. Mr Zollo profited from his misrepresentations made to Mr Polley by at least the sum of the assignment fees.
Each of the representations made by Mr Zollo to the plaintiffs in relation to the Hillcrest property were untrue: especially that there was no basis for the payment of any assignment fee because no work had been done by Mr Zollo as represented to the plaintiffs.
Subsequently, Mr Zollo through the third defendant has purported to take possession of a portion of the Muller Road property and has failed or refused to account to the plaintiffs in relation to the profit earned upon having taken possession of that portion of the property. The defendants claim a legal and beneficial ownership in a portion of the Muller Road property notwithstanding that the development of that property has not proceeded and none of the defendants have contributed any funds to that property.
The plaintiffs claim that the defendants’ conduct has been misleading, that the representations made by Mr Zollo were misrepresentations entitling the plaintiffs to rescind contracts ab initio, that any property held by any of the defendants was held on a resulting or a constructive trust and that the plaintiffs are entitled, at their election, to set aside the transactions in respect of the Muller Road land and to seek damages.
Result
The plaintiffs are entitled to the grant of each of the remedies which are more specifically described at the end of this judgment.
The Briginshaw Principle
Mr Polley submits that Mr Zollo deceived the plaintiffs as to the value of the Muller Road land and the value of the Hillcrest land, to maximise his return and to make an undisclosed profit at the expense of the joint venture. The plaintiffs also submit that Mr Zollo deceived the plaintiffs by stating that he could provide expertise as a builder and developer when he had given a forced undertaking to the District Court of South Australia not to participate as a director of a company that is a building supervisor or performing work as a building contractor.
Such allegations are serious and any assessment must take into account the consideration required by Briginshaw v Briginshaw.[2]
[2] (1938) 60 CLR 336.
The requirement that in determining whether evidence adduced proves a fact to the civil standard, the trier of fact should take into account the significance and consequences of the finding of fact to be found in accordance with the judgments in Briginshaw.
In Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd,[3] Mason CJ, Brennan, Deane and Gaudron JJ said:
[2] The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary “where so serious a matter as fraud is to be found”. Statements to that effect should not, however, be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct. As Dixon J commented in Briginshaw v Briginshaw:
“The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved …”
There are, however, circumstances in which generalisations about the need for clear and cogent evidence to prove matters of the gravity of fraud or crime are, even when understood as not directed to the standard of proof, likely to be unhelpful and even misleading. In our view, it was so in the present case. (Citations Omitted)
[3] (1992) 67 ALJR 170 at [2].
The most recent pronouncement of the application of the Briginshaw principle is in the decision of the Full Court of the Supreme Court of South Australia in the matter of Macks v Viscariello[4] where the Court said at [531]:-
A function of the Briginshaw considerations is to bring to the forefront of the judge’s thinking the seriousness of the allegation and the gravity of the consequence of it being established. However it always remains incumbent on the judge to determine the issue by reference to the balance of probabilities. The requirement stated in Briginshaw does not change the standard of proof, but merely “reflects the perception that members of the community do not ordinarily engage in serious misconduct”.[5]
[4] [2017] SASCFC 172 at [531].
[5] Director General of Department of Community Services; Re Sophie [2008] NSWCA 250.
The alleged conduct of Mr Zollo is particularly serious and the consequences that may flow from a finding against Mr Zollo are significant. In decising whether the alleged conduct of Mr Zollo has been proved, I do so taking into consideration the innate seriousness of the whole of the issues before me.
Part Two
The evidence of Mr Polley
Mr Polley engaged as his accountant Mr Dario Zollo in about 2010.[6] He is the son of Mr Zollo. Mr Polley became involved with Dario Zollo in connection with the management of his superannuation fund.
[6] T52.6-.12.
Mr Polley is a paraplegic confined to a wheelchair. He is also dyslexic. He was rendered paraplegic as a result of an accident and he received a damages award. He settled a superannuation trust fund (the SMSF) of which the second plaintiff is trustee and paid the damages award into the SMSF. The operation of that SMSF was governed by the terms of the Superannuation Industry Supervision Act (1993). When Mr Zollo was introduced to Mr Polley, Mr Zollo said that he was a builder and a developer.[7] This representation was untrue and for the reasons set out hereunder, I am satisfied that Mr Zollo knew that it was untrue. Mr Polley thinks that Tony Savage, a person whom he met when he was in rehabilitation, was familiar with Mr Zollo. Mr Polley recalls that Mr Savage brought Mr Zollo to his home.[8]
[7] T25.14-53.7.
[8] T53.13.
When he was initially introduced, Mr Zollo did not tell him anything other than he was a general builder. He said that he worked out of Melbourne Street, North Adelaide and traded under the name Built It Pty Ltd as well as Zollo Constructions. Mr Polley recalled these names as being seen upon Mr Zollo’s Melbourne Street office.[9] From time to time Mr Polley attended at those Melbourne Street offices and he recalls that when he did there were always plans, concept plans and other drawings about the place, all related to domestic buildings.[10]
[9] T53.26-.38.
[10] T54.16.
When he was first introduced to Mr Zollo, Mr Polley owned properties at Edwardstown that he was planning on developing into an apartment complex of some three stories.[11] Mr Zollo was introduced as a potential builder and developer who may be able to build that building for him. Mr Polley was given to understand that Mr Zollo and his related companies were builders and developers who could carry out this proposed building work. That project did not proceed because of the particular zoning of that piece of land. From then, Mr Polley lost some contact with Mr Zollo for a year or two.[12]
[11] T54.19.
[12] T54.28-55.1.
The Joint Venture
In 2014, Mr Polley had a conversation with Mr Zollo about starting up a business together.[13] That conversation took place in the boardroom at Mr Zollo’s offices in Melbourne Street North Adelaide and only Mr Zollo and Mr Polley were present.[14] Mr Polley suggested that a joint venture be established and that the joint venture business should be development of properties dedicated to those who suffered disabilities and specially designed and dedicated to their needs.
[13] T56.22.
[14] T56.22-.38.
Upon the presentation to him of Mr Polley’s ideas, Mr Zollo told Mr Polley that there was a way to get such a building projects up and going. He said it would take two years to do. He said that the best way forward was for the both of them to go into a joint venture business arrangement where they would do small projects together so that sufficient building development and commercial experience could be gained for when a large project came along.[15] Mr Polley had no such experience and was relying entirely on what Mr Zollo said to him. Mr Polley told Mr Zollo about his wish to construct disabled housing and Mr Zollo expressed his interest in entering into such a venture. Mr Zollo told Mr Polley that he thought that it was a very good idea and had wanted to involve himself in such a project.[16]
[15] T56.32-38.
[16] T57.8-.11.
In the course of those conversations, Mr Zollo told Mr Polley that he would provide the expertise as a builder and developer and that Mr Polley would provide the finance through his SMSF. That would be the basis of a joint venture between them.[17] At the time, Mr Polley had some money in his own name, he owned property at Edwardstown and he had money in a SMSF in cash.[18] He was getting advice from Dario Zollo about the use of the SMSF and in particular how the money should be held.[19] As far as he was concerned, disability housing was a way for him to apply the monies he held in his SMSF.[20]
[17] T58.20-.22.
[18] T58.2-.13.
[19] T58.17-.20.
[20] T58.38.
Mr Zollo told Mr Polley that he had the expertise to develop disability housing and he continually told Mr Polley about his expertise in the building industry.[21] On those occasions, Mr Zollo told Mr Polley that he would organize all of the construction and supervision of building works. Mr Polley was to take the role of learning how such building developments were to be done and to gain experience along the way.[22] Mr Polley expressed a hope to learn project management.
[21] T59.16-.17.
[22] T59.25-.27.
Mr Zollo proposed that a company be set up between he and Mr Polley which would be used as a vehicle to do small building projects. Mr Zollo proposed to Mr Polley who agreed that they would both be shareholders in the company and the only director would be Mr Polley. At that time, Mr Zollo did not say why he would not become a director. He did say that because it was a disability housing company, it would be better for Mr Polley to be the sole director and the front person for the company.[23] Mr Polley did not know why Mr Zollo used the expression “front person,” nor did he understand why Mr Zollo said that he would not be a director.
[23] T59.33-60.14.
I accept on this evidence and the other evidence before the Court about these conversations that Mr Zollo was intent upon informing Mr Polley of both his expertise and his ability to do development and the building work. I am satisfied that Mr Zollo was attempting to persuade Mr Polley of his skill, expertise and capacity as a builder and developer in order to induce Mr Polley to enter into a joint venture with him. The creation of that joint venture would give Mr Zollo access to the credit in the members benefit account of Mr Polley in his SMSF. This is what occurred. At that time, Mr Zollo was incapable of being a director of a company that was a licenced building contractor and a developer. The evidence satisfies me that in his quite specific and peculiar situation, Mr Polley reasonably relied upon the statements of Mr Zollo. I am satisfied on the evidence that as a result of these discussions and agreements, Mr Polley and Mr Zollo entered into a joint venture agreement to commercialise this idea. That joint venture would be the vehicle going forward for the arrangement. From that time, each of Mr Polly and Mr Zollo assumed a responsibility to act in the exclusive interests of the other person. This is often called a duty of absolute loyalty reflected in the no conflict rule and the no profit rule which I explain below.
In their decision in United Dominions Corporation Ltd v Brian Pty Ltd,[24] Mason, Brennan and Deane JJ said:
The term "joint venture" is not a technical one with a settled common law meaning. As a matter of ordinary language, it connotes an association of persons for the purposes of a particular trading, commercial … or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill.
[24] 60 ALR 741 at 748.
At the same page, their Honours went on to consider whether a joint venture is a fiduciary one. They did not agree with the decision of Cardozo CJ in Meinhard v Salmon[25] that there would need to be a “more confined and precise notion of what constitutes a ‘joint venture’ than that which the term bears as a matter of ordinary language before it could be said by way of general proposition that the relationship between joint venturers is necessarily a fiduciary one.” Whether or not the relationship between joint venturers is fiduciary will depend upon the form which the particular joint venture takes and upon the content of the obligations which the parties to it have undertaken. If the joint venture takes the form of a partnership, the fact that it is confined to one joint undertaking as distinct from being a continuing relationship will not prevent the relationship between the joint venturers from being a fiduciary one. In such a case, the joint venturers will be under fiduciary duties to one another, including fiduciary duties in relation to property the subject of the joint venture, which are the ordinary incidents of the partnership relationship, though those fiduciary duties will be moulded to the character of the particular relationship’.[26]
[25] (1928) 164 NE 545 at 546.
[26] See generally, Birtchnell v. Equity Trustees, Executors& Agency Co. Ltd (1929) 42 CLR 384, at 407-409.
Their Honours then held that whether or not the relationship is a fiduciary one is a question of fact. The facts in the United Dominions decision involved an executed agreement between parties which described their relationship as a joint venture. The purpose of the joint venture was development of real estate under which parties provided funding and separately, skills to the joint venture. There were charges upon the property. One charge given in favour of a joint venturer UDC given by another joint venturer, a company Security Projects Ltd (SPL), contained a collateralisation clause the effect of which was to charge the joint venture land with indebtedness incurred by SPL in other external transactions, with which another joint venturer, Brian Pty Ltd, had nothing whatsoever to do and which reduced the priority of Brian Pty Ltd to seek its recovery from the joint venture property. Their Honours held[27] that this relationship between UDC, Brian Pty Ltd and SPL had a fiduciary character by the time SPL gave the mortgages to UDC which contained the collateralisation clause.
[27] Ibid at 747.
At 748, their Honours held:
In so far as Brian Pty Ltd was concerned, it was a fundamental element of the substratum of the fiduciary relationship that then existed that the subject land, which was being purchased with joint venture funds for joint venture purposes, would be held available to be devoted to any ensuing joint venture or joint ventures and that Brian Pty Ltd, as an accepted joint venturer who had already made financial contribution towards the proposed hotel joint venture, was and would remain able to participate in the net profits in accordance with its share in the relevant joint venture. To transpose the words of Dixon J. in Birtchnell (42 CLR at 407-408) the participants in each of the then proposed joint ventures were "associated for ... a common end" and the relationship between them was "based...upon a mutual confidence" that they would "engage in the particular ... activity or transaction for the joint advantage only".
Their Honours then went on to hold (at 748):
That being so, the proposed participants in each joint venture were under fiduciary obligations to one another in relation to the proposed project at the time when the first of the mortgages was given and accepted. In particular, each participant was under a fiduciary duty to refrain from pursuing, obtaining or retaining for itself or himself any collateral advantage in relation to the proposed project without the knowledge and informed assent of the other participants.
It is a question of fact in each case whether the relationship between joint ventures is necessarily a fiduciary one. I am satisfied that in the whole of the circumstances of this case, that relationship is a fiduciary one having regard to the inequality of knowledge between Mr Polley and Mr Zollo about building matters, that Mr Polley would, through the second plaintiff, be providing the whole of the capital for the purposes of the development of property to be purchased using that capital and because of the complete reliance placed by Mr Polley on Mr Zollo to bring his building skills and expertise to bear upon the business of the joint business between them. I am satisfied that the relationship between the joint venturers was necessarily a fiduciary one and so the usual fiduciary duties were owed as between for as long as the joint venture subsisted. As a result, the second plaintiff was always intrinsically involved in the joint venture business.
At the time and unknown to Mr Polley, Mr Zollo had given an undertaking to this court in 2012 not to act as a director of a licenced building contractor or building developer. That undertaking had been given following prosecution proceedings brought against Mr Zollo by the Commissioner for Consumer Affairs relating to failed building companies associated with Mr Zollo. Unbeknown to Mr Polley, any proposal by Mr Zollo to become a member of a company that would use his expertise as a builder to arrange, supervise and see to the completion of building works was a breach of the undertaking given to the District Court. None of this was disclosed by Mr Zollo to Mr Polley. As a result, Mr Zollo could never enter into any type of an arrangement whereby he would provide his expertise as a “builder” or a “developer” to Mr Polley within any joint venture. Mr Zollo was prevented by his own undertaking from entering into the type of arrangement that he created with Mr Polley. That failure was a breach of the fiduciary of loyalty to make full disclosure owed by him at the time.[28]
[28] Viz Birtchnell at 407-408.

I am satisfied on all the evidence that at the relevant time Mr Zollo knew that he could not enter into such an arrangement and any proposal that he made as to the benefits he could bring to such a company or enterprise, such as a joint venture company, were actionable misrepresentations. I am satisfied that those representations constituted misleading conduct in trade or commerce (of the joint venture) on the part of Mr Zollo from the time of the commencement of the joint venture. I am satisfied on the evidence that if Mr Polley knew or had some understanding of the true position, he would have immediately broken off all negotiation with Mr Zollo and would never have proceeded to negotiate the creation of any joint venture agreement with Mr Zollo.
As a result of these discussions with Mr Zollo and accepting everything that he said, Mr Polley agreed to go into a joint venture arrangement with Mr Zollo on the basis as proposed by him. Upon that agreement, Mr Zollo advised Mr Polley that he should now work his way around Adelaide looking at different places and come up with possible sites whereon a project could be undertaken.[29] In the initial period, that work was done by Mr Polley alone. Although he is in a wheelchair he is able to drive a specially adjusted car. In doing that, he found various properties and he discussed them all with Mr Zollo.[30] Mr Polley was attracted to properties at Grange. Mr Zollo rejected that proposition and said that there must be better locations. Mr Zollo thought that the price for a property at Grange was too high and the land size may not have been sufficient for any such project. In doing so, Mr Zollo was acting as a decision-maker in the joint venture business.
[29] T60.21-.29.
[30] T60.31-61.21.
Whysall Road Property
It was then that Mr Zollo proposed to Mr Polley that a property at 22 Whysall Road Greenacres (the Whysall Road property) should be looked at.[31] Mr Zollo said to Mr Polley that he had been to have a look at the property and he thought that it was a good size and was in the right location. Mr Polley also met with the land agent for the vendors at the site.[32]
[31] T61.26-.27.
[32] T62.6.
Mr Zollo then proceeded to negotiate a contract for the sale and purchase of the property. The whole of the negotiation was done by Mr Zollo absent an involvement of Mr Polley.[33] As directed by Mr Zollo, Mr Polley caused the second plaintiff to pay the deposit for the property of $15,000[34] and then signed the contracts of 24 November 2014.[35] At that time, Mr Polley was unsure whether any company such as SADH had been incorporated and therefore he put the property in his own name.[36] Eventually the contract was put into the name of SADH[37] and there was settlement. Mr Polley provided the whole of the funds to purchase that property in the amount of $362,696.10 from his SMSF members’ benefit account.[38]
[33] T62.13.
[34] T63.5.
[35] T64.12-.14.
[36] T64.23.
[37] T64.26.
[38] T65.1.
Therefore, as matters came to pass, the vehicle to be used to pursue the business of the joint venture was the company SADH. The existence and use of that company did not in any way ameliorate the obligations of them both to the joint venture arrangement. In commercial arrangements, it is often the case that companies are used as joint venture vehicles. The creation and existence of a separate corporate legal entity as the manifestation of the relationship creates a further overlay of obligations and duties owed to the company itself, which in part matches the extant fiduciary duties to which I have earlier made reference.
Mr Zollo then told Mr Polley that he would attend to all of the necessary paperwork for there to be a subdivision of the land and for there to be two units built upon this land.[39] Mr Zollo also said that once the projects were developed, they would be sold, any profits would be split 50/50 and that profit would be put back into SADH as seed capital.[40] It is not clear how both of these things could or should happen. The important issue is the agreement to share net profits on an equal basis.
[39] T65.16-.17.
[40] T65.16-.29.
At that time Mr Zollo gave to Mr Polley some idea about how long it would take to subdivide and Mr Polley thought that he said something like between 14 and 25 weeks.[41] The subdivision never occurred. Nothing happened for the 18 months in which it was held apart from the demolition of the house on the property and then its resale.
[41] T66.20.
The contract for the sale and purchase of the Whysall Road property is to be found in Exhibit P2, tab 1. No mortgage was registered over the property and SADH was left with an unencumbered freehold title.[42] I have earlier referred to the operation of the Superannuation Industry Supervision Act (1993) (SIS Act) upon the SMSF of Mr Polley. No thought seems to have been given to the operation of this Act. Although it is apparent that SADH is a related entity and that this transaction is prohibited under s 15 SIS Act, no submissions were put to me on the operation of the SIS Act.
[42] See Exhibit P2, tab 2.
Mr Geoff Blackmore
Mr Geoff Blackmore was a financial advisor to Mr Polley. Mr Polley and Mr Zollo attended a meeting at Mr Blackmore’s office on 17 February 2015. Mr Blackmore produced a set of minutes of that meeting through Ms Shirley Wiseman who was an employee.[43]
[43] Exhibit P2, tab 3.
Mr Polley recalled a meeting with Mr Blackmore at a Melbourne Street office. He does not recall which office. Mr Blackmore’s address at the time was Level 3 117 King William Street Adelaide SA 5000. [44] I will discuss this meeting below.
[44] T67.10-.33.
Mr Peter Balnaves
Mr Polley said that he cannot recall the exact date he first met with Mr Peter Balnaves who was introduced to him as an accountant by Mr Zollo. It was Mr Zollo who recommended that Peter Balnaves be used as an accountant for SADH. Mr Zollo did not say whether he had any relationship with Mr Balnaves, only that he knew him and that he made an introduction of Mr Polley to Mr Balnaves. Mr Zollo failed or otherwise neglected to inform Mr Polley of the “chequered” history of Mr Balnaves and the fact that he had been gaoled for offences of dishonesty. Mr Balnaves was wholly inappropriate for this task because of his past criminality that implicitly at least was known by Mr Zollo. There is a further overlay of issues here: Mr Zollo failed to fully disclose to Mr Polley that Mr Balnaves was quite unsuited to the role and was very much “in the camp” of Mr Zollo. The appointment of Mr Balnaves drew Mr Polley even more deeply into the control and influence Mr Zollo was exercising over him. Mr Balnaves was a convicted criminal and was incapable of providing professional advice to the joint venture as would be expected of any such advisor. Mr Polley did not know any of those matters at the time he dealt with Mr Zollo and Mr Balnaves.[45]
[45] T66.6-.23.
I referred earlier to the meeting with Mr Blackmore on 17 February 2015, Mr Polley recalls that Shirley Wiseman was present and took minutes of the meeting. There were four people present: Mr Zollo, Mr Polley, Mr Blackmore and Ms Shirley Wiseman. Subsequently, Mr Blackmore sent to both Mr Polley and Mr Zollo a letter setting out the key points discussed and agreed upon at the meeting of SADH. The first was that the company accountant would be Balnaves. The second was that the current project at Whysall Road Greenacres purchased on 24 November 2014, would be finalized prior to commencing another development. This was because of the potential for there to be a limit of funds that Mr Polley could provide through the second plaintiff from his SMSF. The third was that it was agreed that the Whysall Road project would be sold as a house and land package with the prospective buyer taking on the financial burden of the construction. This meant that as vendor, it would be necessary to prepare the property as a house and land package and do all things necessary for that to occur. As the construction burden would be carried by the purchaser, SADH would not carry the risk of the development any greater than the value of the broadacre land.
The fourth point agreed was that Mr Polley through the second plaintiff would provide 100% of the finance interest free on the assumption that the project was concluded quickly. Mr Polley was using funds procured from his SMSF. It is unclear to me how it is that Polley had been able to obtain those funds from his SMSF. The evidence was that Mr Polley had not reached an age of retirement or had any entitlement as contemplated under the SIS Act and regulations to call upon the trustee of the SMSF to provide funds personally to him. Mr Blackmore was his financial advisor but he was not called to give evidence.
I am satisfied that it was not possible for Mr Polley to make an agreement to provide 100% of the finance interest free. It was incumbent upon him to ensure that his SMSF generated an income from its capital assets. It was possible for Mr Polley to agree to provide 100% of the finance interest free as long as there was a sufficient prospect of a return at or above the prevailing interest rates applicable to an investment of that amount with a commercial bank. He could not contravene the related party prohibitions set out in the SIS Act.
The fifth item reads as follows:
5. Alex Zollo will provide all his time and expertise free (on the proviso that the project is sold as a house and land package).
On the evidence and I find, Mr Zollo did not have any expertise to lend to the project. He had given an undertaking not to act as the director of a company that was a licenced building contractor. He was not permitted, by his own undertaking, to purport to lend his expertise to SADH in the way that was understood by Mr Polley. He was under an obligation as a fiduciary from the outset to inform Mr Polley of the restrictions upon him but he failed to do so; that failure was a breach of his fiduciary duties.
The sixth item says that Mr Zollo will liaise with Balnaves to have SADH licenced as a builder with the appropriate authority. For the same reasons as for paragraph five, Mr Zollo could never be involved in any attempt to have SADH licensed as a builder with an appropriate authority. His personal builder’s licence had been earlier terminated for misconduct. Now the same position pertained with companies with which he sought to be involved. In his evidence, which I will consider later in these reasons, Mr Zollo denied that he had made any such undertaking or had agreed to be the liaison as suggested in the minutes. I reject Mr Zollo’s evidence.
Paragraph seven of the document records that the first discernment of funds from SADH will be to compensate Mr Polley for all of the funds forwarded on behalf of SADH prior to any payment to either party as a profit. The repayment of Mr Polley’s capital from the funds belonging to SADH would be the first call on the sale proceeds of the property. There were then two further points agreed. The first related to the commissions on sales of any property that were required to be sold. The second read as follows:
2. If the sale timeframe is prolonged a further meeting will need to be conducted to determine if the company is to move to a build stage and if so who is to build?
a) This raises many issues: security of Neil’s money;
b) Alex’s extra involvement in overseeing the construction.
Phase 2, a future structure for consideration, see below **??
At the bottom of the page is the following entry:
The two SMSFs are in existence the _____ indicate potential future structures who could possibly contract SA Disability Homes Pty Ltd to construct/develop sites whilst being owned by your existing SMSFs. This strategy is just a suggestion and would need to be ratified by your respective accountants.
A first difficulty with those two matters is that it cannot sit with the evidence given by Mr Zollo about the licencing of SADH. Of greater importance is that in the second of the further considerations, there is mention of the extra involvement of Mr Zollo in overseeing the construction. For reasons already explained, that was impossible. Mr Zollo had given undertakings to the District Court which meant that he could not carry out that task because he, in effect, would be acting as a director of SADH. The only agencies through which that company could operate was Mr Polley and Mr Zollo. It was the same as an incorporated partnership. Mr Zollo was not an employee and this work that he did and was intended to do had all of the hallmarks of a role as a director. It follows that this agreement fails at a number of levels. Mr Zollo could never perform his side of the bargain. The agreement was procured through the misleading conduct and misrepresentation of Mr Zollo in leading Mr Polley to believe that he could carry out the tasks that are recorded on the letter from Blackmore.[46] The failure of Mr Zollo to inform Mr Polley of this was a further breach of his fiduciary duties of loyalty requiring Mr Zollo to act in good faith and to make full disclosure.
[46] Exhibit P2, tab 3, p 18.
Mr Polley gave evidence of the meeting. He is not sure how long the meeting lasted for and he thinks that it was about an hour. He can recall the items on the page being discussed. He has trouble reading documents such as this because of his dyslexia but he can read simple sentences. In relation to item one he was told nothing about the criminal history of Mr Balnaves. He was acting upon the assurances given by Mr Zollo about the substance (and so the skill and expertise) of Mr Balnaves and those representations were untrue. In relation to the timing of the Whysall Road project, it was Mr Geoff Blackmore who said that this has to be done in a reasonable time so that there was a quick return of the funds to the self-managed super fund. Mr Polley recalls that there was a discussion about the types of house that they would build so that they could be sold either to any general purchaser or for a person with a disability. Mr Zollo said to the meeting that there would be a profit from the project and that profit would need to be put back into the company as working capital.[47]
[47] T70.11-72.30.
Mr Polley can recall that all the discussions were open-ended about who was going to do building work[48] and by that time, in February 2015, he had never done any building work himself.[49] The plan which was very loose was that plans would be drawn up and the project would be offered to real estate agents to sell as a house and land package.[50] This was the idea of Mr Zollo. He was the person who was explaining to Geoff Blackmore how it was all going to work.[51] From the way that Mr Zollo was speaking, Mr Polley said that he was led to believe that SADH was going to build upon the property. On that topic, there was never any discussion about who the builder was going to be and Mr Polley said that the understanding he obtained from the meeting through everything that was being said by Mr Zollo was that Mr Zollo would be the builder using SADH as the licenced builder.[52] Mr Zollo said to the meeting that SADH would build the property because it would get a builder’s licence through an application it was about to make for a licence.[53]This is consistent with the earlier evidence and is a further event of failure by Mr Zollo to make full disclosure to Mr Polley and to act with loyalty and so in good faith towards his co-joint venturer. None of what Mr Zollo was saying could happen and I am satisfied on the evidence that I discuss below that Mr Zollo was aware of these limitations, but he continued to behave in breach of his fiduciary duties to Mr Polley in a contumelious fashion.
[48] T72.35-36.
[49] T73.7.
[50] T73.15-.18.
[51] T73.20-.30.
[52] T74.4-.16.
[53] T74.21-.23; 74.29.
After the 27 February 2015 meeting, Mr Polley was not sure how his money was to be accounted for and there was a discussion about how interest was going to be paid to his SMSF. Geoff Blackmore emphasized that if the project was going to drag on, it would be necessary for interest to be paid to Mr Polley’s SMSF.[54] Mr Zollo had explained to the meeting that Mr Polley was to provide the money and Mr Zollo was going to take control of the “nuts and bolts” such as paperwork, applications, as well as giving his expertise as a builder which Mr Polley thought was all one and the same thing.[55] It was at that time that the word expertise (in the building sense) came up at the meeting and Mr Zollo explained to Blackmore that he was a builder, that he had been in the building industry for a long time and (implicitly) he would be using all of that expertise in his role with SADH. At some stage, Mr Zollo might have said for precisely how long he had been a builder.[56] At the same time Mr Zollo explained that SADH was going to apply for a licence and that Balnaves was going to help them with that application.[57] From an accounting perspective, Balnaves was going to take care of the paperwork and was to ensure that the tax arrangements were made. There was never any suggestion that Mr Zollo was going to put money into the company; the only person who was going to put in money was Mr Polley.[58] The whole of this conduct of Mr Zollo was also misleading because Mr Zollo could never do these things and this misleading conduct occurred in circumstances where Mr Zollo knew that Mr Polley believed him and so relied upon him. This reliance meant also that Mr Polley did not question Mr Zollo on anything that he said.
[54] T76.15-.19.
[55] T76.32-77.5.
[56] T77.14-.29.
[57] T77.30-78.36.
[58] T78.33-79.16.
Eventually it was agreed that Mr Zollo was to organize for the house on Whysall Road property to be demolished. It was agreed that something was going to be built on it. Mr Zollo was going to organize all of that because that was part of his expertise.[59] From Mr Polley’s point of view, the accounts were to be presented to him and he was to write out cheques from the company’s chequebook. The money for the operation of the company would come from his own personal money. It would move from his personal account to the company account.[60] At the meeting with Blackmore, it was decided that SADH would be buying land, subdividing and building. Blackmore advised Mr Polley, to the knowledge of Mr Zollo, that whatever was to happen, it had to happen reasonably quickly. Something really had to happen within six months in order to restore the superannuation fund.[61]
[59] T79.33-80.13.
[60] T81.20-.28.
[61] T82.15-.31.
In accordance with the terms of the discussion on 17 February 2015,[62] the firm of land agents Smallacombe Real Estate was appointed under a sales agency agreement dated 20 March 2015 and a decision was then made for Whysall Road to be sold. The property was never subdivided. This was despite the fact that Mr Zollo remained in control of the subdivision process.[63] The decision to sell Whysall Road came after a decision not to build homes on the property.[64] This was because Mr Polley was short of funds in his SMSF to purchase any other property and he would need to recoup some of his funding before he could go into any other projects. That decision was made between 17 February and 20 March 2015[65] and it was made because Mr Polley was overstretched and needed to get some money back.[66]
[62] Exhibit P2, tab 3.
[63] T87.30.
[64] T87.33.
[65] T92.23.
[66] T93.4.
Mr Zollo agreed to press on and sell the property at the same time. Until that time, Mr Polley had continued to pay all of the services accounts for Whysall Road such as gas, electricity, council rates and a bill from Modern Day Concepts directed to Mr Zollo’s company Built It Pty Ltd for plans for the development of the property.[67] Some of those accounts were paid directly by Mr Polley, not through SADH but from his own personal account.[68]
[67] T94.5-.23.
[68] T95.18-.25; 96.22-.34.

Mr Polley did not continue to look for further properties after Whysall Road. He left that task to Mr Zollo.[69] He knew that Mr Zollo was in conversation with a number of land agents and on several occasions Mr Zollo brought details of different properties to him for his consideration. He also met with Mr Zollo at his office at least three times per week. They would have lunch together. They would have a lot of discussions all to do with building projects, real estate agents and what they were going to do.[70] He said the whole of the discussions were focused on contracts, purchasing property and development.
[69] T97.3.
[70] T98.30.
One such block was at Churchill Road Kilburn.[71] This block was put to him as a proposal to develop out of profits and it was Mr Zollo’s suggestion that in the development, a section of that property be set as an office for SADH. It did not proceed.
[71] Vol 1, tab 24; T100.1-.7.
Muller Road Greenacres
One property that was brought to him was at 72-74 Muller Road Greenacres. Mr Zollo found this block of land. A purchase contract was prepared by the Smallacombe Real Estate agents Robyn Coles and Con Bastiras. They were the same agents who were also involved through Smallacombe in the sale of the Whysall Road property. Mr Polley recalls going and having a look at the property and then coming back to Mr Zollo’s office and having a contract presented to him.[72] His belief is that the documents were all given to him by Mr Zollo. He cannot recall whether he looked at the Muller Road land in company with Mr Zollo. Mr Zollo told him that the land could be subdivided into five blocks.[73] Following the recommendation of Mr Zollo, he signed the contract for the purchase of the Muller Road land. At this time, Mr Polley was operating under the understanding that the development of this property was to be part of the joint venture.
[72] T101.9-.29.
[73] T101.34-.37.
North East Road Hillcrest
At the same time, he had a discussion with Mr Zollo about a property at 417-419 North East Road Hillcrest. He recalls that he was at Mr Zollo’s office having a meeting with him. Mr Zollo told him that they should go out and have a look at a property.[74] He recalls that later he picked up Mr Zollo from his office and they drove to the Hillcrest property to look at some vacant land. He recalls driving his car onto the property and having a look around and recalls that the property was not exactly square.[75] It was there that Mr Zollo informed him that this place was for sale because the vendor of the property owed him money and as a result, he got the property at a very good price. Mr Zollo informed him that if the joint venture purchased the property, it would mean that Mr Zollo would be able to clear the debt owed to him by the vendor selling it at a reduced price.[76] Mr Zollo said that the land was to be part of the joint venture.[77] When they were at this meeting at the site and Mr Zollo said that it would be a good value piece of land, Mr Polley believed him. He relied upon the fact that Mr Zollo was settling his debt with the vendor meant that the property could be bought at an advantageous and reduced price. He thought that he was helping Mr Zollo in purchasing the land. He relied upon the fact that Mr Zollo said that he had been doing all of the running around, that he had made a very advantageous deal with the vendor and the property would bring them something to build on. Therefore, he relied entirely on Mr Zollo as to his estimates on value and as a result of that reliance he did not get his own valuation.[78] He also thought that as the land was on a main road it had a different value than if it had been back off the main road and he was told that it was the only available block on that main road from Collinswood to Tea Tree Gully.[79] He understood and accepted that Mr Zollo was experienced in the valuation of land, he having been involved in building and development for over 30 years.[80] Irrespective, those arrangements formed part of the joint venture business. As such, the fiduciary duties of loyalty owed by Mr Zollo to Mr Polley included that he was not permitted to make a profit from the transaction, he could not place himself in a position of conflict and he was obliged to make full disclosure and act in good faith ass part of his duty of loyalty.
[74] T106.6-.9.
[75] T103.4-.10.
[76] T103.12-.13.
[77] T103.23.
[78] T103.31-104.12.
[79] T104.17-.22.
[80] T104.28.
At around the same time, Mr Polley signed a contract for the purchase of the Muller Road land for $900,000 following the advice of Mr Zollo. This was an increase from $850,000.[81] It was intended that SADH be the purchaser of that property; he paid the $10,000 deposit.[82] There are a number of issues that are pertinent. This contract was signed in reliance upon the continuing effect of the representations made by Mr Zollo and his misleading conduct to Mr Polley and so the second plaintiff about what he could bring to the joint venture which in truth was nothing of any value. Mr Zollo was obliged to inform Mr Polley of this and he failed in this obligation. The execution of the Muller Road contract of purchase in those circumstances was affected by the continuing conduct of Mr Zollo arising from his misleading conduct and his representations upon which Mr Polley continued to rely. This ongoing effect led to Mr Polley permitting SADH to execute the Muller Road contract. That contract could not have been settled without the injection by Mr Polley through the second plaintiff of sufficient capital. I am satisfied that he would not have done so absent his continuing reliance upon the representations and misleading conduct of Mr Zollo.
[81] T107.6-.9.
[82] T107.21-.22.
While all of this was happening, the arrangements for the purchase of the Hillcrest land were also made. At that time, Mr Polley did not know that Mr Zollo was going to first buy the land in his own name. He thought that SADH was buying the land and Mr Zollo was merely acting on his behalf.[83]
[83] T108.29-.30.
At around this time, there was a meeting at 201 O’Connell Street North Adelaide which was Balnaves’ office.[84] Present at the meeting were Mr Polley, Mr Zollo and Balnaves. The minutes disclose that the company SADH resolved to apply for a builder’s licence and Mr Zollo was to complete the application. In his evidence Mr Zollo denied that this was decided. I reject Mr Zollo’s denial and I think that his evidence on that topic is untrue. The minutes record an agreement that there was also to be financial statements for SADH to be completed by Balnaves which included an asset and liability statement and balance sheet. Balnaves advised the meeting that the financial statements would need to record a net capital of $100,000 in order to get a builder’s licence. The minutes then record and Mr Polley agrees that he authorized the company to use his funds to support the balance sheet.[85] Notwithstanding that they were prepared by Balnaves, I consider that these minutes appear to accurately reflect the substance of the discussions at the meeting.
[84] Exhibit P2, tab 7.
[85] T109.9-110.8.
After that meeting, Mr Polley first saw an addendum to the contract dated 16 February 2015 between Tynest Pty Ltd, the vendor of the Hillcrest land, and Built It Construction Pty Ltd and or nominee of Melbourne Street North Adelaide. The contract had been made subject to the planning approval of the Port Adelaide Enfield Council. It records that that condition has now been met and the contract became unconditional from 18 March 2015. The settlement date was set for 29 May 2015. Mr Polley said, and I accept, that he was not made familiar with this document before this dispute. He has only seen this document in the course of disclosure.
In relation to the Hillcrest land contract, Mr Polley was made aware that Mr Chris Critchley was the conveyancer and he earlier had been retained to do the conveyancing work on behalf of SADH. He had become known to Mr Polley for a few months before they bought the Whysall Road land.[86] At about that time, in or around February 2015, Mr Zollo approached Mr Polley and told him that he had to go and see Mr Critchley and give him a deposit for the blocks at Hillcrest. He said that he needed $65,000 for each block.[87] Relying entirely on what Mr Zollo said to him, Mr Polley gave him two cheques for $65,000 each. At that time, Mr Polley did not know or have any understanding that the money that he was paying in the two cheques for $65,000 (in total $130,000) was, actually, to be paid directly to Mr Zollo as part of the transaction for the Hillcrest land.[88] He understood from what Mr Zollo had told him that the $130,000 was to be paid by the second plaintiff towards the purchase price of the contract that had been introduced to him by Mr Zollo for the Hillcrest land. He believed what he was told and he said completely relied upon Mr Zollo.[89] At that time he had no idea of the problems that Mr Zollo was having with the Commissioner for Consumer Affairs about his own builder’s licence (which had been cancelled) or of the licence of Built It Pty Ltd.[90] It was only when he spoke to his friend David Ellison many months later that he first became aware of the enforcement action against Mr Zollo.[91] If he had known of Mr Zollo’s misleading conduct, he would never have gone into business with Mr Zollo in November 2014, especially if he knew that Mr Zollo was subject to disciplinary action.[92] If he was fully informed about the fact that Mr Zollo was incapable of bringing anything at all to the joint venture, it would never have proceeded.
[86] T110.35.
[87] T112.20-.21.
[88] T112.30.
[89] T112.30.
[90] T112.30-113.9.
[91] T113.22.
[92] T113.26-.27.
If Mr Polley had known in November 2014 that Zollo was not entitled to be a director of any building contractor company or to act as a building supervisor, he would never have gone into a joint venture with him.[93] As a result of his reliance upon Mr Zollo, Mr Polley did not check about how the $130,000 was dealt with by Mr Zollo. He signed whatever documents were put in front of him in relation to the Hillcrest property without thinking much about it. All he looked at was the settlement statement and it all balanced out as far as he was concerned.[94] If he thought that the $130,000 or any part of it was going to Mr Zollo, he would want to know what it was for and why he would be giving money directly to Mr Zollo. As far as he was concerned he trusted the process and went along with it.[95] Also, at 25 March 2015, Mr Polley’s attitude to Mr Zollo was that he knew far more than he did, and that Mr Zollo really had a greater say in the company’s affairs. Mr Polley was trying to learn on the job.[96] This was part of the relationship of trust that he had with Mr Zollo and he placed his full confidence in him and believed what Mr Zollo said.
[93] T116.24-.32.
[94] T117.1-.10.
[95] T117.22-.25.
[96] T117.34-118.10.
At that time, Mr Polley received directions from time to time from Mr Zollo about funding to be provided for the activities of SADH. Mr Zollo would tell him that there are particular cheques that have to be drawn; that there are particular properties that had to be attended to; and Mr Zollo would give him instructions and Mr Polley would go and do what he was told.[97] This was because he thought Mr Zollo knew more than him.[98] Also, all of the SADH documents were kept at Zollo’s office and his staff had access to the documents as well as Mr Zollo. He really only went into Mr Zollo’s office when Mr Zollo was present.[99]
[97] T118.17-.18.
[98] T118.25.
[99] T118.33-.35.
Tab 13 of Exhibit P2 is an email from Meg Dickinson of Carrington Conveyers to Alex Zollo dated 9 April 2015. A copy of that was never seen by Mr Polley at the time. He did see a document which was attached to that email which was called a Deed of Assignment of Contract. He was not aware or familiar with the process of assignments of contracts. Until his preparation for this trial, he had no idea what an assignment was and he then had no understanding of the expression “assignor” or “assignee”.[100] The signature block page for the assignment is page 143 of the Exhibit. He identifies Mr Zollo’s signature and his own signature. There was then handwriting beneath his signature as follows: “Neil Robert Douglas Perry”. He does not recognize that handwriting and he didn’t know whether those words were written there before he signed it. He is certain that if those words were written there, he would have picked up the wrong spelling of his name. He says it is therefore very unlikely he would have signed the document which identifies him as “Perry”.[101] He identifies his signature on the Deed of Assignment at page 146 of Exhibit P2. He was the person who wrote the words: “Neil Robert Douglas Polley” beneath his signature.[102] However, he did not understand what he was signing and he did so in reliance upon what he was told to do by Mr Zollo. Mr Polley was dyslexic and suffered a number of deficits that could be observed when he gave evidence. I am satisfied that he did not know what an assignment was; he only understood the payments were for the Hillcrest land purchase and this is why he signed these documents and made these payments.
[100] T127.7-.24.
[101] T121.16-.17.
[102] T122.9
In his own mind, Mr Polley had never agreed to pay anything for an assignment of the contract to the second plaintiff owned by Mr Zollo because he was not aware of this arrangement. He said and I accept that he signed documents as directed by Mr Zollo and on the understanding that the transactions were all for the benefit of the company, SADH.
Mr Polley does not recall where he was when he signed these Deeds of Assignment. It could only have been in one of two places, namely the Melbourne Street office or the conveyancer’s office. But he has no recollection of where the conveyancer’s office was and he has no recollection of where he signed the documents.[103] As he had no idea of the location of the conveyancer’s office, then logically he could only have signed them at Mr Zollo’s office. He does not recall signing them in that place. A very clear inference arises on the evidence that Mr Polley was not made aware by Mr Zollo of the document being signed. Mr Polley said and I accept that on occasion at the Melbourne Street premises, he signed a bundle of documents presented to him by Mr Zollo. He was told generally that these were routine documents and he did not read them. He relied on what Mr Zollo said. He had trouble reading them because of his dyslexia. Stamp duty was paid by him.[104] The stamp duty was in the amount of $2,967.30.[105] He thinks that he must have paid that amount of money.[106]
[103] T122.14-.22.
[104] Exhibit P2 Vol 2, tab 121, p469.
[105] Exhibit P2, tab 14, p 147.
[106] T122.35.
As a result of those transactions, he ran out of money. He was only able to fulfil the requirements to settle the Hillcrest land and the Muller Road land by borrowing money himself. He used a line of credit which was then paid into his SMSF. He then drew all cheques from his SMSF.[107]
[107] T124.21-.25.
The Muller Road property was settled ten days before the Hillcrest property.[108] The Muller Road property was settled in the name of the second plaintiff Neil Polley Holdings Pty Ltd, as the trustee of Mr Polley’s SMSF, and AZ Holdings Pty Ltd (AZ Holdings), which is the corporate trustee of Mr Zollo’s SMSF. Mr Zollo is the sole shareholder and director of that company.[109] The settlement sum was $953,000 and this put Mr Polley into debt. It was then that he had to borrow money to top up the purchase price.[110] Mr Polley said in evidence and I accept that because he was using his money from his SMSF, he wanted a return of at least 4% or 5%. This was stipulated by him at a meeting to discuss this at Balnaves’ offices with he and Mr Zollo present.[111] This was agreed.
[108] Exhibit P2, tab 16, p 153.
[109] T127.30-.32.
[110] T128.16-.20.
[111] T130.12-.15.
In his evidence, Mr Polley identified his signature on a document which is called a Declaration of Trust. [112] He does not know who witnessed his signature. Dario Zollo prepared the document, gave it to him and asked him to sign it.[113] His understanding was that the Muller Road property was to be in the names of both of their superannuation funds so that there could be some tax relief. He did not understand that there would be any separation of interests. He understood that the process would be the same as if SADH was to proprietor of the land but this way there would be tax and other benefits. Mr Polley’s SMSF provided funds and its trustee became registered proprietor of the legal interest in a portion of an asset. The outgoing of cash would be matched by the capital asset of land. The important issue is that the land was bought for redevelopment and the impediment in the way of that purpose is and continued to be a separate several interest of AZ Holdings and not the proprietorship of the Polley trustee.
[112] Exhibit P1, vol 2, tab 89, p 415.
[113] T131.25-.35.
However, that discussion does not address the major reason why this transaction was prohibited. By this arrangement, Mr Polley’s SMSF was providing funds for the purchase of an interest in property for the benefit of a third party which is a breach of the sole purpose requirement under s 62 of the SIS Act. That section requires that the member’s funds in any SMSF may only be employed for the sole purpose of the member’s benefit. This whole transaction was a breach of this and a number of other provisions of the SIS Act.
Mr Polley does not recall where that conversation occurred but he does recall only meeting at Balnaves’ office and not at the office of Dario Zollo.[114] He also knew that there was a house property on the Muller Road property. He became aware that there were fences on the property and some work was done to shift the fences. Ultimately, he learned that 24% of the overall title of the Muller Road property was transferred to Mr Zollo’s super fund. He said and I accept that he has never agreed with Mr Zollo that this was to be the outcome of the transaction nor could he do so because of the operation of s 62 SIS Act. The difficulty posed by the transaction is obvious enough. It is a transaction for the sale and purchase of an interest in land which has been settled and new owners established on the relevant certificates of title. I will deal with these matters later in these reasons. I am satisfied that this transaction only came about because of the misleading conduct of Mr Zollo, his breach of fiduciary duty and the difficulties under which Mr Polley was labouring. As well as his reading and comprehension difficulties, Mr Polley completely trusted Mr Zollo and Mr Balnaves. This trust was misplaced, but Mr Zollo knew of it and I am satisfied that Mr Zollo acted in a way to exploit it to his own advantage.
[114] T132.13-.15.
Mr Polley never had an understanding that AZ Holdings was to take a legal and beneficial interest in the Muller Road land.[115] He was never told that that was to be the case, he has no recall about the document and he does not recall who drafted the document or how he came to sign it. His understanding always was that the land was to be purchased by him and not by Mr Zollo and there was later to be a subdivision. His understanding and Mr Zollo’s statements to him were always that the Muller Road property would be a joint venture project as well as the Hillcrest property.[116] For example, there was never any discussion about any particular part of the land being valued at for example $175,000. That discussion never occurred with Mr Zollo or anybody else.[117] It was on that basis that Mr Polley settled and paid for the Muller Road and Hillcrest land. He proceeded to do so relying, as he did, upon everything that was said to him by Mr Zollo.
[115] T135.25-.38.
[116] T136.20-.22.
[117] T137.7.

At [83]-[96], Gageler J discussed the orders that may be made by the Court in the context of a finding of liability of the accessory to the breach of fiduciary duty. Rather than set out each of those paragraphs hereunder, I intend to draw from them the principles discussed by his Honour with the citation references used by his Honour. I will not therefore continuously refer to the content of paragraphs [83]-[96] of his Honour’s judgment. I intend here to set out the principles as discussed by Gageler J, identify separately the different approach of the other majority judges and apply their approach to the assessment of loss.
The relevant principles discussed by Gageler J are as follows:
1The cardinal principle of equity is that the remedy must be fashioned to fit the nature of the case and the particular facts.[322]
[322] Warman International Ltd v Dwyer (1995) 182 CLR 544 at 559; Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at [1].
2Identification of a benefit or gain for which a defendant fiduciary or knowing participant is to be ordered to account is the outcome neither of judicial discretion nor of the determination of a mere factual issue of causation. Identification of the benefit or gain is a matter of judgment informed by equitable principles.[323]
3Equity is not ignorant of questions of causation. What it stresses is that questions of causal nexus in a remedial context must be addressed by reference to the equitable obligation, breach of which is to be vindicated by remedy that is sought.[324]
4The benefit or gain for which a fiduciary or knowing participant is liable to be ordered to account must, as a baseline requirement, have a causal connection to the fiduciary’s breach of equitable obligation. The requisite causal connection exists if the benefit or gain has been obtained by reason of the fiduciary position where the relevant breach is of the conflict rule or of the benefit or gain has been obtained by reason of the fiduciary taking advantage of an opportunity or knowledge derived from the fiduciary position, where the relevant breach is of the profit rule.[325]
5A causal connection between a fiduciary’s breach of fiduciary obligation and a benefit or gain sufficient for the fiduciary or knowing participant to be liable to the equitable remedy of account will exist if the benefit or gain to the fiduciary or knowing participant would not have been obtained but for the breach, in the same way as a causal connection sufficient for the fiduciary to be liable to the equitable remedy of compensation will exist if a loss to the person to whom the fiduciary obligation is owed would not have been sustained but for the breach.[326]
6The causal connection between a fiduciary’s breach of fiduciary obligation and a benefit or gain must be judged using common sense and with the full benefit of hindsight. The inquiry into causation is not to be constrained by normative limitations imported from the common law. To introduce those limitations would risk confusing distinct legal policies underlining distinct bases of legal liability and limiting equity’s capacity to mould equitable relief to the circumstances of the individual case.[327]
7Where there is shown to exist a causal connection between a fiduciary’s breach of fiduciary obligation and a benefit or gain to the fiduciary or knowing participant, the onus shifts to the defendant to establish that it is inequitable to order that the defendant account for the value of the whole of the identified benefit or gain.[328]
8The burden on the defendant is not just evidentiary; it is persuasive. The obligation of the defendant imposed as an incident of the fiduciary relationship itself is to justify the private advantage that has been obtained.[329] The defendant needs to demonstrate, in order to establish that it is inequitable to order an account of the value of the whole of the identified benefit or gain, either that the benefit or gain is attributable in part to one or more other contributing causes by reference to which it is practically just that the benefit or gain be apportioned or that some allowance be made in favour of the defendant.[330]
9The judgment ultimately to be made by the Court from which the order to account is sought is correspondingly not only factual; fundamentally it is evaluative.
10Factors which might bear on the judgment will include the relative extent to which other causes which might include the skill and industry of the defendant can be assessed as having contributed to the benefit or gain that is causally connected to the breach of fiduciary obligation. They will also include whether, and if so to what extent, the defendant’s gain reflects uncompensated loss on the part of the plaintiff. And although the purpose of the remedy is not to punish, consideration of what is just in the context of the equitable obligation to be vindicated by the remedy cannot exclude consideration of the severity of the breach of fiduciary obligation and the extent of the defendant’s own involvement and culpability in it.[331]
11The remedy is not to be transformed into a vehicle for the unjust enrichment of a plaintiff. It is the outcome of that ultimate evaluative judgment and not merely the outcome of the initial inquiry into causation which yields the true measure of the benefit or gain to be reflected in the order.[332]
[323] Warman International Ltd at 559.
[324] Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484 at [44].
[325] Warman International Ltd at 557, 563; Maguire v Makaronis (1997) 188 CLR 449 at 468.
[326] Re Dawson (deceased); Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211 at 215; Maguire at 469-470; McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at [21], [135]; Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484 at [51].
[327] Target Holdings Ltd v Redferns [1996] AC 421 at 438-439; Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534 at 556.
[328] Warman International Ltd at 561-562.
[329] Birtchnell at 398.
[330] Hospital Products Ltd at 109-110; Grimaldi v Chameleon Mining ML (No 2) (2012) 200 FCR 296 at [520]-[531].
[331] Hospital Products at 109 per Mason J; Dark Industries Inc v Décor Corporation Pty Ltd (1993) 179 CRL 101 at 111, 114 per Mason CJ, Deane, Dawson and Toohey JJ at 123 per McHugh J.
[332] Warman International Ltd at 558 citing Hospital Products Ltd at 110.
As I have said, on the question of the causal test for accessorial liability, Gageler J was in the minority. The plurality, Kiefel CJ, Keane and Edelman JJ held that liability to account applies to benefits attributable to the accessory’s conduct in knowingly participating in the breach of fiduciary duty.[333] The plurality said that there was no need to prescribe a test about when it might be inequitable to account for a benefit on the basis that it has no reasonable connection with the wrongdoing.[334] On the approach of the plurality, liability to disgorge profits may be approached according to the facts of the matter, namely by a test of causation, as a matter of equitable discretion or a general exercise of judgment. Each may create their own set of difficulties such as whether or not a test of remoteness would need to be applied and this may be seen to be a different question about whether it is inequitable to grant an account of profit.
[333] Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 92 ALJR 918 at [7].
[334] Ibid at [16].
Thus, although Gageler J focused upon the causal enquiry as I have described (and, to an extent, so did the plurality), this is consistent with what fell from Gibbs J in Consul Developments v DPC Estates Pty Ltd[335] that “a person who knowingly participates in a breach of fiduciary duty is liable to account to the person to whom the duty was owed for any benefit he has received as a result of such participation” (my emphasis). What is clear, in the decision of the plurality in Foresters is that the assessment of the lability of the accessory was to be measured on a very broad palette. In that case, two employees of Lifeplan approached Foresters and offered to them a diversion of Lifeplan’s existing funeral management business. At that time, Lifeplan had an extremely large business which it operated through funeral directors all over Australia. Foresters had a much smaller business operated through a much smaller number of funeral directors. The business consisted of holding contracts that were retail investment contracts to meet the costs of pre-arranged funerals. Funeral directors could sell these to the public in general and they would be funded through Lifeplan or Foresters accordingly.
[335] (1975) 132 CLR 373 at 397.
Foresters agreed to the plan, employed the two offending employees and developed an extremely successful business. In two years, Foresters’ gross trading revenues improved from $1.6 million to $24 million per annum. Lifeplan’s trading revenues declined from $68 million to $45 million over the same period. The Full Court of the Federal Court of Australia held that an account of profits should be formulated in the amount of $6.5 million. This represented the net present value of funeral bond contracts written up over the term of the initial contract between the offending employees and Foresters. This was the formulation favoured by Nettle J in the High Court. The plurality and Gageler J allowed a cross appeal from that assessment. They awarded Lifeplan the entire capital value of the Foresters business, valued at $14.8 million. Although Kiefel CJ, Keane and Edelman JJ and Gageler J took different views in relation to the question of the application of the decision of Gibbs J in Consul Developments, each of them came to the same conclusion in relation to the assessment of the damages amount as being the whole of the value of the business.
Applying that reasoning to this case, the loss suffered by Mr Polley and so the second plaintiff as a result of the breach of fiduciary duties committed by Mr Zollo and so the assessment of damages in equity against the accessory, AZ Holdings, would be for the whole of the net present value of what was obtained as a result of the breaches of fiduciary duty. This in any event is the same as accounting for the benefit received by them as a result of participation in the breaches of fiduciary duty. As a result of the decision of the High Court in Foresters, there is no difference here between the conduct of Mr Zollo and AZ Holdings because they are properly to be seen as one and the same, although the accessory has a separate legal personality. It is a closely held corporation controlled by Mr Zollo; it is said to be the trustee of a SMSF but there is no proof before me of the settlement of the trust for that purpose. If it is the former, the company is the legal and beneficial owner of the asset. If it is the latter, Mr Zollo is the member and the member’s benefit account is reflective of the value of the 24% held by it in trust for Mr Zollo as the owner of the member’s benefit account. The result is the same; it must be disgorged. Thus, it is of no moment here that there may have been improvements made by AZ Holdings Pty Ltd to the 24/100 of the land and it is necessary for AZ Holdings Pty Ltd to disgorge the whole of the benefit it has received from its proprietorship in the legal interest in the Muller Road land.
At the time that the asset was received or when it was recorded in the member’s benefit account, it was burdened with the breach of fiduciary duty and the obligation of the accessory in equity to account to the cestui que trust, Mr Polley. This is because that asset was, by virtue of those breaches and consistent with the principles developed by Mason J (as his Honour then was) in Hospital Products, subject to a remedial constructive trust in favour of Mr Polley and the second plaintiff.
I have earlier mentioned the operation of s 243 of the Act. That section reads as follows:
243 Kinds of orders that may be made
Without limiting section 237(1), 238(1) or 239(1), the orders that a court may make under any of those sections against a person (the respondent) include all or any of the following:
(a)    an order declaring the whole or any part of a contract made between the respondent and a person (the injured person) who suffered, or is likely to suffer, the loss or damage referred to in that section, or of a collateral arrangement relating to such a contract:
(i)to be void; and
(ii)if the court thinks fit—to have been void ab initio or void at all times on and after such date as is specified in the order (which may be a date that is before the date on which the order is made);
(b)    an order:
(i)varying such a contract or arrangement in such manner as is specified in the order; and
(ii)if the court thinks fit—declaring the contract or arrangement to have had effect as so varied on and after such date as is specified in the order (which may be a date that is before the date on which the order is made);
(c)    an order refusing to enforce any or all of the provisions of such a contract or arrangement;
(d)    an order directing the respondent to refund money or return property to the injured person;
(e)    except if the order is to be made under section 239(1)—an order directing the respondent to pay the injured person the amount of the loss or damage;
(f)     an order directing the respondent, at his or her own expense, to repair, or provide parts for, goods that had been supplied by the respondent to the injured person;
(g)    an order directing the respondent, at his or her own expense, to supply specified services to the injured person;
(h)    an order, in relation to an instrument creating or transferring an interest in land, directing the respondent to execute an instrument that:
(i)    varies, or has the effect of varying, the first mentioned instrument; or
(ii)   terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the first mentioned instrument.
These kinds of orders that may be made will follow from a finding of a contravention of Schedule 2 of the ACL; in this instance, conduct engaged in which contravenes s 18 of Chapter 2 of the Act. That section creates no cause of action; those rights are to be found in Division 3 and 4 of Part 5.2 of the Act.
Section 236 of the ACL provides a right to recover damages caused by the contravening conduct. Subdivision C of that Part prescribes other orders that may be sought and s 243 is to be found in that subdivision. The subparagraphs in the section are not necessarily interdependent. However, in the ordinary course, there will generally be some level of interdependence and a case in point is s 243(a)(i) and (ii) and (h). A transfer of an interest in land is usually associated with a form of agreement and orders that may be sought about avoiding such an agreement may be made under s 243(a)(i) and (ii). That is not to say that there will always be such an association between the two things (s 243(a) and (h)) but in commerce generally that is often the case. If that is so, as often as not an agreement would fall with the convergence of what was the decision of the Court.
Under s 243(a)(i) and (ii), a Court has power to declare the whole or part of a contract is void. This is akin to notions of rescission of a contract. Contracts may be rescinded ab initio where they are created in circumstances of reliance by one party upon an actionable misrepresentation by the other. At common law, rescission was not permitted for an innocent misrepresentation generally. There are exceptions which are not relevant here. In South Australia, under the operation of s 7 of the Misrepresentation Act 1967, rescission is available for innocent misrepresentation. Rescission is also available for fraudulent misrepresentation. This includes situations where Mr Zollo as the representor lacked belief in the truth of the representation or made it recklessly, not carelessly, not caring whether it was true or false.[336] There is an overlap here and the question usually becomes whether Mr Zollo actually believed the statements he made in and about the transfer to AZ Holdings of a portion of the Muller Road land were true. I have already found that Mr Zollo did not and could not have had any such belief.
[336] Derry v Peek (1889) 14 AppCas 337.
I would consequently make an order for a declaration that the contract surrounding the pronouncement of the interest of AZ Holdings in the Muller Road land to be void ab initio. None of the bars to rescission have any application and AZ Holdings is in a position to restore the land to Mr Polley or the second plaintiff. The operative effect of s 243(h) is a little unclear because of the limitation of the power in this case to terminating the effect of the instrument transferring the interest in the Muller Road land to AZ Holdings. The instrument in question has perfected the legal interest by registration. It would be necessary to make orders for the reversal of that process. Logically, in this particular instance, an order under s 243(h) ACL would be ancillary to an order under s 243(a)(ii) ACL. That of course is not to say that this is a universal approach.
As I have made findings and will make orders under the ACL, I am duty bound to consider the application of the apportionment provision (Competition and Consumer Act Part VIA, s 87CA, CB and CD). I have done so but because separate orders are made against each of the tortfeasor defendants, it is not necessary that I consider that matter further. I do not consider that the claim for damages under s 236 ACL arises as a result of the wrongful conduct of concurrent wrongdoers for Part VIA of the Competition and Consumer Act.
Orders
I make the following orders.
1Mr Zollo pay to the second plaintiff the sum of $130,000.
2A declaration that the defendants procured the transfer to AZ Holdings of an interest in 24/100^th on the whole of the land comprised in Certificate of Title Register Book Volume 6433 Folio 472 (the Muller Road land) as a result of the reliance by the plaintiffs upon the misleading conduct of the defendants in trade or commerce or alternatively as a result of the breaches of fiduciary duty committed by Mr Zollo.
3A declaration that the defendant AZ Holdings holds 24/100^th of the Muller Road land on a constructive trust for the second plaintiff.
4An order under s 243(a)(ii) ACL declaring that the agreement for the transfer to AZ Holdings of 24/100 of the Muller Road land is void ab initio.
5An order that AZ Holdings Pty Ltd forthwith do all things necessary and appropriate and execute all such documents as are necessary to bring about the transfer of the interest that it legally owns in the 24/100^th of the Muller Road land to the second plaintiff for no consideration and free from any costs or expense to the plaintiffs associated with such transfer.
6Mr Zollo pay to the second plaintiff interest on the sum of $130,000 calculated from 24 March 2015; the Court will hear the plaintiffs further on the appropriate rate of interest.
7Damages in favour of the first plaintiff Mr Polley for breach of fiduciary duties to be assessed or agreed.
8Damages under s 236 of the ACL to be assessed or agreed.
9The defendants forthwith account for the whole of the benefits received by them as a result of the third defendant being registered as the proprietor of 24/100^th of the Muller Road land and an order for payment to the second plaintiff of the benefits received upon taking such an account.
I will hear the parties as to consequential orders and costs.