Porter v Mulcahy & Co Accounting Services Pty Ltd (No 6)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

COMMERCIAL LIST

S ECI 2019 02810

TIMOTHY NORMAN PORTER & ANOR (according to the Schedule)	Plaintiffs
v
MULCAHY & CO ACCOUNTING SERVICES PTY LTD (ACN 105 360 325) & ORS (according to the Schedule)	Defendants

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JUDGE:	DELANY J
WHERE HELD:	Melbourne
DATE OF HEARING:	5 March 2024
DATE OF JUDGMENT:	10 April 2024
CASE MAY BE CITED AS:	Porter & Anor v Mulcahy & Co Accounting Services Pty Ltd & Ors (No 6)
MEDIUM NEUTRAL CITATION:	[2024] VSC 171

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EQUITY — Remedies — Split election — Breach of fiduciary duties and knowing assistance — Multiple wrongdoers — Whether recovery of account of profits and equitable compensation equates to double recovery — Distinct wrongs — Remedies are cumulative — No double recovery — Xiao v BCEG International (Australia) Pty Ltd (2023) 111 NSWLR 132, applied; Personal Representatives of Tang Man Sit v Capacious Investments Ltd [1996] 1 AC 514, referred to; Ramzan v Brookwide Ltd [2012] 1 All ER 903, applied; Michael Wilson v Nicholls (2011) 244 CLR 427, applied.

PRACTICE AND PROCEDURE — Double recovery — Efficient to determine the issue at trial — ss 7, 8 and 25 of Civil Procedure Act 2010 (Vic).

PRACTICE AND PROCEDURE — Interest — Interest on equitable compensation — Not appropriate to dissect the award in order to calculate interest — AHRKalimpa Pty Ltd v Schmidt (No 4) [2019] VSC 246, applied; s 60(1) of Supreme Court Act 1986 (Vic).

PRACTICE AND PROCEDURE — Interest — Interest on an account of profits — Rate of interest — Alternative rates contended for — 10% simple interest appropriate — Whether interest should be awarded on total amount determined — Contention monetary sums attributable to specific items should be excluded from interest calculation — Factual foundation for exclusion of such items not established — Interest awarded on full amount of profits previously determined — Bullhead Pty Ltd v Brickmakers Place Pty Ltd (No 2) (2019) 58 VR 129; Talacko v Talacko [2009] VSC 579; Directed Electronics OE Pty Ltd v OE Solutions Pty Ltd (No 9) [2023] FCA 462, applied.

COSTS — Application for indemnity costs — Calderbank offer by plaintiffs to defendants jointly — Offer not capable of individual acceptance by defendants — Causes of action and relief sought not the same for all defendants — Rejection of offer not unreasonable — Application refused — Wieland v Texxcon Pty Ltd (2014) 313 ALR 724; Hazeldene’s Chicken Farm Pty Ltd v Victoria Workcover Authority (No 2) (2005) 13 VR 435, applied.

COSTS — First plaintiff wholly unsuccessful against third defendant — Costs to follow the event.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	P Cawthorn KC with P Caillard	Nevetts Lawyers
For the First and Second Defendants	P Solomon KC with K Anderson	Clyde & Co
For the Third Defendant	L Molesworth	Holding Redlich

TABLE OF CONTENTS

Introduction........................................................................................................................................ 1

Double Recovery................................................................................................................................ 3

The authorities............................................................................................................................... 7
Double Recovery: Consideration.............................................................................................. 10

Interest................................................................................................................................................ 15

The principles.............................................................................................................................. 15
Interest on equitable compensation.......................................................................................... 17
Interest on account of profits..................................................................................................... 19
The submissions.......................................................................................................................... 20
Consideration.............................................................................................................................. 27
Date(s) for calculation of interest.................................................................................... 27
The rate of interest............................................................................................................. 27
Interest on the NAB repayments and the Inventory amounts.................................... 32

Costs: The Calderbank offer.......................................................................................................... 33

The submissions.......................................................................................................................... 33
The principles.............................................................................................................................. 38
The Offer: Consideration........................................................................................................... 40

Interest and Costs relating to claims by Mr Porter.................................................................... 43

Stay...................................................................................................................................................... 45

HIS HONOUR:

Introduction

On 25 January 2024 I published my relief reasons. Following the delivery of those reasons the parties provided a marked up form of order intended to give effect to those reasons, showing areas of disagreement.

The parties agree that orders are appropriately made as follows:

(a) the first and second defendants (the Mulcahy parties) pay the first plaintiff (Mr Porter) the sum of $4,832,445.50 together with interest;

(b) the Mulcahy parties pay the second plaintiff (Mr Conheady) the sum of $4,832,445.50 together with interest;

(c) the third defendant (BFMM) pay Mr Conheady the sum of $11,862,693 together with interest.

The parties disagree about the orders appropriately made concerning interest and costs. They disagree about whether there should be a stay of execution of the orders giving effect to the relief reasons and to these further reasons.

Three substantive issues addressed in oral and written submissions require determination:

(a) alleged double recovery by Mr Conheady;

(b) interest on equitable compensation and on an account of profits; and

(c) the plaintiffs’ application for indemnity costs.

In addition, the draft form of order identifies unresolved issues to which either no or limited submissions were directed concerning interest and costs orders appropriately made relating to claims made by Mr Porter.

In the relief reasons I invited submissions as to arithmetic error. The parties are agreed the reference in paragraph 269 of the relief reasons to $9,795,961 for historical profits derived by BFMM is incorrect and that correction should be made to insert $8,951,569 in lieu of $9,795,961. The figure in paragraph 269 is relevant to the calculation of interest. The agreed correction has now been made and revised relief reasons incorporating that change have been issued (‘the relief reasons’).[1]
[1]Porter & Anor v Mulcahy Co Accounting Services Pty Ltd & Ors (No 5), [2024] VSC 6 (First Revision (8 April 2024): [269]) (‘relief reasons’).

These reasons are to be read in conjunction with the relief reasons and the liability reasons published on 13 September 2021 (first revision 1 February 2022) (the ‘liability reasons’).[2]
[2]Porter & Anor v Mulcahy & Co Accounting Services Pty Ltd & Ors [2021] VSC 572 (First Revision 1 February 2022) (‘liability reasons’).

For the reasons that follow, concerning the substantive contested issues:

(a)No issue of double recovery arises. The remedies the subject of Mr Conheady’s split election are cumulative;
(b)Mr Conheady is entitled to simple interest on equitable compensation in the sum of $4,832,445.50 at the rate of 10% from 30 June 2022 until 5 March 2024, a total of $812,910.01;
(c)Mr Conheady is entitled to simple interest on account of profits (and on legal costs paid prior to 30 June 2022), $11,862,693 at the rate of 10% until 5 March 2024 determined to be in the sum of $3,095,987; and
(d)The refusal by the defendants of the 9 April 2021 Calderbank offer was not unreasonable. The plaintiffs are not entitled to indemnity costs.

Concerning interest and costs issues relating to claims involving Mr Porter I have determined as follows:

(a) the Mulcahy parties are to pay Mr Porter interest on damages in the sum of $4,832,445.50 at the penalty interest rate of 10% from 30 June 2022 until 5 March 2024, a total of $812,910.01;

(b) the Mulcahy parties are to pay Mr Porter’s costs (including any reserved costs) of and incidental to the proceeding but limited to Mr Porter’s claim against them on a standard basis to be taxed in default of agreement;

(c) Mr Porter is to pay BFMM’s separate costs (including any reserved costs) of and incidental to the claim by Mr Porter against it, including as to the existence or otherwise of a fiduciary duty allegedly owed by the Mulcahy parties to Mr Porter on a standard basis.

To be clear, while I have refused the claim by the plaintiffs, including by Mr Conheady for indemnity costs, as is accepted by the Mulcahy parties in the draft order, I will order the Mulcahy parties pay Mr Conheady’s costs (including any reserved costs) of and incidental to the proceeding, but limited to Mr Conheady’s claim against them on a standard basis to be taxed in default of agreement.

I will also order BFMM pay Mr Conheady’s costs (including any reserved costs) of and incidental to the proceeding, but limited to Mr Conheady’s claim against it on a standard basis to be taxed in default of agreement.

I will order a stay of the execution of the orders giving effect to these reasons for a period of 21 days from the date of these reasons.

Double Recovery

The issue of double recovery arises following the notice of election filed by Mr Conheady (‘Notice’).

Paragraph 2 of the Notice is in the following terms:

a. as against the Second Defendant (Mr Mulcahy), Mr Conheady elects to receive damages/equitable compensation in the sum of $4,832,445.50 plus interest. In doing so, he forgoes his entitlement to an account of profit from Mr Mulcahy in the sum of $702,000. Damages/equitable compensation should be awarded against the Mulcahy parties; and
b. as against the Third Defendant (BFMM), Mr Conheady elects to receive an account of profits in the sum of $11,013,138, together with amounts expended on legal fees to 30 June 2022 of $849,555 being a total of $11,862,693 plus interest. In doing so, he forgoes his entitlement to receive equitable compensation from BFMM in the sum of $4,832,445.50.

The Mulcahy parties contend Mr Conheady’s remedies against them and against BFMM are not cumulative. They submit if Mr Conheady were to recover both an account of profits from BFMM as well as damages for equitable compensation against the Mulcahy parties, this would equate to double satisfaction as the recipient of the fiduciary’s wrongdoing, BFMM, is the corporate alter ego of the wrongdoer, Mr Mulcahy. The third party’s liability, that of BFMM, is joint and several.[3] BFMM’s liability is as a substratum of facts directly premised on Mr Mulcahy’s conduct. The Mulcahy parties submit the advantage of the wrongdoing by the fiduciary has accrued to the corporate entity created to secure the profits of the breach of duty.
[3]Referring to Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296, [556] (‘Grimaldi’); Xiao v BCEG International (Australia) Pty Ltd [2023] NSWCA 48; (2023) 111 NSWLR 132, [63]–[64] (‘Xiao’).

The Mulcahy parties further submit:[4]

the plaintiff is not to have double satisfaction where the cause of action is identical in both and so cannot receive the amount claimed more than once.

[4]Referring to BO Morris Ltd v Perrott and Bolton [1945] 1 All ER 567 referred to in Baxter v Obacelo Pty Ltd [2001] HCA 66; (2001) 205 CLR 635 at 661, [62] (Gummow and Hayne JJ).

They submit the calculations to quantify loss for breach of fiduciary duty and for an account of profits are identical. A lower percentage is adopted for equitable compensation and a higher percentage is adopted for an account of profits.

In anticipation of the argument that equitable compensation is loss based and an account of profits is a gain based remedy and as a consequence, no issue of double recovery arises, the Mulcahy parties urge a ‘sense check’. If Mr Conheady had only sued BFMM for an account of profits and succeeded, and if he had enforced judgment for the profits determined, $11,013,138, his loss would already have been satisfied. He could not later have sued for and obtained equitable compensation.

BFMM submits it is necessary to look at the substance of what is recovered. It refers to Ramzan v Brookwide Ltd,[5] where Lady Justice Arden said:[6]

Double recovery means that a claimant receives two awards for the same injury, though these may be in different amounts. In some circumstances the question whether there has been double recovery is a pure question of fact. In other circumstances it is a question of law whether the successful claimant is treated as having received more than that to which he is entitled because an award on one basis excludes the possibility of a cumulative remedy for loss on another basis.

[5][2011] EWCA Civ 985; [2012] 1 All ER 903 (‘Ramzan’).

[6]Ibid 914, [29].

In Ramzan, Lady Justice Arden went on to state ‘when applying the principles of election we should look to the substance of the award and not its form’.[7]
[7]Ibid 925, [67].

BFMM submits because equitable compensation and an account of profits are both equitable remedies, the Court should fashion orders that take account of the relationship between the parties to ensure the relief ordered does not give rise to double recovery. As Gageler J (as his Honour then was) said in Ancient Order of Foresters in Victoria Friendly Society Limited v Lifeplan Australia Friendly Society Limited,[8] ‘[t]he “cardinal principle of equity” is “that the remedy must be fashioned to fit the nature of the case and the particular facts”’.[9] BFMM submits it is appropriate to limit the cumulative relief in favour of Mr Conheady against BFMM and the Mulcahy parties to $11,862,693 plus interest.
[8][2018] HCA 43; (2018) 265 CLR 1.
[9]Ibid 36, [83].

BFMM submits if Mr Conheady had elected to receive equitable compensation from BFMM in the sum of $4,832,445.50 (as permitted as per the relief reasons) he would not also be entitled to receive the same amount of damages from the Mulcahy parties. That is because the entitlement to relief arises in respect of the same loss. The principle of double recovery would operate to limit Mr Conheady’s entitlement to relief to the amount of loss or damage actually assessed.[10] By extension, the mere fact Mr Conheady has elected to receive an account of profits from BFMM giving rise to a greater sum than the loss and damage he sustained should not permit him to also receive damages for loss and damage arising from the same set of facts.
[10]Referring to Baxter v Obacelo Pty Ltd [2001] HCA 66; (2001) 205 CLR 635 at 656, [47].

The Mulcahy parties submit that while the Notice suggests the issue of double recovery will depend on actual execution and that the issue ought be left to enforcement, that is an inefficient approach. A lack of clarity now may lead to unnecessary satellite proceedings that could otherwise be avoided. They submit where final orders are made that:

(a) the Mulcahy parties pay Mr Conheady the sum of $4,832,445.50 and interest of an amount to be determined; and

(b) BFMM pay Mr Conheady the sum of $11,862,693 and interest of an amount to be determined,

the order should record in respect of orders (a) and (b) that Mr Conheady is not entitled to recover any amount in excess of the amount payable pursuant to order (b).

BFMM contends for orders to the same effect.

The additional words proposed by the Mulcahy parties are similar to those adopted by the English Court of Appeal in BO Morris Ltd v Perrott and Bolton[11] and in other cases to which the Mulcahy parties referred.[12]
[11][1945] 1 All ER 567, 570 (‘BO Morris Ltd’).
[12]See Radferry Pty Ltd v Starborne Holdings Pty Ltd [1998] FCA 1689, [32]; King Network Group Pty Ltd v Club of the Clubs Pty Ltd [2008] NSWCA 344; (2008) 69 ACSR 172 at 174, [1].

Mr Conheady opposes the orders sought by the defendants. He submits:

(a) the applications are premature and speculative, and any need for orders only arises when payment has actually been made and the prospect of double recovery might arise;
(b) contrary to the positions advanced by the Defendants, the remedies are cumulative; and
(c) contrary to the positions advanced by the Defendants, the remedy of account of profits is not based on compensation.

The authorities

In Xiao,[13] Gleeson JA, with whom Mitchelmore JA and Griffiths AJA agreed, made the following statements concerning the making of a split election and double recovery:[14]
[13][2023] NSWCA 48; (2023) 111 NSWLR 132.
[14]Ibid 149–150, [68]–[70] and [72]–[74].

68 A plaintiff cannot obtain both equitable compensation and an account of profits from a single defendant because the liability of the defendant founding the availability of relief is the same. As against a single defendant the plaintiff must choose between compensation or an account of profits, recognising that an account of profits is a discretionary remedy.
69 The reasoning in Neilson[15] has no application to a split election against multiple wrongdoers. As against the fiduciary, a plaintiff does not condone the fiduciary’s breach of duty by seeking a gain-based remedy of an account of profits from the knowing recipient (who profited from its own misconduct by the increased value in the property received or income from such property). The liability of the knowing recipient is different in nature and extent to the liability of the fiduciary, including that the knowing recipient does not owe a duty of loyalty to the principal. A gain-based remedy against the knowing recipient is not inconsistent with a compensation remedy against the defaulting fiduciary (who made no profit from the default): Michael Wilson at [106]; Cassaniti at [102].
70 This flexibility in the award of different remedies against different defendants reflects the “cardinal principle of equity” referred to in Warman at 559 “that the remedy must be fashioned to fit the nature of the case and the particular facts”. Given the authority of Michael Wilson, and the point of distinction from Neilson in cases involving multiple defendants whose liability is both personal and independent, Bergin J was correct to conclude in King Network that there was no obstacle to the plaintiff making a split election in that case. It is otherwise unnecessary to address the appellants’ criticisms of the reasoning of Bergin J. The position is now settled by Michael Wilson.
…
72 The appellants say, by reference to the rule or principle of double satisfaction …, that the separate judgments against Mr Xiao and Ms Chen for compensation and against WWM for profits overcompensate BCEG for its loss as a result of the dissipation of moneys from the Varsity Lakes facility. Although this issue does not arise on any of the grounds of appeal or the claims for relief in the amended notice of appeal, I will indicate my views why this submission should be rejected.

73 One difficulty is that no application was made by the appellants in this court for relief by way of an injunction to prevent enforcement of a judgment against any of them where to do so would lead to double recovery: Thompson v Australian Capital Television Pty Ltd.[16] Such a claim would be for equitable relief. An injunction would not be ordered unless either Mr Xiao and/or Ms Chen or WWM had paid so much of the judgment against them which represented the liability of the other under a separate judgment for the same loss, or else if it was established that Mr Xiao and/or Ms Chen or WWM were ready, willing and able to pay so much of the judgment against them which represented the liability of the other under a separate judgment for the same loss. There was no such evidence here.
74 Another difficulty is that the premise of this submission — that the separate judgments are in respect of the same loss — is incorrect. The cumulative remedies do not result in overcompensation to BCEG, as the appellants suggested. BCEG is entitled to cumulative remedies because there are two distinct wrongs. WWM received property of BCEG the subject of the breach of fiduciary duty, and although the liability of the knowing recipient is dependent upon there being a breach of fiduciary duty, and to that extent the two wrongs are linked, the liability of the knowing recipient is for its own wrong, not the wrong committed by the fiduciary. The remedies are cumulative, rather than in the alternative, as the account of profits against WWM represents the gain by WWM from its own misconduct, not loss to BCEG, and as indicated, the account of profits is discretionary.

[15]Neilson v Betts (1871) LR 5 HL 1.

[16][1996] HCA 38; (1996) 186 CLR 574 at 608 (Gummow J).

Xiao involved a finding of breach of fiduciary duty against Xiao and Chen the Australian based directors of BCEG International (Australia) Pty Ltd (‘BCEG’) by diverting funds to West Wyalong Marketplace Pty Ltd (‘WWM’), the knowing recipient of those funds.[17] Equitable compensation was awarded in favour of BCEG against Xiao and Chen, and an account of profits was awarded from WWM.[18] The Court of Appeal held the plaintiff was entitled to make a split election.[19] It held the principle that a plaintiff cannot obtain equitable compensation and an account of profits from a single defendant has no application to multiple wrongdoers whose liabilities differ in nature and extent.[20]
[17][2023] NSWCA 48; (2023) 111 NSWLR 132, [34].
[18]Ibid.
[19]Ibid [68] and [83].
[20]Ibid [68]–[70] and [84].

The statements in Xiao at paragraphs [72]-[74] concerning double satisfaction reproduced above are obiter dicta. In DPP v Patrick Stevedores Holdings Pty Ltd,[21] the Court of Appeal set out the position concerning seriously considered dicta of intermediate appellate courts:[22]

127The decisions of intermediate appellate courts do not have the precedential weight of decisions of the High Court. Whatever may be the full implications of Farah, and its injunction that ‘seriously considered dicta uttered by a majority’ of the High Court should be regarded as binding, there is nothing to suggest that this principle applies to such dicta in the judgments of intermediate appellate courts.
128In our opinion, an intermediate appellate court such as our own, faced with conflicting decisions of other intermediate appellate courts, is not bound to follow any one of those decisions. The position might be different if, post Farah, an intermediate appellate court had said that an earlier decision of that court, or of another intermediate appellate court, was plainly wrong. In such circumstances, this Court might be bound to follow the later decision unless we took the view that the later decision was ‘plainly wrong’. Failing that, this Court is at liberty to state the law as it thinks appropriate.

[21][2012] VSCA 300; (2012) 41 VR 81.

[22]Ibid 109 [127]–[128] (citations omitted).

The analysis in Xiao is comprehensive and persuasive. It is on point. The observations by Gleeson JA concerning double recovery were made in the context of a split election. It is appropriate to proceed by reference to them.

It is important to refer to Personal Representatives of Tang Man Sit v Capacious Investments Ltd,[23] to which Gleeson JA referred in Xiao and upon which the defendants placed reliance. Tang Man Sit involved one wrongdoer, Mr Tang. The Privy Council accepted there is an inconsistency between an account of profits, whereby the plaintiff takes the money the defendant received from the use he made of the property; in that case 16 units; and an award of damages, representing the financial return the plaintiff would have received for the same period had he been able to use that property: ‘[t]hese remedies are alternative, not cumulative. A plaintiff may have one or the other, but not both’.[24]
[23][1996] 1 AC 514 (‘Tang Man Sit’).
[24]Ibid 520.

The question on appeal in Tang Man Sit was whether, on the facts, the plaintiff had chosen to take the remedy of an account of profits and therefore could no longer pursue a claim for damages.[25] That was the context in which Lord Nicholls made the observations set out below, including concerning the ‘third limitation’ upon which the defendants specifically rely:[26]

The law frequently affords an injured person more than one remedy for the wrong he has suffered. Sometimes the two remedies are alternative and inconsistent. The classic example, indeed, is (1) an account of the profits made by a defendant in breach of his fiduciary obligations and (2) damages for the loss suffered by the plaintiff by reason of the same breach. The former is measured by the wrongdoer's gain, the latter by the injured party’s loss.
…
Faced with alternative and inconsistent remedies a plaintiff must choose between them. Faced with cumulative remedies a plaintiff is not required to choose. He may have both remedies. He may pursue one remedy or the other remedy or both remedies, just as he wishes. It is a matter for him. He may obtain judgment for both remedies and enforce both judgments. When the remedies are against two different people, he may sue both persons. He may do so concurrently, and obtain judgment against both. Damages to the full value of goods which have been converted may be awarded against two persons for successive conversions of the same goods. Or the plaintiff may sue the two persons successively. He may obtain judgment against one, and take steps to enforce the judgment. This does not preclude him from then suing the other. There are limitations to this freedom. One limitation is the so called rule in Henderson v Henderson.[27] In the interests of fairness and finality a plaintiff is required to bring forward his whole case against a defendant in one action. Another limitation is that the court has power to ensure that, when fairness so requires, claims against more than one person shall all be tried and decided together. A third limitation is that a plaintiff cannot recover in the aggregate from one or more defendants an amount in excess of his loss. Part satisfaction of a judgment against one person does not operate as a bar to the plaintiff thereafter bringing an action against another who is also liable, but it does operate to reduce the amount recoverable in the second action. However, once a plaintiff has fully recouped his loss, of necessity he cannot thereafter pursue any other remedy he might have and which he might have pursued earlier. Having recouped the whole of his loss, any further proceedings would lack a subject matter. This principle of full satisfaction prevents double recovery.
[25]Ibid 520–521.
[26]Ibid 521–522.
[27](1843) 3 Hare 100.

Double Recovery: Consideration

The first issue is whether double recovery should be addressed now, or left until enforcement, should the issue arise at that time. Consistent with the obligation imposed by s 8 of the Civil Procedure Act 2010 (Vic) (‘CPA’), to seek to give effect to the overarching purpose ‘to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute’, the issue having been squarely raised and comprehensively argued, I should rule on it now.

To deal with the issue now will promote finality in the litigation. The efficient use of judicial resources dictates such an approach, instead of letting matters run their course with the potential for a later application for an injunction or other satellite litigation that may require me, or another judicial officer, to hear and determine such an application. To determine the issue now is consistent with the overarching obligation in s 25 of the CPA to act promptly and to minimise delay.

To deal with the issue now is also consistent with the approach taken by the English Court of Appeal in BO Morris Ltd,[28] and in Radferry Pty Ltd v Starborne Holdings Pty Ltd.[29]
[28][1945] 1 All ER 567 at 570.
[29][1998] FCA 1689.

Turning to the substance, it is accurate to describe BFMM’s liability as a substratum of facts directly premised on Mr Mulcahy’s conduct. However, it is not correct to describe the calculation of loss of profits and an account of profits as identical. It is also not correct to describe the causes of action as identical. The same facts are involved in the findings against Mr Mulcahy and against BFMM, but each is directly liable for a separate wrong.

In Michael Wilsonv Nicholls,[30] to which Gleeson JA referred in Xiao at [70], Gummow ACJ, Hayne, Crennan and Bell JJ (with whom Heydon J agreed on this issue) said:[31]

As MWP rightly pointed out, this Court has held that liability to account as a constructive trustee is imposed directly upon a person who knowingly assists in a breach of fiduciary duty. The reference to the liability of a knowing assistant as an “accessorial” liability does no more than recognise that the assistant’s liability depends upon establishing, among other things, that there has been a breach of fiduciary duty by another. It follows, as MWP submitted, that the relief that is awarded against a defaulting fiduciary and a knowing assistant will not necessarily coincide in either nature or quantum. So, for example, the claimant may seek compensation from the defaulting fiduciary (who made no profit from the default) and an account of profits from the knowing assistant (who profited from his or her own misconduct). And if an account of profits were to be sought against both the defaulting fiduciary and a knowing assistant, the two accounts would very likely differ. It follows that neither the nature nor the extent of any liability of the respondents to MWP for knowingly assisting Mr Emmott in a breach or breaches of his fiduciary obligations depends upon the nature or extent of the relief that MWP obtained in the arbitration against Mr Emmott.

[30][2011] HCA 48; (2011) 244 CLR 427 (‘Michael Wilson’).

[31]Ibid [106] (emphasis added; citations omitted).

Xiao was a case of knowing receipt. As Gleeson JA stated in Xiao, although the liability of the knowing recipient is dependent upon there being a breach of fiduciary duty, and to that extent the two wrongs are linked, the liability of the knowing recipient is for its own wrong, not the wrong committed by the fiduciary.[32] The remedies are cumulative. The same is the case where as here two wrongs are linked, one of the defaulting fiduciary and the other of the knowing assistant.
[32][2023] NSWCA 48; (2023) 111 NSWLR 132, [74].

The submission by the Mulcahy parties that, unlike Xiao, there are not two distinct wrongs committed by each of the Mulcahy parties and BFMM is contrary to the decision in Michael Wilson and the dicta in Xiao.[33] The causes of action are not the same. Against the Mulcahy parties, the cause of action made out is for breach of fiduciary duty. Mr Conheady’s pleaded case against BFMM which I found made out in the liability reasons is for the separate wrong of knowing assistance.[34]
[33]Ibid.
[34]Liability reasons, [603].

As discussed in Michael Wilson,[35] the relief awarded against the defaulting fiduciary and the relief awarded against the knowing assistant will not necessarily coincide in either nature or quantum.[36] That is so in this case.
[35][2011] HCA 48; (2011) 244 CLR 427.
[36]Ibid [106].

Mr Conheady has made a split election in relation to remedies that are different in nature. One is a compensatory remedy against the fiduciary, Mr Mulcahy. The other is a gain based remedy of an account of profit against the knowing assistant, BFMM.

As submitted by the defendants, the liability reasons include a finding that Mr Mulcahy was the driving force, the moving party, the person who orchestrated the formation of the consortium of shareholders in BFMM.[37] At the time the opportunity was diverted, Mr Mulcahy was the directing mind and will of BFMM,[38] BFMM was, at that time, the corporate alter ego of Mr Mulcahy, formed to take advantage of the opportunity.[39]
[37]Liability reasons, [592].
[38]Ibid [596].
[39]Ibid [597].

As stated in Grimaldi:[40]

[556] … where the advantage of a fiduciary’s/trustee’s wrongdoing accrues to a third party (whether as a knowing recipient or an assistant) and the third party is the alter ego/‘nominee’ (usually corporate) of the fiduciary, its liabilities will be joint and several with the fiduciary’s…

[40][2012] FCAFC 6; (2012) 200 FCR 296, [556].

However, the fact the liabilities of the defendants are joint due to BFMM being the alter ego of Mr Mulcahy does not mean the liability of the fiduciary and the liability of the knowing assistant are the same or that separate remedies cannot be obtained against both. That is because, as Gleeson JA said in Xiao:[41]

Even if the appellants had sought to rely on the alter-ego exception in the present case, it would have been necessary for them to confront the contrary view that the liability of the fiduciary and the corporate accessory controlled by the fiduciary are distinct, and different remedies can be obtained against each of them...

[41][2023] NSWCA 48; (2023) 111 NSWLR 132 at 148, [67].

There are two wrongs and two distinct and cumulative remedies.[42] Contrary to the defendants’ submissions, this is not a case of separate judgments in respect of the same loss. The liability of the fiduciary is to compensate for loss. The liability of BFMM is to account for its profits.
[42]Ibid [74].

The calculation of equitable compensation and of account of profits is not the same. Contrary to the Mulcahy parties’ submission, it is not simply a matter of adopting the same calculation and applying a different percentage. The market value of CBB is used in the assessment of loss and in the assessment of an account of profits. However, the account of profits is calculated by reference to additional integers not taken into consideration in the calculation of loss.

As appears from Table 1 from the Joint Report, the loss of profit calculation involved net lost cash flows, value of shareholding and value of debt.[43] The experts calculated the lost profits based on the 80% shareholding in CBB that would have been acquired by the plaintiffs but for the defendants’ wrongful conduct.[44]
[43]Relief reasons [144].
[44]Ibid [138].

Table 3 from the Joint Report lists the additional integers relied on by the experts when calculating an account of profits: historical profits, directors’ fees, debts owed by BFMM, other expenses and the present value of future profits.[45]
[45]Ibid [241].

The proposition that Mr Conheady cannot recover more in the aggregate than his loss, advanced by reference to Tang Man Sit, fails to grapple with the fact that in this case there are claims for different wrongs against multiple wrongdoers, and that, as he was entitled, Mr Conheady made a split election concerning remedies that are different in nature. This is not a case of recovering twice for the same loss or a case where the cumulative remedies are for the same loss.[46] Because of the manner in which the litigation was conducted and the split election, the argument of a second action seeking to recover loss for which the plaintiff has already been compensated considered by Lord Nicholls in Tang Man Sit does not arise.
[46]See Xiao v BCEG International (Australia) Pty Ltd [2023] NSWCA 48; (2023) 111 NSWLR 132 at 150–151, [79].

While BFMM was the alter ego of Mr Mulcahy, used by him to secure profits from breach of fiduciary duty Mr Mulcahy is one of four directors. Mr Mulcahy is only one of four persons who hold interests in BFMM. BFMM is a separate third party who must in that capacity account for its profits. No occasion arises to ‘fashion the remedy’ as contended for by the defendants.

To limit recovery to $11,862,693 would not amount to a ‘sense check’. To limit recovery to $11,862,693 would mean the “non” Mulcahy parties representing 75% of shareholders in BFMM would be proportionately liable for $8,897,019.75 and Mr Mulcahy, the 25% shareholder through interests associated with him would be liable for $2,965,673.25. The share of profit for which Mr Mulcahy and his interests would be liable is substantially less than $4,832,445.50 which he and Mulcahy & Co were ordered to pay as equitable compensation. To impose the limitation contended for by the defendants would not properly take into account the relationship between the parties. To make such an order would be to benefit those involved in wrongdoing, in particular the Mulcahy parties, at the expense of Mr Conheady.

The remedies, recoverable against different parties, for different wrongs, with different remedies available to Mr Conheady following the making of a split election, are cumulative. The proposition that additional words should be included in the final orders to limit recovery against all defendants to $11,862,693 is rejected.

Interest
The principles

In Bullhead Pty Ltd v Brickmakers Place Pty Ltd (In Liq) (No 2),[47] the Court of Appeal set out the following statements of principle to be applied when awarding interest in equity:[48]
[47][2019] VSCA 7; (2019) 58 VR 129 (‘Bullhead (No 2)’).
[48]Ibid [53]–[56] (citations omitted).

…
(1) There is an equitable jurisdiction to award interest where money has been withheld or misappropriated by a fiduciary, and that right is independent of statute.
(2) Traditionally, at a time when interest rates were stable, a fiduciary whose liability was based on misconduct (as here) was ordered to pay interest at an annual ‘mercantile rate’ of 5%.
(3)During times of interest rate volatility, however, awards of interest at higher rates were made in a number of cases, so that ‘the mercantile rate should reflect the reality of the market place’ at the relevant times.
(4) The purpose of awarding interest in equity is not to punish the defaulting fiduciary but, rather, ‘to restore to the innocent party the benefit derived by the defaulting fiduciary from his or her use of the property’.
(5)In some circumstances, compound interest with yearly rests may be awarded. For example, where the defaulting fiduciary has used the money for commercial purposes, or where the defaulting fiduciary ‘has been guilty of fraud or serious misconduct’.
(6) It may be that the right to award compound interest is limited to ‘cases where the defaulting fiduciary is being compelled to disgorge a gain’ — as here.
(7)In order to justify an award of compound interest, there must be ‘some evidentiary foundation’ for an assumption that the defaulting fiduciary has made a gain from use of the profit which must be disgorged.
(8)In the case of defaulting fiduciaries, there is a discretion to award the statutory rate in times of interest rate volatility.

54 The respondents contend that it would be against principle to award the statutory rate in this case, because the object of awarding interest for breach of fiduciary duty is not to punish, but only to compensate the innocent party ‘for the cost of having been out of funds’. While we accept that the object of an award of interest in equity is not to punish the defaulting fiduciary, this contention must otherwise be rejected. It was said to be supported by the statement of Kyrou J in Talacko set out in paragraph [53](4) above, but the statement in fact focuses on the benefit derived by the defaulting fiduciary from his or her use of the relevant property.
55 Although Bullhead’s principal contention is that it should have statutory interest, its written submissions refer to the circumstances in which compound interest may be awarded in equity. We take this reference as an alternative submission that, if the Court fixes a lower rate in equity, there should be compound interest. Bullhead has not identified any evidentiary basis on which it may be inferred that the respondents have gained by the use of the excess profit distributions they received. On the other hand, the evidence is clear (and the trial judge so found) that the respondents were guilty of serious misconduct in connection with the issue of the discounted units.
56 Taking the facts as a whole, we conclude that the justice of this case demands that equitable interest be paid at 5.81% per annum, compounded with annual rests from 2 May 2014 (when the final trust distributions were made) until the date of judgment. We have made a calculation of this amount to today on the amount of $619,758.78, and it is set out below.

Statutory interest to which the Court of Appeal referred is relevantly the subject of s 60(1) of the Supreme Court Act 1986 (‘Act’). That section provides:

The Court, on application in any proceeding for the recovery of debt or damages, must, unless good cause is shown to the contrary, give damages in the nature of interest at such rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 as it thinks fit from the commencement of the proceeding to the date of the judgment over and above the debt or damages awarded.

Section 60(1) anticipates the statutory entitlement to interest from the commencement of the proceeding may be displaced on ‘good cause’ being shown to do so.[49]
[49]As to ‘good cause’ see AHRKalimpa Pty Ltd v Schmidt (No 4) [2019] VSC 246, [14]–[16].

Interest on equitable compensation

The primary position for the plaintiffs in advance of the hearing was that interest on equitable compensation should accrue from the commencement of the proceeding, 24 June 2019, at the rate prescribed by the Penalty Interest Rate Act 1983 in accordance with s 60(1) of the Act. In the alternative, interest should accrue from 30 June 2022 being the date on which the experts valued the shares in CBB and on which the assessment of damages was based. At the hearing, the plaintiffs accepted interest from 30 June 2022 at the rate of 10% is appropriate.

Mr Conheady contends for interest to 5 March 2024 of $812,910.01. The Mulcahy parties agree interest on equitable compensation should be calculated at the rate of 10% from 30 June 2022, but submit that a more complex approach to the calculation of interest is required. Calculations prepared by Ms Wright are relied on to contend for an order for interest of $710,439.

Ms Wright isolated three components used by Mr Meredith in his second report to calculate the loss suffered by Mr Conheady:

Ms Wright reported as follows:

3.2 In my opinion, the interest should be calculated with reference to the ‘valuation date’ of the components of the loss.
a) The “Net cash flows” of ($1,069,062) represents the sum of a series of quarterly cash flows over the period from 1 July 2018 to 30 June 2022. [The Net cash flows] are expressed as the ‘full or nominal’ value in each quarter, before any discounting or interest has been applied. They are not ‘valued’ as at a single valuation date.
b) The “Value of the Plaintiffs’ interest in CBB” and the “value of debts” are values expressed as at a valuation date of 30 June 2022.

3.3 Accordingly, in my opinion, the appropriate methodology to calculate interest is as follows:
a) Net cash flows of ($1,069,062) – Interest should be calculated from the date that each cash flow was incurred, through to 5 March 2024.
b)“Value of the Plaintiffs’ interest in CBB” and the “value of debts” – Interest should be calculated from the valuation date of 30 June 2022 through to 5 March 2024.

Ms Wright’s detailed calculations are set out in an appendix to her 1 March 2024 report. Her methodology involves calculating negative cash flows due to interest expense on the value of debts and offsetting these amounts against net cash flows ($1,069,062) and the value of Mr Conheady’s interest in CBB, $14,181,017.

In response, to the component based approach contended for the plaintiffs submitted that as the Court has already found they are entitled to $4,832,445.50 ’together with interest on that sum’, it is not open to the Court to break down the award of damages adopting Ms Wright’s granular approach. In any case, as accepted by Ms Wright, her calculations are imprecise. Further, if it were appropriate to calculate damages from 2019, which it is not, interest should be calculated on a compound basis.

In his report in response, Mr Meredith expressed his opinion that the interest calculation by Ms Wright is incorrect. In his opinion, damages being based on a valuation date of 30 June 2022, interest should be calculated from that date; and not on cash flows over the period Quarter 1 FY19 to Quarter 4 FY22.

As stated in the relief reasons, equitable compensation was based on a valuation date of 30 June 2022. I determined to award interest on $4,832,445.50. The calculation by Ms Wright is not a calculation of interest on that amount. It is a calculation of interest on other amounts, calculated not from 30 June 2022 as the parties now agree is the appropriate date from which interest should run, but from a series of earlier dates.

I am not persuaded it is appropriate to dissect the sum of $4,832,455.50 and to calculate interest in the manner calculated by Ms Wright. To do so is to impermissibly go behind the judgment in the relief trial.

Interest on equitable compensation to 5 March 2024 is determined at $812,910.01.

Interest on account of profits

The parties agree interest on an account of profits should not commence to run from the date the proceeding was commenced. They disagree concerning the date or dates from which interest should be calculated. They disagree about the interest rate to be applied. They also disagree about whether there should be interest on the whole of the profits for which I have found BFMM must account or whether, as BFMM contends, interest should not be allowed on monetary sums referrable to certain items.

A number of the areas of disagreement concerning this issue only emerged when BFMM made submissions during the hearing, relying on a late served report by Ms Wright dated 4 March 2024. As a result, the following further submissions were exchanged and further expert reports were provided after the hearing:[50]
[50]Note, the submissions listed were in addition to the further submissions from Mr Conheady dated 12 March 2024, the further report from Mr Meredith dated 12 March 2024 and further submissions from the Mulcahy parties dated 14 March 2024 concerning the calculation of interest on equitable compensation in response to Ms Wright’s 1 March 2024 report.

(a) Ms Wright’s further report dated 8 March 2024;

(b) BFMM’s amended further submissions dated 12 March 2024;

(c) Mr Meredith’s further expert report dated 15 March 2024; and

(d) Mr Conheady’s further submissions in answer dated 15 March 2024.

The submissions

Mr Conheady submits simple interest at the rate of 10% should be calculated progressively by reference to the periods on which the profit was earned. In the alternative, if an interest rate other than the penalty interest rate is to be adopted, interest should be compounded ‘in order to properly strip BFMM of the illicit gains they have made’.

BFMM’s 4 March 2024 submissions stated:

… the relevant principle in awarding interest is … not to punish the defaulting fiduciary but, rather, ‘to restore to the innocent party the benefit derived by the defaulting fiduciary from his or her use of the property’.[51]

[51]Bullhead Pty Ltd v Brickmakers Place Pty Ltd (No 2) (2019) 58 VR 129 at [53].

BFMM submits interest should be calculated on an account of profits from:

(a) the date of the assessment of damages at the relief trial on 20 March 2023 trial; or alternatively
(b) 30 June 2022.

As to the rate of interest, BFMM submits interest is to account for the actual or approximate profit made or presumed to have been made since either March 2023, or alternatively June 2022. While this can be a ‘crude approximation’,[52] in this case, there is no cause for a ‘crude approximation’. The Court should consider the events which have occurred in relation to the profits derived by BFMM with the benefit of hindsight.
[52]See Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296, [753].

BFMM submits for three alternative rates of interest: the first, the rate of interest paid by BFMM on its NAB loan, the second, a ‘mercantile rate of interest’, the third alternative, the penalty interest rate. BFMM submits the principles summarised by the Court of Appeal in Bullhead (No 2),[53] support the NAB loan based approach being the primary approach for which it contends.
[53][2019] VSCA 7; (2019) 58 VR 129, [53].

Concerning the second alternative, BFMM submits the Courts have used a variety of ’mercantile rates’. Where money was held in a term deposit or was subject to a contract which set out how the money was to be held, the specific rate of that term deposit or contract is used. In other cases, the Courts have deemed it appropriate to use the RBA cash rate, the cash rate plus a margin, or the bank overdraft rate. BFMM referred to Directed Electronics v OE Solutions (No 9),[54] where Beach J used the RBA cash rate plus a margin of 4.00%.
[54][2023] FCA 462 (‘Directed Electronics’).

Concerning the adoption of a mercantile rate, Beach J said:[55]

27 Now an award of compound interest may be made in equity against a trustee or other fiduciary for breach of an equitable obligation. But it is not limited to the situation where funds have been withheld or misappropriated by a trustee or other fiduciary or where a trustee is under a duty or direction to accumulate income. The over-arching consideration is what justice demands in the particular circumstances. In other words, what is equitable?
28Now it must be borne in mind that such an award is compensatory in nature. It is not designed to be punitive in purpose or effect. Such an award is designed to make good what the innocent party may have lost by reason of the breach of the equitable obligation.
…
33 And of course one of the circumstances in which compound interest is awarded with periodic rests, for example, weekly, monthly, quarterly or yearly, is where trust money is misused by a trustee or fiduciary in his or her own trade or business. And the informing principles may reflect those employed in accounting for profits, including presuming that the party against whom relief is sought has made that amount of profit which persons ordinarily would in analogous circumstances make in trade.
34 In such a class of case, the object of a compound interest award and the use of periodic rests is to reflect in the award a crude approximation of the profit likely to have been made by the fiduciary or trustee from the money misused where that profit could reasonably be supposed to exceed in value a simple interest award.

[55]Ibid [27]–[28] and [33]–[34].

Ms Wright’s 4 March 2024 report sets out the three alternative interest calculations for the period to 1 March 2024 for which BFMM contends. It is convenient to reproduce the table from Ms Wright’s report:

Ms Wright’s table does not include the total interest calculated to 1 March 2024 under each of the alternatives. Under the first set of calculations based on 10% the total is $3,094,784, under the second set of calculations based on the NAB loan interest the total is $1,703,221, and under the third set of calculations based on the average business lending rate, the total is $1,636,400.

In his 15 March 2024 report Mr Meredith updated earlier calculations applying simple interest of 10% and adopting the same ’mid-point’ basis of calculation as Ms Wright. Mr Meredith’s updated calculation of interest on the total account of profits to 1 March 2024 is $3,139,596. As will be noted, there is a difference between this amount and the sum of $3,094,784 calculated by Ms Wright. Mr Meredith’s 15 March 2024 report includes a further 10% simple basis calculation on the account of profits which amounts to $3,095,987. The difference between this calculation and $3,139.596 relates to the interest calculation date of the directors’ fees. Rather than delve into the reasons for the difference, if 10% is the appropriate rate to be adopted, in the exercise of the equitable discretion concerning interest, the amount of interest to the later 5 March 2024 date may be taken to be $3,095,987.

Mr Meredith’s figure for interest calculated based on the NAB loan corresponding to Ms Wright’s total of $1,703,221 is $1,908,783. Mr Meredith did not seek to calculate interest at ‘the average business lending rate’ in his 15 March 2024 report. He considered there was insufficient information provided by Ms Wright as to the source of the rates in order for him to do so.

Mr Conheady submits BFMM should account to Mr Conheady for profit progressively, from 2018. Interest at the penalty interest rate of 10% reflects such a compensatory approach. He submits the BFMM approach to interest at the rates paid to the NAB and in the alternative at a mercantile rate improperly conflates the rationale of ordering an account of profit (being confiscatory) with the rationale of ordering interest on those profits (being compensatory). Mr Conheady submits interest on profits is to compensate the innocent party for being deprived of the use of that money, which should have been paid earlier.

Mr Conheady submits the approach contended for by him is consistent with earlier authority including Bullhead (No 2),[56] Heydon v NRMA Ltd (No 2),[57] Akierman Holdings Pty Ltd v Akerman (No 2),[58] and Cargill Australia Ltd v Viterra Malt Pty Ltd (No 30).[59]
[56][2019] VSCA 7; (2019) 58 VR 129, [53].
[57][2001] NSWCA 445; (2001) 53 NSWLR 600, [32]–[33].
[58][2020] NSWSC 970; (2020) 147 ACSR 63 [222].
[59][2022] VSC 80, [15].

In his 15 March 2024 report Mr Meredith said:

In my view, the only appropriate interest rate adopted in the Fourth Wright Report is the penalty interest rate of 10% as:
(i) the NAB Markets loan rate inappropriately considers (and only partially) how the Defendants utilised the profits, rather than considered how the Plaintiff would have utilised the profits;
(ii) I have not been provided with a basis for the adoption of the business lending rates; and
(iii)I have not been briefed with evidence in relation to how the Plaintiffs would have applied the funds.

Mr Conheady submitted that if the Court were to adopt the same approach as was adopted in Directed Electronics, interest should be compounded.

Mr Meredith expressed his opinion on this issue:

(a)Court interest is conventionally calculated on a simple basis on damages;
(b)if a bank rate of interest is adopted, it is conventional to calculate the interest on a compounding basis; and
(c)interest can be compounded over different periods according to data and circumstances, however it is commonly compounded either monthly or annually.

Appendix D of Mr Meredith’s 15 March 2024 report contains his calculation of interest on a ‘NAB Market Interest Compound Basis’.

Separately, BFMM submits there should be an adjustment to the profits used as the basis for the calculation of interest. It submits interest should not be allowed on the whole amount of account of profits, $11,013,138. Items should not be awarded in respect of expenditure on inventory (net of accrued leave balances) or on amounts used to pay down the NAB loan.

BFMM submits interest on those items should be ‘backed out’. It submits interest should not be applied to either the inventory payment or the NAB loan payments as ‘these sums of money did not remain in the hands of the BFMM shareholders but were effectively paid back into the business and reflected in the account of profits figure to be disgorged to Mr Conheady’.

Using the first set of calculations in Ms Wright’s table as an example, BFMM contends interest should not be allowed on the $3,333,332 used to pay down the NAB loan, $1,180,007 and interest should not be allowed on inventory, net of leave balances, $495,548.

Ms Wright expressed her ‘preliminary opinion’ that the NAB repayment ‘has an indirect impact on Mr Meredith’s assessment of the account of profits’. She considered the dividends distributed to beneficiaries ($7,703,569) would have been lower had the NAB repayments not been made. However, there would also have been offsetting impacts; the NAB loan would have had a balance of ($8,000,000) as at 30 June 2022 rather than ($4,666,668), and the distributions owed to beneficiaries ($5,089,277) would have been lower.

In the hypothetical scenario to which Ms Wright referred, absent the NAB repayments, instead of the total account of profits being $11,013,138, as determined in the relief reasons, the amount would have been $10,770,640.

Ms Wright considered it was ‘a matter for the Court to decide’ whether it is appropriate that interest be applied to the NAB repayments. She went on to set out two alternative analyses that ‘seek to quantify the benefits to the defendants that have arisen from the profits generated’.

During the hearing the primary submission for BFMM was that the most appropriate measure of interest for the funds applied to the NAB loan would be the amount earned by BFMM, by way of defrayed interest on that loan. To support that submission, BFMM relied on the affidavit of Mr Matthews dated 4 March 2024 to provide the necessary factual foundation. For the balance of the funds for which BFMM is required to account, the application of a mercantile rate was submitted to be more appropriate than Mr Meredith’s adoption of the 10% default rate.

In its 12 March 2024 amended submissions, BFMM contended for the application of interest on distributions directly from BFMM ($3,397,634) and on directors fees ($1,248,000) at the ‘average business lending rate’ reported by Ms Wright or alternatively, at the (higher) average interest rate paid on the NAB loan, but no interest on either the amounts used to pay down the NAB loan or the amounts representing inventory (net of leave).

BFMM contended the amount of ‘an appropriate approximation of the potential benefit obtained’ applying the average interest paid on the NAB loan is $576,243 in respect of BFMM distributions and $226,826 in respect of directors fees for a total of $803,069. In the alternative, if an average business lending rate is applied to these amounts, the ‘potential benefit obtained’ is $541,733 and $216,548 respectively for a total of $758,281.

In response to the contention interest should not be allowed in respect of inventory net of leave and reductions in the NAB loan, Mr Meredith said:

In my view, the calculation of interest on the Account of Profits should not deduct the Inventory and Leave and Interest Paid as:
(a) the sum of $972,603 for Inventory and Leave was included in the purchase price of the business which was deducted from the calculation of Account of Profits;
(b) interest paid by BFMM of $1,201,368 was included in the expenses incurred by the Defendants that total $2,092,392 and were deducted from the calculation of Account of Profits; and
(c) the interest should be calculated based on the Account of Profits adopted in the Judgment.

Consideration
Date(s) for calculation of interest

It is appropriate to calculate profit for each financial year from FY19 adopting the ‘mid point’ adopted by Ms Wright as the basis for her calculations. The approach adopted by Ms Wright was adopted by Mr Meredith in his 15 March 2024 report. To proceed from these dates is to proceed from the dates on which profits were progressively received or earned.

It is not appropriate to adopt either 30 June 2022 or 20 March 2023 as the date from which interest on an account of profits should be calculated. Neither date bears a meaningful relationship to the dates on which profits were received or earned.

The rate of interest

As stated by Kyrou J in Talacko v Talacko,[60] and adopted by the Court of Appeal in Bullhead (No 2),[61] equity does not award interest to punish the defaulting fiduciary.[62] Interest is awarded in order to restore to the innocent party the benefit derived by the wrongdoer.[63]
[60][2009] VSC 579 (‘Talacko’).
[61][2019] VSCA 7; (2019) 58 VR 129, [53].
[62][2009] VSC 579, [14].
[63]Ibid.

Three alternative approaches are contended for; the statutory rate, the rate on the NAB loan, and Ms Wright’s ‘average business lending rate’. If either the NAB rate or the ‘average business lending’ rate is adopted, BFMM urges simple interest, Mr Conheady urges compound interest.

Equitable jurisdiction to award interest on an account of profits being independent of statute,[64] the penalty interest rate is not a default rate for interest on an account of profits. As stated in Bullhead (No 2), there is discretion to award the statutory rate in times of interest rate volatility.[65]
[64]Hungerfords v Walker [1989] HCA 8; (1989) 171 CLR 125 at 148 (Mason CJ and Wilson J); Wallersteiner v Moir (No 2) [1975] QB 373.
[65][2019] VSCA 7; (2019) 58 VR 129, [53].

If a rate other than 10% is adopted, it is necessary to consider whether interest should be awarded on a simple or compound basis. As Beach J said in Directed Electronics, the overarching consideration is what justice demands in the particular circumstances.[66]
[66][2023] FCA 462, [27].

When Ms Wright carried out her ‘average business lending rate’ calculation, she did not adopt a single ‘mercantile’ or ‘average business lending’ rate. What she described as the ’average business lending rate‘ varied across the period of her calculations.

Ms Wright reported that over the period FY19 to March 2024, interest rates increased, doing so markedly, after 31 October 2021. At no time did the interest rate referred to by Ms Wright fall below the mercantile rate of 5% traditionally applied in cases involving breach of trust or misconduct or the lower rate of 4% traditionally applied in other cases involving defaulting fiduciaries.[67] While those were the traditional rates, as Kyrou J noted in Talacko, in more recent times the courts have departed from fixed rates of 4% and 5% in favour of a more flexible approach.
[67]See Talacko v Talacko [2009] VSC 579, [11]–[12].

Ms Wright reported that interest rates on the NAB facility rate varied from 5.7782% as at 1 July 2018 to 3.71% as at 28 June 2021, before increasing to 8.06% as at 28 December 2023.

Ms Wright reported in detail how the interest rate on the NAB facility fluctuated over time:

(a)from 1/7/18 to 27/9/18, 5.7782%;
(b)from 28/9/18 to 27/12/18, 5.64%;
(c)from 28/12/18 to 27/3/19, 5.793%;
(d)from 28/3/19 to 27/6/19, 5.475%;
(e)from 28/6/19 to 29/9/19, 4.9046%;
(f)from 30/9/19 to 29/12/19, 4.645%;
(g)from 30/12/19 to 29/3/20, 4.62%;
(h)from 30/3/20 to 28/6/20, 4.0917%;
(i)from 29/6/20 to 27/9/20, 3.8%;
(j)from 28/9/20 to 28/12/20, 3.78%;
(k)from 29/12/20 to 28/3/21, 3.72%;
(l)from 29/3/21 to 27/6/21, 3.7302%;
(m)from 29/6/21 to 28/9/21, 3.73%;
(n)from 29/9/21 to 28/12/21, 3.716%;
(o)from 29/12/21 to 27/3/22, 3.7618%;
(p)from 28/3/22 to 27/6/22, 3.915%;
(q)from 28/6/22 to 27/9/22, 5.5098%;
(r)from 28/9/22 to 27/12/22, 6.7089%;
(s)from 28/12/22 to 27/3/23, 6.9456%;
(t)from 28/3/23 to 27/6/23, 7.3991%;
(u)from 28/6/23 to 27/9/23, 8.0055%;
(v)from 28/9/23 to 27/12/23, 7.8469%;
(w)from 28/12/23 to 1/3/24, 8.06%.

What this information shows is that during the relevant period, interest rates were not stable, they were ‘volatile’. Adopting the second definition in the Macquarie Dictionary, ‘likely to change suddenly and unpredictably’.

Turning to the competing positions of the parties, there is a fundamental problem about the use of Ms Wright’s ‘business lending rate’. Annexure E to Ms Wright’s 4 March 2024 report includes the following note: ‘Average lending rate used: “Lending rates; Business finance; Outstanding; Small business; Total”, sources from Reserve Bank of Australia’. The primary document or documents to which this reference relates are not in evidence. The reference was not explained by Ms Wright and no attention was directed to it during the hearing or in submissions. Ms Wright provided no explanation and there is no evidence about what security or otherwise has been assumed in relation to the ‘average business borrowing’, what margin is assumed to be applied to the loan, and what term or terms is or are assumed. The rates referred to are said to have varied from 5.18% in FY19 and FY20, to 5.43% in FY21, to 5.6% on 31 October 2021, to 5.71% on 31 December 2021 and then to 6.2% on 30 June 2022; in that case for 611 days. In the absence of primary documents concerning the rates adopted by Ms Wright and in the absence of evidence identifying and explaining the rates and issues such as whether the lending is secured or unsecured there is no proper foundation to calculate interest based on Ms Wright’s ‘average business borrowing’.

There is a further problem about the use of Ms Wright’s ‘average business lending rates’. BFMM submits the amounts calculated by Ms Wright represent an ‘appropriate approximation’ of the potential benefit obtained by BFMM. However, as acknowledged by BFMM, there is no evidence of the use of funds made by those who received the benefits. Even if a proper basis were established to adopt the ‘average business lending’ rates contended for, there is no logical connection and no proper basis to adopt the ‘average business lending rate’ as a proxy for the benefit derived by BFMM from those funds.

If it were otherwise appropriate to adopt the ‘average business lending rate’ consistent with the decision in Directed Electronics, it would be necessary to compound the interest. To compound the interest in that circumstance is also consistent with the opinion expressed by Mr Meredith.

Turning to the NAB rate; the interest paid on the NAB facility has the advantage that it represents evidence of actual interest paid by BFMM over the relevant period. However, as stated by Ms Wright ‘the NAB repayments are not a direct input into the assessment of an account of profits’ and nor do they directly derive from profit. Ms Wright assumes in her ‘Alternative view 1’ that because the NAB repayments were made, BFMM was unable to pay the beneficiaries the corresponding quantum of distributions. There is no evidence to support the adoption of that assumption. The position is complicated by the fact as found in the relief reasons, that what was actually received by BFMM as recorded in the financial statements and the tax returns exceeded the pre-tax profit available to CBB in the corresponding period.[68]
[68]See relief reasons, [253]–[269].

There is a separate issue that arises concerning Ms Wright’s ‘Alternative view 2’. The calculation to which Ms Wright refers concerning the NAB repayments involves a ’hypothetical scenario where BFMM had not made the NAB repayments, and reassesses the account of profits’. The account of profits is not a hypothetical calculation.

Further, interest ‘saved’ by BFMM as a result of making payments in reduction of the NAB loan is interest at a rate specific to that loan. No link has been demonstrated between payments made in reduction of the NAB loan and the profit for which I have determined BFMM must account. For those reasons, the adoption of the NAB rate is unsatisfactory.

In circumstances where the evidence concerning the NAB rates show the whole period was one of volatility, the case falls within the discretion to adopt the statutory rate to which the Court of Appeal referred in Bullhead (No 2). Given the volatility, but also in the absence of evidence to support the adoption of a different rate, being a rate demonstrated as appropriate in order to restore to Mr Conheady the benefit derived by BFMM, the interests of justice favour the adoption of the penalty interest rate of 10%, simple interest.

Interest on the NAB repayments and the Inventory amounts

I reject the submission the NAB repayments and the Inventory payment amounts should be ‘backed out’ of the amount previously determined in the relief reasons as the amount to be awarded as an account of profits. What is being sought to be achieved in relation to both items is a recalculation of profit by reference to issues that could have been, but which were not agitated by BFMM as issues in the relief trial. I agree with Mr Conheady’s submission that ‘the horse has bolted’ with the account of profit having been determined in the relief reasons. It is not open to BFMM to open these issues at this late stage.

The case for treating the NAB repayments in isolation depends on the Court accepting that while the repayments are in Ms Wright’s opinion not a direct input to the amounts making up an account of profits, if her analysis is accepted, the correct figure for profits should be $10,770,640 in lieu of the assessed amount for an account of profits of $11,013,138. The fact the result of the calculation, if adopted, reduces the account of profits previously assessed following a contested trial demonstrates the correct time for raising this issue was, at the latest, as part of the relief trial.

There is a separate and more fundamental problem with the position contended for. Ms Wright’s analysis proceeds on the stated assumption that BFMM would have distributed any surplus cash arising from not making the NAB repayments, had the NAB repayments not been made. No evidence has been adduced to support this assumption, whether as part of the relief trial, as part of the earlier liability trial or even on the further hearing.

The issue of interest relating to inventory (net of leave) was only faintly pressed in BFMM’s 12 March 2024 amended further submissions. The proposed exclusion of interest on this item suffers from similar difficulties to those relating to the NAB loan interest. Ms Wright reported the inventory payment ‘is not a direct input into the assessment of the account of profits’. Ms Wright’s analysis of this item proceeds on a hypothetical basis. Namely, ‘had the inventory payment been financed by a drawdown on the NAB market loan, rather than paid by BFMM’. The hypothetical is not what happened. The hypothetical was not explored with relevant witnesses of fact.

Even if it were open to BFMM to revisit these issues, I do not consider it appropriate to approach either issue in the piecemeal manner contended for. There is no basis in the evidence to do so.

For that separate and independent reason, the submission on behalf of BFMM that interest should not attach to amounts attributable to these items must be rejected.

Costs: The Calderbank offer

On 9 April 2021, the plaintiffs made a Calderbank offer (the ‘Offer’) to accept $5.5 million plus costs. The Offer was made jointly to all defendants. It required acceptance by all of them. The time for acceptance was 4:00pm on 15 April 2021. The liability trial commenced on 26 April 2021. The relief trial commenced on 20 March 2023. The relief reasons were delivered on 25 January 2024.

The submissions

The plaintiffs rely on the Offer in support of their application for indemnity costs against the defendants.

The plaintiffs submit the Offer of $5.5m plus costs was a substantial discount to the amount the defendants will be required to pay to them under the Notice. Without considering interest, it was more favourable than the orders that:

(a)the Mulcahy parties pay:
(1)Mr Porter $4,832,445.50;
(2)Mr Conheady $4,832,445.50;

(b)BFMM pay Mr Conheady $11,862,693.

Viewed at an individual level the damages and equitable compensation awards in favour of Mr Porter and Mr Conheady against the Mulcahy parties did not “beat” the Calderbank offer. However, collectively, the amount of damages and equitable compensation ordered to be paid by the Mulcahy parties well exceeds the amount of the Offer.

As against BFMM, Mr Conheady comprehensively “beat” the Offer.

When the awards of damages, equitable compensation and account of profits in their favour are considered together, it is clear the plaintiffs comprehensively “beat” the Offer.

The plaintiffs submit that had the Offer been accepted it would have avoided the need for the lengthy hearings into liability and quantum. That is true even though the Offer was not made at an early stage of the proceeding. The Offer was made before two lengthy trials and before the most recent further hearing.

The plaintiffs submit that by the time the offer was made, shortly before the liability trial, the defendants were in a position to properly evaluate their prospects of success.

The primary submission of the Mulcahy parties is that the Offer, which was made to all defendants, was an offer that was not capable of acceptance by them alone. There has been no satisfactory explanation of what each set of defendants ought to have done to have caused the other to have accepted the Offer. For that reason, the question of whether or not it was unreasonable for them to refuse to accept it does not arise.

BFMM submit the Mulcahy parties did not accept the offer and, as a result, acceptance by BFMM would not have resulted in settlement of the proceeding.

In response the plaintiffs submit the fact the Offer was made jointly to the defendants is not an obstacle for acceptance. There were lines of communication between the defendants who were interrelated. Mr Mulcahy, as a director and the controlling mind of BFMM, could have endeavoured to persuade the others to have accepted the Offer.

The plaintiffs further submit the Offer represented a substantial discount to the damages the plaintiffs could expect to have received at the time it was made based on the information then available. As stated in the Offer, the Munday Wilkinson report had a mid-point valuation of $19.65 million. The plaintiffs had an opportunity to purchase the interest in CBB for $12 million which, the plaintiffs submit, by itself, gave rise to a loss of $7.65 million based on the mid-point valuation.

Dealing with the merits of the Offer, the Mulcahy parties submit that in any case, it was not unreasonable for them not to accept the Offer because:

(a)prior to the liability trial, the case was an ‘all or nothing’ case. At the time of the Offer, each party had its own view of the merits and the strength of anticipated oral evidence. There was nothing in the way the case was pleaded or in documents that had been discovered at that time which would have made one party or the other especially confident or doubtful as to its prospects;
(b)evidence of the key controversial conversations had not yet been adduced and the parties were diametrically opposed on many of the key accounts;
(c)at the time the Offer was made, the plaintiffs’ claim for damages was not particularised. A split trial had been ordered;
(d)based on the Munday Wilkinson valuation and the purported loss of $7.65m referred to in the Offer, when regard is had to the claim for a 70% interest in the business, at $5.5m plus costs, the Offer did not represent a substantial discount or arguably any compromise other than complete vindication for the plaintiffs; and
(e)the terms of the Offer only dealt with the monetary claim for damages and failed to deal with the declaration sought for a constructive trust over the shares in BFMM.

BFMM submits the costs consequences of failure to accept a Calderbank offer remain entirely at the Court’s discretion.[69] A Calderbank offer does not generate a presumptive entitlement to a special costs order. The Court must determine that in all the circumstances the costs orders contended for are appropriate.[70] BFMM submits the discretion should be exercised against the making of an indemnity costs order:
[69]Citing Love v Victoria (No 2) [2009] VSC 531, [22] where Cavanough J stated: ‘it is necessary to treat cases involving Calderbank offers as falling within a specific category of the overall jurisprudence relating to the discretion to order that costs be paid on a solicitor-client or indemnity basis’.
[70]Citing MT Associates Pty Ltd v Aqua-Max Pty Ltd (No 3) [2000] VSC 163, [71]–[80] (Gillard J); Alpine Hardwood (Aust) Pty Ltd v Hardys Pty Ltd (No 2) [2002] FCA 224; (2002) 190 ALR 121 at 127 (Weinberg J).

(a)An essential element of a valid Calderbank offer is that there must be a genuine compromise, not merely a token one.[71] The Offer did not provide a genuine compromise to the overall claim by the plaintiffs based on a reasonable assessment of the plaintiffs’ prospects as then prevailed. The Offer proceeded on the basis the plaintiffs would be wholly successful.
[71]Citing Hancock v Arnold (No 2) [2009] NSWCA 19, [17].
(b)BFMM’s non-acceptance of the Offer was not unreasonable. The plaintiffs’ prospects at the time of the Offer were evenly balanced. The Offer was made before oral evidence and the disclosure to the defendants of documents upon which the Court placed substantial reliance to determine the factual contest (extracts of a workbook in which Mr Conheady maintained contemporaneous notes and the receipt for the lunch at the Yacht Club café). Accordingly, BFMM was ‘in the dark’ about two matters which were ultimately critical to the resolution of the factual contest.

(c) Whether an offer exhibiting minimal compromise should nonetheless have costs consequences cannot be assessed independently of the strength of the offeror’s case. What informs this inquiry is whether the offeror has disclosed information that might have caused the offeree to give serious consideration to dropping their claim or defence.[72] In this case, at the time of the making of the Offer (before the giving of oral evidence and before the disclosure of the workbook and Yacht Club receipt) the evidence put on by the parties was conflicting. The pleadings could not have been said to ‘expose’ a particular ‘weakness’ such as to mitigate the need for a genuine compromise to be articulated in any Calderbank offer.

(d) The basis upon which the sum contained in the Offer was calculated was uncertain. It was not clear if the Offer represented a fair value of the CBB shares or the likely sum that might have been ordered on an account of profits. Further, the Offer predated the valuation evidence. The plaintiffs did not provide any expert report supporting a sum of potential damages or an account of profits relevant to Mr Conheady’s claim against BFMM and damages were yet to be assessed by the Court. When BFMM adduced expert evidence for the relief trial, the total quantum which its expert considered was appropriate was ‘far below’ that set out in the Calderbank offer. It was therefore not unreasonable for BFMM to refuse the offer.

(e) The Offer did not distinguish between the claims brought by Mr Porter or Mr Conheady. As against BFMM, the offerors have not achieved a result that is more favourable than the Offer. BFMM’s refusal of the Offer is not unreasonable when consideration is given to the fact that Mr Porter’s claim against BFMM was completely unsuccessful.

[72]Citing Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2005] NSWSC 481, [38] (McDougall J) and McDevitt v Irwin [2005] ACTSC 133, [15] (Harper M).

The plaintiffs respond by contesting the proposition that the prospects of success assessed at the time of the Offer were finely balanced. Mr Conheady had produced and discovered his credit card statement, which included the lunch at the Yacht Club. The Yacht Club receipt was provided to the defendants on 6 April 2021 as part of an updated court book. Extracts from Mr Conheady’s workbook had been previously been discovered. The full workbook was produced in the course of the trial.

Concerning the quantum of the offer the plaintiffs submitted 70% is the incorrect percentage because they were intending to purchase 80% of CBB, reflecting a loss in excess of $5.5 million.

The principles

In Wieland v Texxcon Pty Ltd,[73] the Victorian Court of Appeal addressed the question of whether it was unreasonable for individual defendants not to accept an offer made to multiple defendants:[74]

The offer suffered from the fundamental difficulty that it was a joint and several offer by reason of the claims made against the subject defendants being separate. Counsel for Texxcon and Nominexx suggested in argument that the offerees could have combined in paying the offered amount, it apparently being considered that varying rates of contribution might be agreed between them. But what if only one or two wished to accept? Counsel suggested that the answer to this dilemma was that the offer could be accepted and the position could be disclosed at a subsequent hearing (assuming one occurred) on an application to adjust costs. With respect, that approach would seem to have the potential to create more problems than it would solve. On analysis, the offer imposed considerable difficulty, if not impossibility, to the defendants, and was not unreasonably refused. In truth, and contrary to the suggestions of Texxcon and Nominexx, it was not capable of acceptance by the defendants independently of each other. In any event, the apportioned liability of each was less than the amount offered.

[73][2014] VSCA 199; (2014) 313 ALR 724 (‘Wieland’).

[74]Ibid [132].

Similar views were expressed by the New South Wales Full Court in Archer v Archer (No 2):[75]

An offer of compromise must be capable of acceptance by each party to whom it is addressed, although an offer of compromise can be made interdependent upon acceptance by another party: Oxlade v Gosbridge Pty Limited (No 2) [1999] NSWCA 165. Here the offer of compromise was made to the parties jointly, although their causes of action were several, and the offer was therefore not capable of individual acceptance. In our opinion therefore, there was no basis for the making of an order for indemnity costs.

[75][2000] NSWCA 315, [8] (‘Archer’), (Handley, Beazley and Fitzgerald JJA).

The plaintiffs submitted that this matter can be distinguished from Wieland because:

(a) the offer in Wieland was made to four independent entities, whereas the Offer in this proceeding was made to two related entities; and

(b) the liability (both joint and separately) in this case ‘far outweighs’ the Offer amount, unlike in Wieland, whereby the ‘apportioned liability of each was less than the amount offered’.

In contrast to the views expressed in Wieland and Archer is the decision of the Full Federal Court in Amadio Pty Ltd v Henderson,[76] where the Court upheld the trial judge’s finding that it can be reasonable to make an offer conditional on all respondents accepting it. The trial judge observed by way of example that ‘a respondent who wished to accept the offer could serve on the other respondents a Calderbank letter setting out a reasonable basis for contribution and stating that it wishes to accept the applicant’s proposal’.[77]
[76](1998) 81 FCR 149 (‘Amadio’).
[77]Ibid, 265.

It is correct there is no presumption that a party rejecting a Calderbank offer should pay the offeror’s costs on an indemnity basis. Even where it is held a Calderbank offer should have been accepted, and the offeree achieves a result as or less favourable than the offer at the trial, there is no automatic costs consequence.[78]
[78]Evans v Braddock (No 2) [2013] NSWSC 518 at [49], referring to his Honour’s decision in Walsh v Walsh (No 2) [2013] NSWSC 1281.

The critical question in this case is whether rejection of the Offer was unreasonable. In Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2),[79] the Full Court held that in considering whether the rejection of a Calderbank offer was unreasonable, the Court should ordinarily have regard to at least the following factors:[80]
[79][2005] VSCA 298; (2005) 13 VR 435 at [25] (Warren CJ, Maxwell P and Harper AJA).
[80]Ibid [25].

(a)the stage of the proceedings at which the offer was received;
(b)the time allowed to the offeree to consider the offer;
(c)the extent of the compromise offered;
(d)the offeree’s prospects of success, assessed as at the date of the offer;
(e)the clarity with which the terms of the offer were expressed;
(f)whether the offer foreshadowed an application for indemnity costs in the event of the offeree’s rejecting it.

The Offer: Consideration

As noted in Wieland, an offer not capable of individual acceptance by each party to whom it is made, as is the case with the Offer, can impose considerable difficulty, if not impossibility, on the defendants.

When determining whether or not to accept the Offer an informed and rational assessment of the risks by each defendant requires a consideration of the causes of action alleged against that defendant and the elements of each cause of action alleged.

The causes of action alleged against each of the defendants and their elements were not the same. The relief sought was not the same. There were claims in contract against the Mulcahy parties that did not impact on the potential liability of BFMM. While to establish a breach of fiduciary duty was critical to the equitable causes of action alleged against the Mulcahy parties and against BFMM, for the plaintiffs to succeed against BFMM additional elements were required to be proved.

It is necessary to separately consider the position of the Mulcahy parties and of BFMM when assessing whether it was reasonable for either or both of them not to accept the Offer.

The two groups of defendants were separately represented by solicitors and counsel.

I do not consider the decision in Wieland distinguishable. The principle with which both Wieland and Archer were concerned applies here. The offer was not capable of individual acceptance.

Further, on the facts, there is also no basis to distinguish Wieland. The offer in Wieland was made to four natural persons, between whom there was a degree of interrelatedness. Three of the defendants were the directors of Nominexx, who claimed damages against them. The fourth individual was not. In this proceeding, Mr Mulcahy is one of four directors of BFMM. The interests of each of the persons called upon to accept the Offer, although overlapping, were not coincident.

The fundamental flaw with the Offer, when it came to whether the acceptance of it by all or any of the defendants was unreasonable is that it did not differentiate between the interests of the different defendants so as to allow them to individually determine to accept or to reject it. It did not permit one of the defendants only to accept the Offer on the basis of that defendant’s exposure, assessed by reference to the causes of action alleged against it or him.

Although the plaintiffs submitted that as suggested in Amadio, contribution could have been sought as between the defendants, there are real practical difficulties confronting the implementation of such a proposal. For example, as submitted on behalf of the Mulcahy parties, they could not accept the Offer and then serve a notice of contribution.

The offer did not say what any one of the defendants might do if that defendant wished to accept the Offer. The Offer imposed ‘considerable difficulty’ upon defendants whose interests, and against whom the claims, made were not coincident. In the circumstances of this case, the non-acceptance of the Offer was not unreasonable because no one defendant could accept it on his or its own.

There is a second and independent reason why the failure to accept the Offer was not unreasonable. It concerns the amount of the Offer assessed in light of the information available at the time.

At the time of the Offer no evidence had been filed in relation to quantum and no damages claim had been particularised. A split trial had been ordered. The Munday Wilkinson valuation ‘excess’ to which the offer referred was $7.65 million. 70% of that amount, approximately the percentage of CBB purchased by BFMM, is only $5.355 million. While the plaintiffs’ case was based on the purchase of an 80% interest in CBB, that percentage was part of the factual contest. At 80% the interest in CBB converted to $6.12 million based on the mid-point of the Munday Wilkinson valuation. Assuming 70% to be the correct percentage, had the Mulcahy parties accepted the offer, they would have been required to pay more than the plaintiffs’ best result. Such an outcome would require the Mulcahy parties to capitulate and more. The position is not the same if 80% is assumed to be the correct percentage. At 80% there was a buffer of about 10% in favour of the Mulcahy parties if they accepted the Offer. However, the Offer was also plus costs and even on the assumption that 80% is the correct percentage, though not amounting to a capitulation, it was not a significant reduction for risk.

In circumstances where there a were a number of hotly contested factual issues, even though the documents later found to be important to which the plaintiffs referred in their submissions had by that time been discovered, with the exception of the complete notebook, the outcome of the contested factual issues could at that time fairly be described as uncertain. The recipients of the Offer were required to assess the risks and weigh them up against the Offer. The ‘discount’ in the Offer compared to the Munday Wilkinson mid-point ‘best case’ at the time based on an 80% interest in CBB was modest only. Having regard to the fact it was plus costs and the uncertainties associated with contested factual issues, the rejection of the $5.5 million Offer by the Mulcahy parties was not unreasonable.

The position concerning BFMM was complicated by the absence of any particulars of loss and any quantification of the claim for an account of profits. The evidence discloses that BFMM’s profits for the completed financial years prior to the Offer were $722,310 for FY19, $2,905,534 for FY20 together with payments of directors’ fees of $624,000 for FY19‑FY20, which amounts to $4,251,844, substantially less than the $5.5 million Offer. While for FY21, BFMM would have received another set of directors’ fees and ultimately BFMM received $2,398,132 in profit, the amount of that profit would not have been known until at least 30 June 2021. In the case of BFMM, assuming an account of profits were to be ordered, based on the information regarding profits available at the time of the Offer, the Offer may or may not have exceeded the amount the profits. By reference to its quantum, I do not consider BFMM’s rejection of the Offer was unreasonable.

I do not propose to order indemnity costs based on the failure by the defendants to accept the Offer.

Interest and Costs relating to claims by Mr Porter

The marked up draft order reveals a difference between the Mulcahy parties and Mr Porter concerning the quantification of interest to be awarded in his favour. Mr Porter contends for interest of $812,910.01. The Mulcahy parties contend for interest of $710,439. Mr Porter is entitled to interest according to statute. There is no basis to order interest in his favour other than interest calculated in accordance with the Penalty Interest Rate Act 1983, calculated as the parties agree, from 30 June 2022.

I will order the Mulcahy parties pay Mr Porter interest on damages in the sum of $4,832,445.50 at the penalty interest rate of 10% from 30 June 2022 until 5 March 2024, a total of $812,910.01.

Turning to costs, as between the Mulcahy parties and Mr Porter, leaving to one side the Offer, the marked up draft order discloses a dispute about whether the Mulcahy parties should pay 60% of Mr Porter’s costs of his claim against them on a standard basis, or whether the Mulcahy parties should pay all of Mr Porter’s costs of his claim against them on a standard basis.

Mr Porter was successful in his claim against the Mulcahy parties for breach of retainer. The damages he claimed and was awarded are identical to the damages he claimed against those parties framed as equitable compensation for breach of fiduciary duty, a duty which I found was not established. There is no reason to award Mr Porter his costs on a reduced basis, whether 60% or otherwise.

The appropriate order as between the Mulcahy parties and Mr Porter is that the Mulcahy parties are to pay Mr Porter’s costs (including any reserved costs) of and incidental to the proceeding but limited to Mr Porter’s claim against them on a standard basis to be taxed in default of agreement.

BFMM submits it is entitled to its costs against Mr Porter. Mr Porter opposes such an order.

Mr Porter claimed that BFMM was liable to him for having usurped the opportunity to acquire the CBB business as a constructive trustee; and that he had suffered loss and damage for which he was entitled to equitable compensation or alternatively an account of profits. Mr Porter’s claim against BFMM was wholly unsuccessful.

BFMM submits that because Mr Porter was wholly unsuccessful in his claims against it, applying the usual principle that costs follow the event, Mr Porter should be ordered to pay BFMM’s costs of defending his claim against it on the standard basis.

Mr Porter submits BFMM’s costs of defending the proceeding brought by him and its costs of defending the proceeding brought by Mr Conheady were common. One defence was filed and discovery given was common. Mr Porter disputes there were extra costs involved in the preparation of cross-examination, as there was going to be cross-examination of him in any event. He submits there should be no order as to costs against him. In the alternative he submits his action against BFMM was reasonable in all the circumstances and that Mr Mulcahy ought to pay BFMM’s costs in respect of Mr Porter to the extent that there are any (which Mr Porter says there are not).

BFMM submits that separate and distinguishable costs were incurred by BFMM in defending the claim brought against it by Mr Porter. There was extensive cross‑examination about Mr Porter’s intention to purchase the CBB business, and about the nature and aspects of his retainer. It submits that of the eleven issues in the liability trial eight involved separate questions as between Mr Porter and Mr Conheady, including the existence of fiduciary duties owed to Mr Porter, the scope of those duties and whether they had been breached. Although many of those issues may have been more relevant to the liability of the Mulcahy parties, BFMM was necessarily an interested party and had a lot at stake.

The plaintiffs submit the question of costs is not based on breaking up issues and identifying them in one way or another, but rather based on the time spent by the party in dealing with that issue.

I see no reason to depart from the usual rule concerning the unsuccessful claim by Mr Porter against BFMM, that costs should follow the event. To order that Mr Porter pay BFMM’s costs of his unsuccessful claim against it on a standard basis is not to say that there was no proper or reasonable basis for Mr Porter to bring that claim. Simply, Mr Porter brought a claim against BFMM. His claim against BFMM was unsuccessful. The costs should follow the event.

Although some and perhaps the majority of BFMM’s costs will be common to the claims brought against it by Mr Porter and by Mr Conheady, at least some of BFMM’s costs will only relate to Mr Porter’s claims against it. It was necessary for Mr Porter to succeed on his breach of fiduciary duty claim against the Mulcahy parties in order for him to found his direct claim in equity against BFMM. BFMM’s separate costs may involve costs of separate questions which concern Mr Porter and the preparation of cross-examination by BFMM on issues that only concern Mr Porter’s unsuccessful claims against BFMM. The qualification of those separate costs is a matter that can be attended to either by agreement or, in default of agreement by the Costs Court.

It is appropriate to order that Mr Porter pay BFMM’s separate costs (including any reserved costs) of and incidental to the claim by Mr Porter against it, including as to the existence or otherwise of a fiduciary duty allegedly owed by the Mulcahy parties to Mr Porter on a standard basis.

Stay

At the hearing the Mulcahy parties sought a 42 day stay of execution on any payment in order to provide them with an opportunity to prepare material for the Court of Appeal in an orderly fashion.

The plaintiffs oppose any stay. They submit they are entitled to the fruits of the judgment. The defendants have not put on material to show that they will not be able to meet the payment order. It was submitted Mr Porter and Mr Conheady are persons of substance such that they would be able to repay the amount of the payment orders if required.

I do not propose to embark on a detailed consideration of whether or not this case is an appropriate one to order a stay pending any appeal. That is a matter for the Court of Appeal should an application be made. However I consider it is appropriate to grant a short stay to enable the defendants or any one or more of them, if so advised, to apply to the Court of Appeal for a stay pending the hearing and determination of any appeal. To grant a modest stay to enable any such application to proceed in an orderly fashion is likely to promote efficiency and to avoid the need for the making of an urgent application to the Court of Appeal.

I will order a stay of execution of the Orders giving effect to these reasons for a period of 21 days from the date of these reasons.

I direct the solicitors for the plaintiffs to provide a draft form of order giving effect to these reasons and to provide a copy of the draft order to the defendants and to my Chambers within seven days from the date of these reasons.

SCHEDULE OF PARTIES

TIMOTHY NORMAN PORTER

First Plaintiff

CHRISTOPHER GERARD CONHEADY

Second Plaintiff

- and -

MULCAHY & CO ACCOUNTING SERVICES PTY LTD (ACN 105 360 325)

First Defendant

JAMES EDWARD MULCAHY

Second Defendant

BFMM INVESTMENTS PTY LTD (ACN 625 266 891)

Third Defendant

[2024] VSC 171

10 April 2024