Say-Dee Pty Ltd v Farah Constructions Pty Ltd

[2005] NSWCA 309

CITATION:	Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	7 July 2005
JUDGMENT DATE:	15 September 2005
JUDGMENT OF:	Mason P at 1; Giles JA at 2; Tobias JA at 3
DECISION:	1. Appeal allowed; 2. Orders made by Palmer J on 19 August 2004 and 22 November 2004 be set aside; 3. The parties to bring in draft Short Minutes of Order within 14 days to reflect the relief to be granted as indicated in the reasons for judgment; 4. Costs to follow the event; 5. Liberty be granted to the parties to apply, at the direction of the President, to Tobias JA on 48 hours' notice for further directions in the event that they are unable to agree on an appropriate form of Short Minutes to give effect to the reasons for judgment.

CATCHWORDS:	EQUITY - Fiduciary Obligations - Joint venture for redevelopment of property - Fiduciary duties arising out of joint venture - Scope of fiduciary duties - Development application refused on basis that property needed to be amalgamated with adjoining properties to maximise potential - Fiduciary subsequently acquired adjoining properties - Whether fiduciary duties breached - Fiduciary's obligations of disclosure - No conflict rule - No profit rule - Causal link between fiduciary relationship and profit - EQUITY - Constructive Trusts - Whether adjoining properties held on constructive trust - Recipient liability - First limb in Barnes v Addy - Actual or constructive knowledge on part of recipient of breach of fiduciary duty - Restitutionary approach to recipient liability based on unjust enrichment - Whether acquisition of indefeasible title prevented claim for relief - Whether fiduciary entitled to allowance for entrepreneurial skills
LEGISLATION CITED:	Conveyancing Act 1919 Environmental Planning and Assessment Act 1979 Real Property Act 1900
CASES CITED:	Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation (1983) 1 NSWLR 1 Barnes v Addy (1874) LR 9 Ch App 244 Bailey v Namol (1994) 53 FCR 102 Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1 Biala Pty Ltd v Mallina Holding Ltd (No 2) (1993) 13 WAR 11 Birtchnell v Equity Trustees Executors and Agencies Co Ltd (1929) 42 CLR 384 Blythe v Northwood [2005] NSWCA 221 Bogdanovic v Koteff (1988) 12 NSWLR 472 Breskvar v Wall (1971) 126 CLR 376 Brickenden v London Loan & Savings Co [1934] 3 DLR 465 Browne v Dunn (1894) 6 R 67 Brunninghausen v Glavanics (1999) 46 NSWLR 538 Chan v Zacharia (1984) 154 CLR 178 Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 Farah Construction Pty Ltd v Say-Dee Pty Ltd [2004] NSWSC 800 Fox v Percy (2003) 214 CLR 118 Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd [1988] 2 Qd R 1 Frazer v Walker [1967] 1 AC 569 Green & Clara Pty Ltd v Bestobell Industries Pty Ltd (No 2) [1984] WAR 32 Hagan v Waterhouse (1991) 34 NSWLR 308 Hancock Family Memorial Foundation Ltd v Porteous (1999) 151 FLR 191; (2000) 22 WAR 198 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Koorootang Nominees Pty Ltd v Australian & New Zealand Banking Group Ltd [1998] 3 VR 16 Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548 Kelly v CA & L Bell Commodities Corporation Pty Ltd (1989) 18 NSWLR 248 Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 Maguire v Makaronis (1997) 188 CLR 449 Re Montagu's Settlement Trusts [1987] Ch 264 National Australia Bank Ltd v Rusu [2001] NSWSC 32 News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 NIML Ltd v Man Financial Australian Ltd [2004] VSC 449 Ninety Five Pty Ltd (in liq) v Banque Nationale de Paris [1988] WAR 132 Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1 Paul A Davies (Aust) Pty Ltd v Davies [1983] 1 NSWLR 440 Permanent Trustee Australia Co Ltd v FAI General Insurance Co Ltd (2001) 50 NSWLR 679 Phipps v Boardman [1965] 1 Ch 992; [1967] 2 AC 46 Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 Royal Brunei Airlines Sdn Bhd v Tan Kok Ming [1995] 2 AC 378 Seymour v Australian Broadcasting Commission (1977) 19 NSWLR 219 Spangaro v Corporate Investment Australia Funds Management Ltd (2003) 47 ACSR 285 Tara Shire Council v Garner [2003] 1 Qd R 556 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 Warman International Ltd v Dwyer (1995) 182 CLR 544
PARTIES:	Say-Dee Pty Limited Farah Constructions Pty Limited Farah Elias Lesmint Pty Limited Margaret Elias Sarah Elias Jade Elias
FILE NUMBER(S):	CA 40780/04
COUNSEL:	A: Mr A Sullivan QC / Mr D Raphael 1-6R: Mr M Einfeld QC / Mr V Gray
SOLICITORS:	A: Esplins, Solicitors, Sydney 1-6R: Strathfield Law, Enfield

LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	SC1956/03
LOWER COURT JUDICIAL OFFICER:	Palmer J

CA 40780/04

MASON P
GILES JA
TOBIAS JA

Thursday 15 September 2005

SAY-DEE PTY LTD v FARAH CONSTRUCTIONS PTY LTD & ORS

FACTS

Say-Dee Pty Ltd (Say-Dee) and Farah Constructions Pty Ltd (Farah) entered into a joint venture to purchase and redevelop the property at No. 11 Deane Street, Burwood (No. 11) (the joint venture). Say-Dee was a company in which Ms Dalida Dagher and Ms Sadie Elias (Dalida and Sadie respectively) were the sole directors and shareholders. Dalida and Sadie had no prior experience in property development. Farah was a company which at all material times was controlled by Mr Farah Elias, who was no relation to Sadie (Mr Elias). Mr Elias was an experienced real estate developer.

By agreement between the parties, Say-Dee was to provide the finance for the joint venture while Mr Elias was to be responsible for managing the progress of the development application with Burwood Council (the Council) as well as the ultimate construction and sale of the development. Upon completion of the joint venture, the profits were to be distributed equally between Say-Dee and Farah.

The development application lodged by Mr Elias with the Council was ultimately refused. The basis of that refusal was that the site was too narrow for the proposed development. According to the reports of the Council officers, the full development potential of the site could only be achieved by the amalgamation of No. 11 with adjoining properties.

Mr Elias subsequently sought to acquire two properties adjoining No. 11, which were suitable for an amalgamated development, namely, Nos. 13 and 15 Deane Street, Burwood (Nos. 13 and 15). This was ultimately achieved by Mr Elias causing those properties to be purchased by various parties associated with him, namely, Lesmint Pty Ltd (Lesmint) (a company controlled by Mr Elias), Mrs Margaret Elias (Mr Elias’ wife) and Sarah and Jade Elias (Mr Elias’ two daughters).

It was common ground that Farah owed fiduciary duties to Say-Dee. The issue was the scope of those duties. Say-Dee claimed that Farah breached its fiduciary duties by reason of Mr Elias’ conduct in failing to disclose information pertinent to the joint venture to Say-Dee – namely, the opinion of the Council that No. 11 could not be developed to its maximum potential unless it was amalgamated with one or more adjoining properties – and in subsequently exploiting that information for the benefit of Farah by causing Nos. 13 and 15 to be acquired by parties associated with Farah.

The primary judge, Palmer J, found that Mr Elias had disclosed to Dalida and Sadie Farah’s proposed acquisitions of Nos. 13 and 15 and invited Say-Dee’s participation in those acquisitions. In relation to the scope of Farah’s fiduciary duties, the primary judge ultimately found that all Farah contracted to do was to manage the redevelopment of No. 11 alone; it did not contract to provide Say-Dee with opportunities to participate in any project beyond the boundaries of that property. Accordingly, his Honour held that Farah was under no fiduciary duty to disclose to Say-Dee the opportunity to acquire either No. 13 or No. 15, nor was it under any fiduciary inhibition in acquiring those properties itself.

It was against the above findings that Say-Dee appealed to the Court of Appeal.

HELD per Tobias JA (Mason P and Giles JA agreeing) allowing the appeal:

The primary judge erred in finding that Mr Elias disclosed to Dalida and Sadie his proposed acquisition of Nos. 13 and 15, and invited their participation in that investment. That finding was both glaringly improbable and contrary to compelling inferences ([129], [131]).

Even if the primary judge was correct in finding that Mr Elias did inform Dalida of his proposal to acquire Nos. 13 and 15, Farah was still in breach of its fiduciary duties by Mr Elias’ failure fully to disclose to Dalida and Sadie the true reason as to why each of those properties should be acquired, namely, that if No. 11 was to be developed to its maximum potential then it was a requirement of the Council that it be amalgamated with adjoining properties ([59]-[61], [63]-[64], [68], [71], [73], [197]).

The twin fiduciary duties of Farah were not to withhold information or otherwise act in a manner which either brought Farah’s personal interests into conflict with its fiduciary obligations or resulted in it making a profit as a consequence of the knowledge it gained in the course of undertaking those obligations ([171], [197]).

Birtchnell v Equity Trustees Executors and Agencies Co Ltd (1929) 42 CLR 384; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1; Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1; Kelly v CA & L Bell Commodities Corporation Pty Ltd (1989) 18 NSWLR 248; News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410; Brunninghausen v Glavanics (1999) 46 NSWLR 538; Blythe v Northwood [2005] NSWCA 221 considered.

Acting on behalf of the joint venturers, Mr Elias acquired from the Council valuable information about a method of exploiting the development potential of No. 11. When he used that information without the fully informed consent of Dalida and Sadie, he breached both the “no conflict” rule, because his interest as a purchaser of Nos. 13 and 15 clashed with his duty to them as his fellow joint-venturers, and the “no profit rule”, because the information spurred him to acquire Nos. 13 and 15 and to profit thereby ([173]-[174], [182], [197]).

The primary judge erred in holding that the fiduciary obligations of Farah did not extend beyond redevelopment within the boundaries of No. 11. The subject matter of the joint venture was the redevelopment of No. 11 with a view to maximising profit. Accordingly, the fiduciary obligations of Farah were to disclose fully and accurately to Say-Dee all matters pertinent to any such redevelopment ([140], [177]-[178], [197]).

The opportunity to acquire the adjoining properties, when such acquisition was essential to enhance the development potential of No. 11 and to overcome the Council’s opposition to the redevelopment of that property on its own, was such a matter ([177]-[179], [197]).

It was irrelevant that Dalida and Sadie would have declined for financial reasons any invitation to participate in the acquisitions ([192], [197]).

Brickenden v London Loan & Savings Co [1934] 3 DLR 465; Phipps v Boardman [1967] 2 AC 46; Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1 considered.

The necessary causal link between the fiduciary relationship and the profit received by Farah was established by the fact that, in the course of performing his fiduciary duties, Mr Elias received the critical information from the Council and, as a consequence thereof, set about the acquisition of Nos. 13 and 15 ([143], [146], [149], [194], [196]).

Mrs Elias and her two daughters fell within the “recipient liability” limb of Barnes v Addy (1874) LR 9 Ch App 244. The requirement of knowledge on their part of the defaulting fiduciary’s wrongful conduct was satisfied by the fact that they were taken to have the knowledge of Mr Elias in circumstances where he was acting as their agent in the acquisition of No. 15 ([214]-[215]).

There was support for the proposition that, because Mrs Elias and her two daughters were unjustly enriched by the acquisition of their interests in No. 15, they were “recipients” within the meaning of the first limb in Barnes v Addy, even in the absence of actual or constructive knowledge on their part of Farah’s breach of fiduciary duty ([232]-[233]).

Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548; Koorootang Nominees Pty Ltd v Australian & New Zealand Banking Group Ltd [1998] 3 VR 16; National Australia Bank Ltd v Rusu [2001] NSWSC 32; NIML Ltd v Man Financial Australian Ltd [2004] VSC 449 considered.

The fact that Mrs Elias and her two daughters acquired an indefeasible title to their units in No 15 did not prevent Say-Dee from bringing against them a claim in personam for relief ([237]-[238]).

Frazer v Walker [1967] 1 AC 569 applied.

Accordingly, Farah, Lesmint, Mr and Mrs Elias, and their two daughters held their respective interests in Nos 13 and 15 on constructive trust for the joint venture ([233], [235], [238]).

The surreptitious conduct and bad faith on the part of Mr Elias should not necessarily disentitled him to some allowance for his entrepreneurial skills in acquiring Nos. 13 and 15. However, any such allowance should not be liberal ([249]-[252]).

Phipps v Boardman [1965] 1 Ch 992; Green & Clara Pty Ltd v Bestobell Industries Pty Ltd (No 2) [1984] WAR 32 considered .

CA 40780/04

MASON P
GILES JA
TOBIAS JA

Thursday 15 September 2005

SAY-DEE PTY LTD v FARAH CONSTRUCTIONS PTY LTD & ORS

Judgment

1 MASON P: I agree with Tobias JA.

2 GILES JA: I agree with Tobias JA.

3 TOBIAS JA: The appellant, Say-Dee Pty Ltd (Say-Dee), was at all material times a company in which Ms Dalida Dagher and Ms Sadie Elias were the sole directors and shareholders. The first respondent, Farah Constructions Pty Ltd (Farah), was a company which at all material times was controlled by the second respondent, Mr Farah Elias (Mr Elias). Mr Elias was no relation to Ms Sadie Elias. Mr Elias also controlled the third respondent, Lesmint Pty Ltd (Lesmint). The fourth respondent, Ms Margaret Elias, is his wife. The fifth and sixth respondents, Sarah Elias and Jade Elias, are his daughters.

4 For ease of reference and without intending any disrespect to any of the parties, I shall hereafter refer to Ms Dagher and Ms Elias as Dalida and Sadie respectively.

5 On 2 April 1998 Say-Dee and Farah entered into a contract to purchase the property at No. 11 Deane Street, Burwood (No. 11) as tenants in common in equal shares. Settlement of that purchase took place on 17 September 1998. At that time there was erected on No. 11 a run-down building containing four small residential units. Accordingly, the purpose of acquiring No. 11 was for its redevelopment potential. However, it was a relatively small and narrow site. According to Mr Elias, it had an area of 453.5m², a width of 11.49m and a depth of 39.47m.

6 To advance the purpose that underlay its purchase on 5 January 2000 Mr Elias lodged with Burwood Council (the Council) a development application with respect to No. 11 that was ultimately refused by the Council on 3 April 2001 (the first development application). The basis of that refusal was that the proposed development was too large for the site, or in other words, that the site was too small and narrow to enable its development potential to be maximised under the applicable planning controls. According to the reports of the senior Council officers, that potential could only be achieved by the amalgamation of No. 11 with adjoining properties.

7 According to Say-Dee, but without its knowledge, Mr Elias then set about acquiring No. 15 Deane Street, Burwood (No. 15) which he achieved by four contracts dated 30 June 2001 entered into respectively by the third, fourth, fifth and sixth respondents as purchasers of each of the four strata units contained in the building erected upon that property. Those contracts were completed on 20 November 2001.

8 On 13 December 2001 Mr Elias lodged a further development application (the second development application) with the Council with respect to No. 211 which proposed a smaller development than that the subject of the first development application. However, by letter dated 12 March 2002 the Council's town planner with whom Mr Elias had been dealing (Mr Michael Sue) wrote a letter setting out the deficiencies of the application and which reiterated that the site was too narrow to maximise its development potential without its amalgamation with adjacent sites.

9 On 15 August 2002 Mr Elias caused Lesmint to enter into a contract to purchase No. 13 Deane Street, Burwood (No. 13) which was completed on 6 November 2002. Subject to the one-half interest of Say-Dee in No. 11, Mr Elias now had control, so it was alleged, of an amalgamated site comprising Nos. 11, 13 and 15 Deane Street. In the meantime, on 27 August 2002, some 12 days after Lesmint had entered into the contract to purchase No. 13, Mr Elias caused the second development application with respect to No. 11 to be withdrawn.

10 By summons filed on 19 March 2003, Farah sought the appointment of a trustee for sale of No. 11 pursuant to s 66G of the Conveyancing Act 1919. Say-Dee responded by filing a cross-claim. It conceded that if it failed in its cross-claim, the orders sought by Farah in its Summons must be made. Accordingly, the issues in the litigation were those raised by Say-Dee's cross-claim.

11 By its cross-claim, Say-Dee alleged that Farah, as a consequence of the conduct of Mr Elias, had acquired an interest in Nos. 13 and 15 in breach of the fiduciary duties which it owed to Say-Dee under an alleged partnership or joint venture to acquire and redevelop No. 11. The primary judge, Palmer J, recorded that alleged breach by Farah as involving the acquisition by Mr Elias of information which he failed to disclose to Dalida and Sadie, namely, that No. 11 could not be developed to its maximum potential unless it was amalgamated with one or more adjoining properties. In this respect, the only potential adjoining properties with which No. 11 could be amalgamated were Nos. 13 and 15 as No. 9 Deane Street had already been developed to its maximum potential.

12 It was then alleged that Mr Elias exploited that information for the benefit of Farah by causing Nos. 13 and 15 to be acquired by Lesmint, Mrs Elias and their two daughters who were alleged to have been knowing participants in Farah's breach of its fiduciary duties.

13 The primary judge made a number of findings rejecting Say-Dee's allegations: [2004] NSWSC 800. In particular his Honour found, for reasons to which I shall return, that he was not satisfied that Mr Elias had failed to disclose to Dalida and Sadie on behalf of Say-Dee Farah's proposed acquisitions of Nos. 13 and 15 or that he had failed to invite Say-Dee's participation in those acquisitions. On the contrary, his Honour found (at [55]) that he was satisfied that Mr Elias did so disclose the proposed acquisitions and that he did invite Say-Dee's participation therein, but that that invitation was declined. On this basis alone his Honour was prepared to dismiss Say-Dee's cross-claim. Both those findings of fact were challenged before this Court.

14 However, the primary judge also dealt with the scope of Farah's fiduciary duties to Say-Dee. He found, firstly, (at [67]) that the common intention of the parties was to develop No. 11 in the best and most profitable way permitted by the Council but, secondly, that all Farah contracted to do was to manage the redevelopment of No. 11 alone and that it had not contracted to provide opportunities for Say-Dee to participate in any project other than with respect to such development as could be constructed wholly within the boundaries of No. 11 (at [75]).

15 Accordingly, his Honour held (at [77]) that Farah was under no fiduciary duty to disclose to Say-Dee the opportunity to acquire either No. 13 or No. 15 nor was it under any fiduciary inhibition in acquiring those properties for itself directly or indirectly. It followed that Say-Dee's cross-claim failed and was dismissed. It is against that dismissal that Say-Dee appeals to this Court. In particular, it challenges his Honour's findings with respect to the scope of Farah's fiduciary duties and that it was not in breach of them even if the Elias interests had acquired Nos. 13 and 15 with the knowledge of Say-Dee.

The relevant facts in greater detail

16 Dalida and Sadie through Say-Dee were at all material times partners in a business which ran service stations and coffee shops. They had had no experience with respect to the development of land. On the other hand, Farah had for some time carried on business as a real estate developer. Mr Elias had been involved in property development in Sydney continuously since 1988 and in his evidence he described himself as a property developer by profession.

17 In 1998, Dalida and Sadie had some capital that they wished to invest and contemplated for the first time becoming involved in real estate development notwithstanding that they had no prior experience in that field. Through a mutual friend they were put in contact with Mr Elias who introduced them to No. 11 which, apparently, was for sale. Mr Elias considered No. 11 to be a prime development site as it was directly opposite Burwood Railway Station and was zoned Business Special 3(c2) under the Burwood Planning Scheme Ordinance (the BPSO), a deemed environmental planning instrument under the Environmental Planning and Assessment Act 1979 (the EP&A Act). Furthermore, the property was proposed to be zoned Town Centre Commercial 3(t2) under a draft Town Centre Commercial Local Environmental Plan (the draft LEP) and draft Development Control Plan No. 46 (the draft DCP) which were then in the process of preparation within the Council. Under the latter instruments a maximum floor space ratio of 3:1 was permitted upon No. 11 with a maximum height of four to five storeys.

18 According to the Council officers' reports, No. 11 had an area of 343m² with an average width of 11.07m, a depth of 30.47m and a fall of 1.6m from the front to the rear boundary. At the time of its acquisition by Say-Dee and Farah on 2 April 1998, it was occupied (as recorded in the Council reports) by a run-down two storey residential flat building containing four small units. Nos. 11, 13 and 15 each had a frontage to Deane Street. Nos. 13 and 15 separated No. 11 from Mary Street to the west. To its rear, and fronting George Street, was No. 18 George Street, whereas immediately to the rear of No. 15, and on the corner of Mary and George Streets, was No. 20 George Street (No. 20 George). According to the Council's documents, to which I shall refer further later in these reasons, No. 9 Deane Street (immediately to the east of No. 11) was occupied by a four-storey commercial building whereas No. 13 and No. 20 George were each occupied by an old two-storey residential flat building. The Police Youth Club occupied No. 15 on the corner of Mary and Deane Street.

19 According to the primary judge, the four units in the existing building on No. 11 were run down. Mr Elias' proposal was that they would be refurbished and rented out during the time it would take to prepare a development application, lodge it with the Council and have it approved. It was contemplated that the rental income from the units would service the interest payable on the loan which would be required for the balance of the purchase price of No. 11 after taking account of the capital to be contributed by Say-Dee. The purchase price of No. 11 was $630,000 of which Say-Dee contributed $230,000 together with stamp duty of $31,500, the balance being sourced in a loan from the National Australia Bank. It was proposed that the redevelopment of No. 11 would be partly commercial and partly residential and that upon the sale of the project, the net profit would be divided equally between Say-Dee and Farah.

20 Dalida and Sadie agreed with the proposal put to them by Mr Elias. Because of his experience in property development and their lack of it, it was agreed that Mr Elias would be solely responsible for preparing all development applications to the Council and otherwise dealing with the Council with respect thereto. As his Honour found (at [12]), the essential terms of the agreement between the parties were set out in a letter dated 20 April 1998 from Say-Dee's solicitors to Farah's solicitors in the following terms:

"Re: JOINT VENTURE AGREEMENT – SAY-DEE P/L & FARAH P/L
Property: DEANE STREET, BURWOOD
Our Ref: DP.KM.980189.SB
We understand that the parties to the purchase of the above property, wish to formalise their arrangement in a joint agreement.
As we understand the situation:
1. Both parties are the purchasers in equal shares.
2. Say-Dee is to advance to the joint venture $225,000.00.
3. Balance of funds to be borrowed by the joint venture and secured by way of mortgage over the subject property.
4. Upon completion of the project the profits are to be allocated as follows:
a) 1st priority – repay Say-Dee $225,000.00.
b) 2nd priority – pay all agents commission and legal expenses.
c) 3rd priority – distribute balance 50/50 to joint ventures.
Please let us know if the above is in accordance with your clients instructions. Do you propose to prepare a Joint Venture agreement for our clients consideration?"

21 No joint venture agreement was prepared but it was not disputed that the terms of the agreement between the parties were as set out in the letter of 20 April 1998. As I have indicated, it was also agreed that Mr Elias would undertake the sole responsibility for managing the progress of the development application with the Council as well as the ultimate construction and sale of the development once approved.

22 In due course the four units in No. 11 were refurbished and rented out. Mr Elias undertook the preparation of the first development application to the Council which was lodged on 5 January 2000. It proposed an eight-storey mixed commercial and residential development consisting of commercial premises on the ground floor and 30 one-bedroom units on the upper floors. Due to the proposed basement garage being one storey above natural ground level at the rear or northern boundary, Council officers defined the car parking level as an extra storey. However, because of the narrowness of the site, only four off-street car parking spaces together with a loading bay could be provided therein.

23 The development the subject of the first development application proposed a floor space ratio which significantly exceeded the maximum of 3:1 permitted under the draft LEP. This resulted in amendments to the proposal which were submitted by Mr Elias on 23 March 2000 in an attempt to reduce the floor space ratio. In a report to Council's Building and Development Committee dated 4 April 2000 by the Acting Group Manager, Environmental and Community Services, it was acknowledged that the proposal was permitted under both the draft LEP as well as the BPSO. However, according to the Council's calculations, the floor space ratio was 3.7:1 and therefore still exceeded the permitted maximum whereas the height of the building was considered to be an eight-storey building when the maximum permitted was five storeys. Accordingly, it was concluded that the proposal did not satisfy the objectives and development standards of either the draft LEP or the draft DCP with regard to floor space ratio, height of development and streetscape issues. Nevertheless, at its meeting on 26 April 2000, the Building and Development Committee resolved that the application be deferred for further consultation to allow the issues raised by the applicant and Council staff to be considered.

24 Farah submitted further amended plans on 27 April 2000 which reduced the height of the development by one storey. In a report dated 20 June 2000 to the Building and Development Committee by the Group Manager, Environmental and Community Services, it was noted that no additional consultation had been held with Council staff regarding the planning issues referred to in the report of 4 April 2000. The problem with the amended application was that it still proposed a floor space ratio of 3.21:1 which exceeded the maximum of 3:1 permitted under the draft LEP and proposed a height of seven storeys as against the permitted maximum of five storeys. Furthermore, according to the Council's requirements, a total of 34 car parking spaces were required, whereas only four had been provided.

25 The report recommended that the application be refused on eight grounds. Relevantly it contained the following conclusions:

"The amendments proposed do not satisfy the Draft Town Centre Commercial LEP and DCP for a maximum of 4/5 storeys and a maximum FSR of 3:1. Even if the building did conform with such standards, it is considered that the site is too narrow to maximise its development potential.
Further, the amendments do not give consideration to the other identified Planning issues, i.e. compliance with off-street parking requirements, satisfying urban design and a streetscape controls or consider Council's policy related to the use of SEPP No. 1 in this instance.
The proposed development is considered an over-development of a narrow 11m wide site as evidenced by the inability to provide for car parking due to the lack of manoeuvring space available. The site should be amalgamated with the adjoining properties to achieve its maximum development potential and a more appropriate development permissible under the Draft Town Centre Commercial LEP No. 46 and DCP No. 10. " (emphasis added)

26 A copy of the report had been provided to Mr Elias prior to the Committee's meeting on 26 June 2000 which he attended. Mr Elias made representations at the meeting to the effect that a relaxation of the relevant development standards might be made after discussion with the Department of Urban Affairs and Planning (DUAP).

27 The Committee's decision was conveyed to Farah by letter dated 28 June 2000. It was to defer the application to allow issues raised by Mr Elias, including the matter of affordable housing, to be discussed with DUAP. By letter dated 12 July 2000 Mr Elias on behalf of Farah wrote to the Chairman of Council's Building and Development Committee making further submissions as to why the first development application should be approved. The letter referred to a meeting held between the Council's Group Manager, the Manager of the Building and Development Department and Mr Elias on 11 July 2000, and recorded that the issues of concern to those officers were floor space ratio and height. Mr Elias addressed those issues and suggested that the Council give consideration to the merit of the proposal as providing affordable housing and housing for elderly people which was, according to him, a policy of the State Government.

28 On 3 April 2001, the Group Manager, Environmental and Community Services, prepared a third report to the Building and Development Committee. It was noted that the application, model and supporting documentation had been forwarded to DUAP on 21 July 2000 and that by letter dated 8 March 2001 DUAP had replied with an urban design assessment of the proposal carried out by its Urban Design Advisory Service. That assessment and, in particular, that of its Urban Design Advisory Service was summarised in the report in the following terms:

"The Urban Design assessment suggests that the site is too small to achieve its full development potential and return a positive urban design outcome. The site needs to be amalgamated with adjacent sites to maximise its development potential . The provision of off-street parking is inadequate and the inability of the vehicles to adequately manoeuvre reinforces the need for a larger site.
The narrowness of the site together with the resulting urban design of the proposal would create an undesirable streetscape that is contrary to the urban design controls that seek to achieve a 'human scaled streetscape with active frontages and a moderate scaled street wall'. " (emphasis added)

29 In his conclusion to his report, the Group Manager observed as follows:

"The assessment report suggests that the site is too small to support the scale of development being sought and suggests that the site should be amalgamated with adjacent sites to achieve a proper urban design outcome as part of a new development proposal . Under the circumstances, it is considered that the application should be refused as there is no scope for a redesign of the proposal ." (emphasis added)

He again recommended that the application be refused.

30 Again, Mr Elias addressed the Committee at its meeting on 3 April 2001 when the report was considered. This time the Committee unanimously adopted the Group Manager's recommendation that the application be refused whereupon the Manager, Building and Development, under delegated authority, adopted the Committee's recommendation so that his decision became that of the Council.

31 Mr Elias was formally notified of the Council's decision in a Notice of Determination of a development application issued pursuant to s 81(1)(a) of the EP&A Act and dated 4 April 2001 which, after noting that the application had been refused, stated six reasons for the refusal which I record in full:

" Reasons for Refusal
1. The use of a State Environmental Planning Policy No. 1 Objection is inappropriate, in this instance, to permit the proposed variation to the Floor Space Ratio and as such, Council has no power to approve the application.
2. The proposal is excessive in height, bulk and scale and inconsistent with the development guidelines of the Draft Town Centre LEP and DCP with regard to streetscape and urban design objectives, development envelope and height.
3. The inadequate provision of off-street parking, manoeuvring and non-provision of a car wash bay.
4. The proposal is not in the public interest.
5. The proposal would set an undesirable precedent for similar mixed commercial and residential development in the area.
6. The subject site is considered too small to achieve its full development potential and return a positive urban design outcome ." (emphasis added)

32 It was following the Council's refusal of the first development application on 4 April 2001 that Mr Elias, his wife and two daughters on 30 June 2001 each entered into a contract to purchase one of the four units in No. 15 for a total purchase price of $1,080,000. There is a conflict in the evidence with respect to the circumstances in which this acquisition occurred to which I shall refer hereafter.

33 On 7 December 2001, Farah lodged the second development application with respect to No. 11. This application had a reduced residential component but an increased commercial component. Again, there is a conflict in the evidence as to the extent to which, if at all, this proposal was discussed between Mr Elias on the one hand and Dalida and Sadie on the other. In any event, the application was the subject of the letter of Mr Michael Sue to Mr Elias dated 12 March 2002 (referred to in [8] above) in which the latter was advised, inter alia, that the height and bulk of the building was considered excessive although there was scope to reduce both. Importantly, the letter contained the following statement:

"Council further wishes to advise you of the UDAS Report on the previous application on the subject site concerning the car parking and urban design issues. The report noted that the site is too narrow to maximise its development potential and that the site needs to be amalgamated with adjacent site(s) in order to achieve its potential . Further, the site is too small to provide the necessary car parking amongst other design recommendations. No. 9 Deane Street should not be used as a visual reference point, rather the adjacent residential flat buildings with a 'contemporary interpretation'. " (emphasis added)

34 On 15 August 2002 Mr Elias caused Lesmint (which he controlled) to enter into a contract to purchase No. 13 for $1,680,800 which was completed on 6 November 2002. However, by letter dated 27 August 2002 from Farah to the Council and signed by Mr Elias, the second development application was withdrawn and an application made to the Council for a refund of unexpended lodgement fees. It was not suggested in the evidence that Dalida and/or Sadie were either consulted or aware of this withdrawal.

35 As evidenced by the affidavit and oral testimony of the main players, the above narrative supports the following conclusions. Firstly, Mr Elias was at all relevant times aware that the Council had set its mind against the redevelopment of No. 11 on its own because it was too small and narrow to achieve its maximum development potential and provide a positive urban design outcome. Secondly, Mr Elias was at all relevant times aware that the Council required No. 11 to be amalgamated with adjoining sites (which would include Nos. 13 and 15) in order to achieve those objectives. Thirdly, Mr Elias was aware of the foregoing when, on 30 June 2001, he caused himself, his wife and two daughters to purchase the four units in No. 15. Fourthly, although in December 2001 he lodged the second development application with the Council which related only to No. 11, Mr Elias was aware from Mr Sue's letter of 12 March 2002 that that application was doomed to failure for the very same reasons as had been advanced by the Council in its rejection of the first development application. Fifthly, some five months later he caused Lesmint to enter into a contract to purchase No. 13 and then 12 days later wrote to the Council withdrawing the second development application he had lodged with respect to No. 11.

36 The timing of these events, involving as they do Mr Elias' knowledge of the Council's implacable attitude towards the redevelopment of No. 11 on its own and its requirement that if it was to be redeveloped it must be amalgamated with adjoining or adjacent sites, when taken in conjunction with the acquisition by Mr Elias (through a company he controlled and members of his immediate family) of the two adjoining properties, raises starkly the following issues upon which the parties were in dispute before the primary judge: firstly, the extent to which, if at all, Mr Elias informed Dalida and Sadie as to the Council's attitude to the redevelopment of No. 11; secondly, whether it was as a consequence of the Council's consistent advice to Mr Elias as to the necessity to amalgamate No. 11 with adjacent sites in order to maximise its development potential that Mr Elias caused Nos. 15 and 13 to be acquired; thirdly, whether Mr Elias informed Dalida and Sadie that he had the opportunity to purchase Nos. 15 and 13 and, if so, whether he invited them to participate in their acquisition and in any proposed redevelopment of the three properties as an amalgamated site; and fourthly, whether he fully disclosed to them at the time of the respective acquisitions that the reason for those acquisitions was to enable No. 11 to be developed to its maximum potential as advised by the Council.

The factual issues in dispute before the primary judge

37 It was generally common ground between the parties that, firstly, it did not matter whether the arrangement (to use a neutral term) between Say-Dee and Farah was a partnership or a joint venture. This was because, secondly, Farah accepted that under either arrangement it owed Say-Dee fiduciary duties. One of the contested issues between the parties was the scope of those duties.

38 The primary factual issues in contention were two-fold. The first concerned the nature and extent of the information (if any) provided by Mr Elias to Dalida and Sadie concerning the reasons conveyed to Mr Elias by the Council as to its rejection of the first development application. The second related to whether Mr Elias informed Dalida and Sadie that there was an opportunity to acquire No. 15, and later No. 13; whether he informed them that those properties should be acquired because of the Council's requirement that to maximise No. 11's development potential there was a need to amalgamate it with the adjoining properties; and whether he offered Say-Dee the opportunity of joining in those acquisitions or either of them for the purpose of advancing the redevelopment of No. 11.

39 So far as Mr Elias' state of knowledge prior to the acquisition of No. 15 on 30 June 2001 was concerned, the critical information he had by then obtained from the Council as to its refusal to consent to the first development application was that:

(a) No. 11 was too small and too narrow for the proposed development, which constituted an overdevelopment of No. 11 due, in the main, to its inability to provide the required number of onsite car parking spaces, and thus, due to its narrowness, its redevelopment to its maximum potential would result in an inappropriate development from an urban design point of view so that

(b) the maximum development potential of No. 11 which would be satisfactory from an urban design perspective could only be achieved if the site was amalgamated with adjoining properties. In this respect, the relevant adjoining properties were Nos. 13 and 15.

40 I will deal in turn with each of the two factual issues in contention, noting first the primary judge's findings, and then my findings with respect thereto where those of his Honour have been challenged on the appeal.

What knowledge, if any, did Dalida and Sadie have as to the Council's view that No. 11 needed to be amalgamated with the adjoining properties to achieve its maximum development potential?

41 The primary judge found (at [27]) that Dalida and Sadie were informed by Mr Elias that the Council had rejected the first development application "because there were too many units in the submission". However, they were adamant that they were not told of the opinion of the author of the Council reports that No. 11 was too narrow to enable its development potential to be maximised and that, in order to do so, it needed to be amalgamated with adjoining properties.

42 Although Mr Elias maintained that he kept Dalida and Sadie informed of his discussions with the Council officers, he did not expressly say that he had made known to them that No. 11 was too narrow to enable its development potential to be maximised and that, accordingly, it should be amalgamated with the adjoining properties.

43 At [66] the primary judge noted that counsel for Farah accepted that that information had been conveyed by the Council to Mr Elias in the course of Farah's management of the project and was, therefore, information which should have been conveyed to Say-Dee. His Honour then found that that information was not, "in terms", so conveyed.

44 It is appropriate to refer at this point to Farah's submission that the information that No. 11 was too narrow to enable its development potential to be maximised and that to do so required its amalgamation with the adjoining properties, although not conveyed as his Honour found "in terms", was nevertheless conveyed "in effect" or "in substance". The primary judge made no such finding because he held (at [67]) that the fact that the critical information was not "in terms" conveyed to Say-Dee did not matter as, firstly, the view of the Group Manager, Environmental and Community Services of the Council that No. 11 was too narrow to enable its maximum development potential to be achieved did not mean that no development of any sort was possible on the site and, in any event, Farah's fiduciary duties extended no further than the development of No. 11 within its own boundaries (see at [75]).

45 Nevertheless, Farah submitted before the primary judge and repeated before this Court that the necessity to amalgamate No. 11 with adjoining properties because of its narrowness would, as a matter of common sense, have been obvious to Dalida and Sadie. The basis of this submission was that they knew that the Council had rejected the first development application because No. 11 was too small and too narrow to accommodate the development proposed in accordance with the Council's planning controls.

46 Accordingly, so it was contended, it must follow that it would have been obvious to them that in order for the development the subject of either the first or second development applications (and particularly the first) to be approved, it would be necessary to amalgamate No. 11 with one or more adjoining properties to form a larger site.

47 As his Honour found (at [27]), and as had been admitted by Say-Dee on the pleadings (see [33] of the cross-claim), Mr Elias had informed Dalida and Sadie that the Council had rejected the first development application because "there were too many units in the proposal set out in the plans" and that it was therefore "too big". Sadie, when cross-examined, understood the latter expression to mean that the proposal contained more units than was allowed.

48 However, Farah submitted that in his evidence Mr Elias had said that he had met regularly with and telephoned Dalida and Sadie during early 2001 informing them of the progress of the first development application and the process which the Council was undertaking including the obstacles being encountered. However, Mr Elias spoke only in these general terms in [20] of his affidavit of 19 February 2004, and his evidence was denied by Dalida and Sadie in their affidavits in reply. Dalida did admit in her affidavit in chief that Mr Elias had informed them that the Council had rejected the first application "because there were too many units in the submission" and that he was "working on a new application with fewer units".

49 However, Mr Elias' evidence was somewhat more specific in cross-examination where the following exchange occurred (Black 111V-112E):

"Q. I want to suggest to you, sir, that you never at any stage told my clients that it was the view of the council that to maximise the development potential of 11 Deane Street the property ought to be amalgamated with adjoining properties, what do you say to that?
A. I've always told them.
Q. You've always told them that?
A. That's right.
Q. Can you show me one place in your affidavit where you say that?
A. From memory a response to their affidavit. I've just said that I've always told them whatever is necessary to tell them what's going on all the time."

50 Mr Elias also said (Black 115) that he always picked up the Council reports on a Friday afternoon and obtained two copies, one of which he left with Dalida and Sadie which he went through with them, and the other of which he kept for himself. Dalida and Sadie denied this.

51 However, on 16 July 2001 Farah sent to Say-Dee a letter which, relevantly, was in the following terms:

"Re Deane Development Trust Property: 11 Deane Street, Burwood
Over the past year or so we have regularly kept you informed of the current status of the property …
The management of the trust has now required critical attention due to the culmination of the following events:

· After several months of submissions to the Burwood Council and the State Government, the Council has refused the current development application and we enclose copies of that correspondence. This process incurred a great deal of time and expense on our part with no foreseeable returns.

· …The situation is now more than urgent, we must come to some decision and arrangement in relation to the Trust and the property without any further delays." (emphasis added)

52 In [24] of his affidavit Mr Elias referred to this letter and to a meeting at his office in late August 2001. He then deposed to the following:

"I used the letter as an agenda for the meeting and ticked off each item as we discussed it. We discussed the refusal of the Application from Council and agreed to resubmit a new plan with more commercial component."

53 There is indeed a tick against the first dot point of this letter. However, the correspondence referred to in that paragraph was neither tendered nor identified otherwise in the evidence, whether affidavit or oral. It was not suggested by Dalida or Sadie that they did not receive the letter of 16 July 2001: nor did they deny any part of [24] of Mr Elias' affidavit to which I have referred above. Nevertheless, Farah submitted that the reference in the letter to the refusal of the Council of what was the first development application and the enclosure of copies of "that correspondence", when taken in conjunction with Mr Elias' evidence in his affidavit that there was discussion of the Council's "refusal of the Application", led to the inference that that correspondence must, at the very least, have included the Council's Notice of Determination of the development application of 4 April 2001 in which the last reason for refusal was that the

"… subject site is considered too small to achieve its full development potential and return a positive urban design outcome."

54 Accordingly, Farah submitted that Dalida and Sadie were aware of this reason for refusal from which it was obvious as a matter of common sense that the full development potential of No. 11 could only be achieved if it was amalgamated with adjoining properties. It was further submitted that the primary judge had chosen his words carefully when he held (in [66]) that the information that No. 11 was too narrow to maximise its development potential and that it should be amalgamated with the adjoining properties was not "in terms" conveyed to Say-Dee. However, by so doing, it was contended that his Honour had not ruled out a finding that the substance or effect of that information had been conveyed or at least appreciated by Dalida and Sadie.

55 It is true that in [60] and [61] of his judgment the primary judge concluded that, in his cross-examination, Mr Elias was making an honest endeavour to give answers truthfully and carefully and that his impression of him was that he was an essentially truthful witness. Nevertheless, it is clear that his Honour did not accept Mr Elias' evidence in every respect. In particular, he did not accept his evidence (recorded in [49] above) that he had "always told" Dalida and Sadie that it was the view of the Council that to maximise the development potential of No. 11 the property ought to be amalgamated with adjoining properties. Had that evidence of Mr Elias been accepted by his Honour, he could not have made the finding that he did in [66] that that information was "not, in terms, conveyed to Say-Dee".

56 Furthermore, Mr Elias had given sworn evidence both in his affidavit and orally that he had given Dalida and Sadie "all Council reports relating to the property". Again, the primary judge made no finding that would indicate that he had accepted that evidence. Although it was put squarely to Mr Elias that he had not told Dalida and Sadie of the Council's position with respect to the amalgamation of No. 11 with adjoining properties, no challenge to the opposite effect was put to either woman. So far as Dalida was concerned, the only cross-examination that might have touched on that subject was in the following exchange (at Black 32 U-W):

"Q. When you look at the situation today, you would recognise, wouldn't you, if you were signing a second DA application in 2001, there must have been a reason why the first DA application hadn't been successful?
A. Yes, George told us it wasn't successful.
Q. When did he tell you that?
A. After it was rejected by the Council."

It is telling that the cross-examiner did not follow up this line of questioning and, in particular, did not ask the obvious question: what reasons did Mr Elias give you as to why the Council had rejected the application?

57 It is clear from the Council reports that the first development application was refused on a number of grounds that related, not only to the fact that the development was "too big" in that it was excessive in height, bulk and scale and in that it did not comply with the development standards with respect to floor space ratio and number of storeys as permitted in the draft LEP, but also because No. 11 was both too small and too narrow to accommodate the required number of off-street car parking spaces. Nevertheless, under the development standards of the draft LEP, a floor space ratio of 3:1 was permitted in a building of a height of up to five storeys. That was the maximum potential development of No. 11 to which, in my opinion, reference was made in the various Council reports to which I have referred, as well as in its formal reasons for the refusal of the first development application.

58 There was no doubt that No. 11 was under-developed. The existing building was only two storeys and contained four units. It is equally clear, and in fact common ground, that Mr Elias was an experienced developer and that Dalida and Sadie were not. In fact, this was their first venture into the field of property development. It was an essential part of the arrangement between the parties that all matters relating to the preparation of an appropriate development application and the ultimate obtaining of development consent were entirely the responsibility of Farah through Mr Elias.

59 Even if the correspondence enclosed with the letter of 12 July 2001 included Council's Notice of Determination of 4 April 2001 (and it was not suggested that there was any other relevant correspondence) so that Dalida and Sadie became aware of the Council's formal reasons for refusal, it does not follow, as a consequence of being informed that No. 11 was considered too small to achieve its full development potential and return a positive urban design outcome, that, given their complete lack of knowledge of or experience in the intricacies of land development, they appreciated in any meaningful sense that the Council would only consent to the redevelopment of No. 11 to anything like its maximum potential under the draft LEP and draft DCP if it was amalgamated with the adjoining properties.

60 Furthermore, as the primary judge pointed out during the course of final addresses (Black 134), although it might be common sense that if one is told that a site is too small for a particular development one will need a larger site for the purpose, the Council in the present case was saying more than that: there was, as his Honour correctly termed it, "the additional dimension" that the senior planners of the Council were telegraphing that if a development of the nature of that proposed was to be recommended by the officers for approval, it would be necessary to amalgamate No. 11 with the adjoining properties. In other words, as his Honour suggested, the particular relevance of the information in question and the fact that it emanated from the senior Council planners was, not so much that as a matter of common sense the rejection of the development application because the site was too small meant that a larger site was probably necessary, but that the Council reports were conveying or telegraphing a particular piece of information with respect to the Council's future attitude to any proposed development if No. 11 was amalgamated with the adjoining properties, namely, that subject to achieving a positive urban design outcome, it would most likely be approved or, at least, recommended for approval.

61 It is that aspect of the relevant information that to a developer would be critical. In other words, a developer would only be influenced in incurring the expense and effort of amalgamating a larger site if the Council's senior officers had made it clear, in a written report, that such an amalgamation would likely bear fruit in the form of an approval of the proposed development. Accordingly, even if Dalida and Sadie were aware of the Council's formal reasons for refusal as set out in the Notice of Determination dated 4 April 2001, that information fell short of any knowledge or appreciation on their part of the real significance of that information, namely, the requirement to amalgamate No. 11 with adjoining properties in which event the likelihood of approval would be considerably enhanced. In fact it was never suggested to either of them in cross-examination that they had any such knowledge or appreciation. This is, perhaps, not surprising given that it was common ground that they had placed their total trust and confidence in Farah through Mr Elias to do whatever was necessary to achieve a profitable redevelopment of No. 11.

62 Of course, it should not be forgotten that at no time was it proven that Dalida and Sadie received a copy of the Notice of Determination from Mr Elias and at no time was it proven that the correspondence referred to in the letter of 12 July 2001 included that document as the letter was tendered without any annexures. Neither of them was cross-examined on that letter or as to the identity of the enclosed correspondence. Nor was Mr Elias asked to identify it.

63 Finally and most importantly, notwithstanding that the primary judge considered that Mr Elias was essentially a witness of truth, his Honour was not prepared to make a positive finding that Dalida and Sadie were in fact informed by him, expressly or implicitly, that the full development potential of No. 11 could only be achieved if it was amalgamated with the adjoining properties and that that, in effect, was a requirement of the Council if it was to approve a development which would achieve its maximum potential, being a development which conformed with the development standards of the draft LEP as well as the Council requirements with respect to on-site parking and an appropriate urban design outcome.

64 Accordingly, in my opinion, the primary judge was correct in finding that "in terms" Mr Elias did not convey to Dalida and Sadie that the Council was of the view that No. 11 was too narrow to maximise its development potential and that that potential could only be achieved if it was amalgamated with the adjoining properties. Nor, in my opinion, ought this Court to find, because his Honour certainly did not, that that information, although not conveyed "in terms", was conveyed either in effect or in substance. Therefore, Farah's submissions to the contrary should be rejected and the question posed in the heading to [41] above should be answered: None.

What knowledge, if any, did Dalida and Sadie have of Mr Elias' intention to acquire Nos. 13 and 15?

65 In respect of this issue, there was also conflicting evidence. Mr Elias maintained that, before he procured the purchase of either of Nos. 13 or 15, he informed both Dalida and Sadie about the possibility of acquiring those properties. Dalida and Sadie denied that they were ever so informed. It is appropriate to set out Mr Elias' evidence in [22] of his affidavit which is revealing for what he did not say rather than for what he did say:

"In early 2001 I was negotiating on the purchase of two sites at 20 George Street and 15 Deane Street. At the same time, I became aware that Miss Elias had been diagnosed with cancer and I made an extra effort to keep the accounts in order without referring this issue to Miss Dagher and Miss Elias.
In late May 2001, I met Miss Dagher and said to her:
I said: 'I have been negotiating some options to purchase on 20 George Street and 15 Deane Street and the owners don't want options, they want to sell outright. The owners want two million dollars. Are you interested in these properties?' "

66 Mr Elias' evidence was that Dalida informed him that she and Sadie were not interested as they were in no financial position to commit themselves to such an acquisition. It should be noted that the proposal was for the acquisition of both No. 15 and No. 20 George. Although both were in the same block as No. 11, neither adjoined it although No. 15 was separated from No. 11 only by No. 13. Although it is clear that No. 15 was an adjoining or adjacent property to No. 11 for the purpose of site amalgamation as contemplated by the Council, No. 20 George was not. Nevertheless, it is apparent that, if Mr Elias' evidence was to be accepted, what was offered was the opportunity to acquire both and not No. 15 on its own.

67 Mr Elias' offer to Dalida having been rejected, he caused contracts for the purchase of the four strata units at No. 15 and the four strata units at No. 20 George to be acquired, one each by himself, his wife and two daughters or their nominees pursuant to eight contracts exchanged on 30 June 2001. The total purchase price of No. 15 was $1,080,000 and that of No. 20 George $980,000: a total of $2,060,000. Although the vendor companies were different, it is clear from the contracts that were in evidence that they were commonly controlled. It is apparent that both properties were offered for sale in one line or as a package.

68 What is revealing from the evidence of Mr Elias referred to above is not only that the offer to participate, if it occurred at all, was with respect to No. 20 George as well as No. 15 but also that he did not inform Dalida as to why the acquisition of either or both properties might be advantageous to Say-Dee given the Council's attitude to the redevelopment of No. 11. Furthermore, Mr Elias did not suggest to Dalida that, because of the Council's attitude, she and Sadie should consider joining in the acquisition of No. 15 alone, there being no suggestion by Mr Elias that there was any necessity for them also to be involved in the purchase of No. 20 George.

69 As to the acquisition of No. 13, Mr Elias' evidence (in [26] and [27] of his affidavit) was that in August 2002 he telephoned Dalida and informed her that No. 13 had come onto the market. He said that he informed her that No. 13 was a good proposition for redevelopment in conjunction with No. 11. When asked the purchase price by Dalida, he informed her that it was $1.55 million, possibly more. When she asked him whether that was too much, his response was

"Look Dalida, it is not a matter of how much. It's a matter of not letting it go. I don't want anybody else to buy this property except for us."

70 According to Mr Elias, Dalida then indicated that she and Sadie were not in a position to purchase anything at that time as they were having financial difficulties. She said she was not interested in more investment but that Mr Elias should purchase No. 13 and:

"if we can later develop it with 11 Deane Street, we can take a space equivalent to our space in 11 Deane Street. Otherwise if we get a good price for our property we will consider selling it. It is too much pressure on us at this point in time."

Mr Elias then said that it would be difficult for him to purchase No. 13 on his own and that they should purchase it together. When Dalida informed him that they could not do anything at that time, he replied that he would have to make other arrangements on his own.

71 It is appropriate to interpose at this point two observations. The first, to which I have already referred, is that on Mr Elias' own evidence, when in late May 2001 he met Dalida and asked her whether she was interested in the acquisition of No. 15 and No. 20 George, he did not inform her as to why their acquisition would be beneficial to them; nor did he inform her that, subject to acquiring No. 13, the acquisition of No. 15 would complete the amalgamation which the Council required if the maximum development potential of No. 11 was to be achieved. Further, as I have already observed, Mr Elias only offered Dalida the opportunity of acquiring an interest in both properties and not in No. 15 alone.

72 The second observation is that similar comments can be made with respect to Mr Elias' evidence, if otherwise accepted, with respect to the proposed acquisition of No. 13. It is true that, according to his evidence, he told Dalida that it was

"a good proposition for redevelopment in conjunction with 11 Deane Street"

and that it was

"a matter of not letting it go. I don't want anybody else to buy this property except for us."

73 Although it is apparent from this exchange that Mr Elias was proposing that Dalida and Sadie be involved in the acquisition of No. 13, nevertheless the real reason why it was a "good proposition" and why it should not be let go was not conveyed, namely, that if No. 11 was to be redeveloped at all to its maximum potential then it was a requirement of the Council that it be amalgamated with at least No. 13, if not both Nos. 13 and 15. In other words, the real reason necessitating the acquisition of No. 13 was not conveyed by Mr Elias to Dalida. Rather, Mr Elias was insisting that No. 13 should be acquired by both parties as it would be "difficult for me to do it on my own". This evidence was said by the primary judge (at [54]) to have conveyed an indication on the part of Mr Elias that he did not have the financial strength to acquire No. 13 and that he was looking to Dalida and Sadie to assist him in that regard. Even if that was so, it fell well short of disclosure by Mr Elias to the two women of the real reason as to why he wished them to be involved and as to why it would be a "good proposition" for redevelopment in conjunction with No. 11.

74 However, it seems to me that Mr Elias chose his words carefully and certainly did not convey in terms to Dalida that if No. 11 was to be redeveloped at all it was essential that that occur in conjunction with No. 13. In other words, he did not disclose to Dalida the whole truth. If the scope and extent of Farah's fiduciary duties extended to this information, then as Ipp J pointed out in Biala Pty Ltd v Mallina Holding Ltd (No 2) (1993) 13 WAR 11 at 58, Farah through Mr Elias "was bound to state everything with strict and scrupulous accuracy, and not only to abstain from stating as fact that which was not so, or to omit no one fact within its knowledge the existence of which might in any degree affect the decision to be taken by" Say-Dee through Dalida and Sadie.

75 It was submitted by Farah that the above finding that Mr Elias did not make full disclosure to Dalida of the real reason for "not letting [No. 13] go" was not open because then senior counsel for Say-Dee had in address to the primary judge (at Black 134F-J) conceded that, although he was submitting that there had not been full disclosure with respect to No. 15, he could not make that submission with respect to No. 13.

76 At the hearing of the appeal, senior counsel for Say-Dee sought the Court's leave to withdraw that concession. That leave was opposed by senior counsel for Farah upon the basis that it was a considered decision of senior counsel and was not made either inadvertently or unadvisedly. Nevertheless, it was conceded by senior counsel for Farah that, even if the concession had not been made, his client's evidence would have been no different.

77 In my opinion, leave should be granted for Say-Dee to withdraw the concession. It was only made in final addresses and in any event was not accepted by the primary judge when he found (in [66]) that the information which was the subject of the concession, had not "in terms" been conveyed to Say-Dee by Mr Elias. The true position, in my opinion, is as I have set out in [73] above based, as it is, on Mr Elias' own evidence. I turn, therefore, to Dalida and Sadies' evidence relevant to this issue and their knowledge of the proposal of Mr Elias to acquire the two properties.

78 Dalida swore two affidavits that, in part, related to the acquisition of No. 13. According to her first affidavit sworn 18 June 2003 she and Sadie were informed in mid to late 2002 by Mr Elias that he was purchasing other properties in the area, but he neither informed them as to which properties he was buying nor of any details of the purchase. Dalida denied, in her second affidavit of 17 June 2004 in response to that of Mr Elias in which he gave evidence of his alleged disclosure of the possibility of purchasing Nos. 13 and 15, that the conversations with her recounted by Mr Elias ever occurred.

79 However, in her first affidavit, Dalida recounted a meeting between herself, Sadie and Mr Elias in late October 2002 when he informed them that both development applications for No. 11 had been rejected. This was not entirely correct as the second development application was not rejected but withdrawn by Mr Elias on 27 August 2002. Nevertheless, Dalida recounted in [33] of that affidavit her response to this information which was to ask: "then why don't we do a development with the building next door which you own?". His Honour held (at [39]) that this made it unequivocally clear that she knew by the time of this meeting in October 2002 that Mr Elias' interests owned "the building next door", namely, No. 13. It will be remembered that the contract to purchase No. 13 was entered into on 15 August 2002.

80 The primary judge then referred to [28] of Dalida's second affidavit in which Mr Elias informed her and Sadie "around September/October 2002" that there was a buyer for No. 11, that he wished to sell and that he intended to sell all his other properties in the area as well. She recounted that Sadie then said to Mr Elias:

"What other properties do you own in the area?"

To which he replied:

"Next door to 11 and next door to that."

81 On the basis of the foregoing evidence, his Honour (at [41]) concluded that in the first version of this conversation Dalida was suggesting a joint development with Nos. 11 and 13 to which Mr Elias countered that he was selling all his properties. In the later version according to Dalida, Mr Elias said that he was selling his properties and, when asked by Sadie what they were, informed the two women that they were Nos. 13 and 15.

82 According to the primary judge (at [42]), the foregoing affidavit evidence of Dalida revealed a significant inconsistency at least as of October 2002 in her testimony, namely, that her first affidavit indicated that she was apparently then aware that Mr Elias (or his interests) was the owner of No. 13, which had been purchased under contract dated 15 August 2002 and completed on 6 November 2002, whereas in the later version of this conversation in Dalida's second affidavit, Sadie had to ask Mr Elias what other properties he owned in the area and was then informed that he owned Nos. 11 and 13.

83 It followed, according to his Honour, that if the first version was correct, at least Dalida was aware of the acquisition of Nos. 13 and 15 prior to October 2002 which, according to his Honour (at [42])

"would leave unchallenged the evidence of Mr Elias in his affidavit that he had told her before the proposed acquisitions were made."

84 This conclusion of his Honour is, with respect, in part incorrect. No. 15 was acquired by contracts dated 30 June 2001. No. 13 was acquired by contract dated 15 August 2002. The conversation recounted by Dalida in her first affidavit as to "the building next door which you own" took place in October 2002 and was, in its terms, a reference to No. 13 which was the only building "next door". So much was acknowledged by his Honour in [39] where he said

"This evidence makes unequivocally clear Ms Dagher knew by the time of his meeting in October 2002 that Mr Elias' interests owned ' the building next door ', i.e. No 13."

85 Although the inconsistency in her evidence on which his Honour relied may well relate to the acquisition of No. 13, it cannot also be related, as his Honour has done in [42] of his judgment, to the acquisition of No. 15 which occurred on 30 June 2001. Accordingly, in my opinion, there is no inconsistency in the evidence of Dalida with respect to her alleged lack of knowledge of the acquisition by Mr Elias and his family of No. 15 and, for that matter, No. 20 George.

86 The primary judge then turned to the evidence of Sadie who, in her first affidavit of 19 June 2003, deposed to a conversation between herself, Dalida and Mr Elias in late 2002 whereby Mr Elias said that he was buying some other properties in the area but never informed them of the identity of the properties he was purchasing or any details thereof. Nor did he offer that the women become involved in their purchase.

87 His Honour referred to a further paragraph in the same affidavit where Sadie deposed to the meeting in October 2002, which Dalida had also recounted in her first affidavit. Their versions were generally consistent in that when Dalida suggested that they should reduce the number of units in the proposed development of No. 11, Mr Elias said that was going to sell his other properties to which, according to Sadie, Dalida replied:

"We don't want to sell, we really want to develop this property and think it would be a really great site. Why don't we get together and do a big development with your other properties?"

88 I have already noted, when dealing with the manner in which his Honour approached the affidavit evidence of Dalida, that Mr Elias' evidence which his Honour accepted – that he told her of the proposed acquisitions of both Nos. 13 and 15 – was not supported by Dalida's statement in her first affidavit when she asked

"Why don't we do a development with the building next door which you own?"

which his Honour accepted (at [39]) referred only to No. 13. It must follow that, at least on this evidence, there is nothing to suggest that Dalida was aware prior to 30 June 2001 (being the date upon which Mr Elias and his family entered into the contracts to acquire No. 15) that Mr Elias was negotiating to purchase No. 15 Deane Street and No. 20 George. There is nothing to support his evidence that in May 2001 he informed Dalida at a meeting with her alone (because Sadie was ill at the time) that he was in the process of such negotiations.

89 The same observation may, in my view, be made with respect to the evidence of Sadie to which I have referred above. It is true that at the October 2002 meeting she attributed to Dalida the statement

"Why don't we get together and do a big development with your other properties?"

and that that was a reference to both Nos. 13 and 15. His Honour's conclusion (at [45]) was that by October 2002, Sadie already knew that Mr Elias and his interests owned Nos. 13 and 15. But even if that finding applied to both Sadie and Dalida, it did not warrant a finding that, on or prior to 30 June 2001 and, in particular, in May 2001, they had been made aware by Mr Elias that he was negotiating to purchase No. 15.

90 In her third affidavit of 16 August 2004, Sadie gave a different version of the October 2002 conversation that was, according to his Honour (at [46]), very close to that given by Dalida in her second affidavit. However, his Honour noted (at [47]) that neither Dalida nor Sadie was cross-examined with respect to the inconsistencies he had identified; nor did either of them explain how they arose. This was no doubt because they were simply not asked. His Honour thus concluded that the evidence of the two women on this point was in an "unsatisfactory state".

91 After referring to Dalida's evidence concerning the financial position of Say-Dee at the time of acquisition of Nos. 13 and 15, and concluding that in her affidavit she had been "less than frank and forthcoming", the primary judge concluded (at [54]) that it was inherently probable that Mr Elias would have asked Dalida and Sadie if they were interested in acquiring Nos. 13 and 15 as his unchallenged evidence was that he found great difficulty in raising the money for these acquisitions.

92 In my opinion Mr Elias' unchallenged evidence does not support this finding. Paragraph 22 of his affidavit of 19 February 2004 (Blue 1/98) refers to the fact that since early 2001 (which in cross-examination he said was probably in March) he had been negotiating to purchase No. 15 and No. 20 George, and that in late May 2001 he asked Dalida whether she was interested in these properties. However, in neither his affidavit nor oral evidence is there a reference to any suggestion that he was seeking Dalida's interest in those properties because he was finding difficulty in raising the purchase price.

93 Furthermore, the only evidence of Mr Elias to support the primary judge's finding (at [54]) that it was his unchallenged evidence that he found great difficulty in raising money, not only for the acquisition of No. 15 but also of No. 13, was that in [27] of his affidavit Mr Elias responded to Dalida's intimation that she and Sadie were not in a position to purchase No. 13 as they were having financial difficulties in the following terms:

"Mr Elias Dalida, it will be difficult for me to do it on my own. We should do it together. We must …
Dalida We can't do anything now George
Mr Elias That's OK. I'll have to make other arrangements on my own then."

94 Mr Elias' evidence was that he then successfully tendered to purchase No. 13 for $1,680,000 and that he borrowed the money from St George Bank using personal and company guarantees.

95 As I have noted in [73] above, his Honour interpreted Mr Elias' statement that "it will [be] difficult for me to do it on my own" as indicative of the difficulty he would have in raising the money to acquire No. 13. However, in my opinion the difficulty to which Mr Elias was referring was that of redeveloping No. 13 in conjunction with No. 11. This follows from the immediately preceding statement in [27] of his affidavit where he attributed to Dalida's lack of interest in more investment, a statement by her that Mr Elias should buy No. 13 and that, if it was later developed with No. 11, she and Sadie "can take a space equivalent to our space in 11 Deane Street". Accordingly, the unstated and undisclosed difficulty to which Mr Elias was referring was not related to the question of the cost of acquiring No. 13, or, for that matter, the cost of redevelopment but to the difficulty of developing No. 13 otherwise than in conjunction with the redevelopment of No. 11.

96 Nevertheless, his Honour correctly opined (at [54]) that Nos. 13 and 15 were obviously suitable for an amalgamated development with No. 11. After noting that there was no suggestion in the evidence of any reason, whether of animosity, necessity or greed, for Mr Elias to keep secret from Dalida and Sadie the possibility of a larger development incorporating all three pieces of land, his Honour observed:

"It would have made obvious commercial sense for Mr Elias to endeavour to raise funds for the proposed acquisition of Nos. 13 and 15 from his co-investors in No. 11. If, as he says, he had asked Ms Dagher and Ms Elias, it is probable that he would have met with the response which he says he received."

By this his Honour meant that they would have declined to invest upon the basis that they were in financial difficulty.

97 Accordingly, his Honour concluded (at [55]) in the following terms:

"I am not satisfied that Mr Elias failed to disclose to Say-Dee the proposed acquisition of Nos. 13 and 15 and failed to invite its participation in the investment. On the contrary, I am satisfied that he did so and that his invitation was declined, as he says."

98 This finding of his Honour was based, firstly, upon his previous findings in [47] relating to the inconsistencies in Dalida and Sadie's evidence with respect to their knowledge of the acquisition by Mr Elias or his interests of No. 13 and/or No. 15 prior to October 2002; secondly, upon his findings in [54] that Mr Elias found great difficulty in raising the money for the acquisition of Nos. 13 and 15 so that it was inherently probable that he would have asked the two women if they were interested in joining in the acquisition of the properties; thirdly, that Nos. 13 and 15 were obviously suitable for an amalgamated development with No. 11 and, therefore, it would have made commercial sense for Mr Elias to endeavour to raise funds for their acquisition from his co-investors in No. 11; and, fourthly, that there was no suggestion in the evidence of any reason such as necessity or greed for Mr Elias to keep secret from Dalida and Sadie the possibility of a larger development incorporating all three parcels of land.

226 There is only one decision of the High Court that bears (but indirectly) upon this issue. In Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373, Stephen J, with whom Barwick CJ agreed, cited the following passage from the dissenting judgment of Jacobs P in the Court of Appeal in that case [1974] 1 NSWLR 443 at 459:

"The point of the difference between the person receiving trust property and the person who is made liable, even though he is not actually a recipient of trust property, is that in the first place knowledge, actual or constructive, of the trust is sufficient, but in the second place something more is required, and that something more appears to me to be the actual knowledge of the fraudulent or dishonest design, so that the person concerned can truly be described as a participant in that fraudulent dishonest activity."

227 However, this case was concerned with the second limb of Barnes v Addy and not the first. It is authority for the proposition that there is a distinction between the two and that dishonesty or lack of probity is not a necessary element for recipient liability. This fact is now well entrenched in Australian law: Spangaro v Corporate Investment Australia Funds Management Ltd (2003) 47 ACSR 285; Tara Shire Council v Garner [2003] 1 Qd R 556 at 577; Hancock Family Memorial Foundation Ltd v Porteous (1999) 151 FLR 191 at 209 per Anderson J, affirmed in (2000) 22 WAR 198 per Ipp, Owen and McKechnie JJ; Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 at 164; Koorootang at 105 per Hansen J; Ninety Five Pty Ltd (in liq) v Banque Nationale de Paris [1988] WAR 132 at 173-4, 176 per Smith J. Stephen J in Consul Development was not called upon to consider restitutionary principles as the foundation underpinning the first limb of Barnes v Addy.

228 Since Koorootang was decided in 1997 there have been a number of cases, of which those referred to in the preceding paragraphs are examples, which have considered the first limb of Barnes v Addy but on the conventional basis of the necessity to prove actual or constructive knowledge by the recipient of the breach of trust. None have sought to grapple with the proper rationale upon which recipient liability should be founded. This may well be because in all of them the issue of whether recipient liability can apply in the absence of proof of actual or constructive knowledge did not arise for consideration either because the plaintiff was able to establish the necessary knowledge of the relevant breach or because the case was decided upon other grounds, such that comments upon recipient liability were obiter. Nonetheless, there are dicta which seem to favour the restitutionary approach advocated by Professor Birks and favoured by Hansen J: see NIML Ltd v Man Financial Australian Ltd [2004] VSC 449 [53]-[63] per Harper J; Tara Shire Council at 576 [61]; National Australia Bank Ltd v Rusu [2001] NSWSC 32 at [43]-[44] per Bryson J.

229 In NIML, Harper J ultimately decided the case on the basis that the defendant did not fall within the first limb in Barnes v Addy because it did not actually receive the relevant trust property. Nevertheless, his Honour considered whether constructive knowledge was a necessary element in cases where recipient liability was pleaded. In his Honour's view (at [53]):

"it is an essential ingredient in the cause of action pleaded by [the plaintiff] against [the defendant] that the latter either had constructive knowledge of the general nature of [the defaulting fiduciary's]dishonesty or was unjustly enriched by its receipt " (emphasis added)

230 Later in his judgment, Harper J (at [62]-[63]) refers in some detail to Koorootang, noting Hansen J's preference for the restitutionary view of recipient liability based upon unjust enrichment and in relation to which the knowledge of the recipient is irrelevant. Although it was not necessary for Harper J to decide NIML on that basis, his comments above represent some support for the view that, where the recipient is unjustly enriched, the first limb in Barnes v Addy may be satisfied even in the absence of any kind of knowledge on the part of that recipient.

231 Similarly, in Rusu, Bryson J (as he then was) ultimately determined that the defendants were not recipients of the relevant trust funds and as such did not fall within the first limb of Barnes v Addy. However, his Honour did offer the following comments on recipient liability:

"In [ Royal Brunei ] their Lordships at 386E-386F distinguished recipient liability from accessory liability, apparently on the basis that dishonesty is not an element of recipient liability. Their Lordships were not called on to deal fully with recipient liability but they appear to have expressed the basis of the distinction with the observation: 'Recipient liability is restitution-based; accessory liability is not'.
The principles which deeply underlie equity suggest that a restitution-based remedy must have some basis in the position in conscience of the person against whom it is awarded so that it must be shown that a recipient did not receive the payment for value or had notice of another person's equitable interest in the money; or at the very least, it should be open to him to show that he did give value and had no notice." (emphasis added)

232 Again, his Honour's comments seem to provide support for the proposition that where the recipient is not a purchaser for value the first limb in Barnes v Addy may be satisfied without the necessity to establish actual or constructive knowledge.

233 Writing extra-judicially in January 2003, Mason P referred in favourable terms to Lord Nicholls' call, recorded in [225] above, to abandon the fault-based idea of knowing receipt in favour of the strict liability restitutionary approach subject to a change of position defence: (2003) 77 ALJ 358 at 368. The President nevertheless accepted that the issue had yet to be determined conclusively by the High Court.

234 But in the absence of any High Court authority to the contrary, I see no reason why the proverbial bullet should not be bitten by this Court in favour of the Birks/Hansen approach. In my opinion there is support for the adoption of the restitutionary approach in Lipkin in the House of Lords and in the exposition on the subject by Hansen J in Koorootang at 99-105.

235 On the foregoing basis, Mrs Elias and the two children are liable to account for any profit or benefit they derived from the acquisition of their respective interests in No. 15 as a result of Mr Elias' and Farah's breach of their fiduciary duties. They hold those interests on constructive trust for the joint venture.

236 As I have observed in [176] above, Mrs Elias and her two daughters, as a consequence of the breach by Farah and/or Mr Elias of its/their fiduciary duties, received the benefit therefrom without payment of any relevant consideration therefor. In other words, they may have been bona fide purchasers but not for value.

237 It is well accepted that a fiduciary who profits from his breach of fiduciary duty is liable to account for that profit and that the remedy of an account of profits is appropriate in such a case. The relevant principles are summarised in Meagher, Gummow and Lehane's Equity Doctrines and Remedies, 4th ed [5-245] pp 201-202; [5-250] pp 204-206. Subject to what follows, in my opinion Say-Dee is entitled to a declaration that Farah, Mr and Mrs Elias, Ms Sarah Elias and Ms Jade Elias and Lesmint hold their respective interests in Nos. 13 and 15 on a constructive trust.

Did the fact that Mrs Elias and the two daughters acquired an indefeasible title to their units in No 15 make any difference?

238 Farah then submitted that, on the basis that Mrs Elias and her two daughters became registered as proprietors for an estate in fee simple in each of the units they acquired in No. 15, their legal title thereto was impregnable: Breskvar v Wall (1971) 126 CLR 376; Bogdanovic v Koteff (1988) 12 NSWLR 472. These authorities establish, so it was contended, that the indefeasibility provisions of the Real Property Act 1900 such as s 42 applied to a registered proprietor of land who takes as a volunteer so that he or she takes title free from prior equities of which he or she has no notice. Furthermore, the present was not a case where the exception to indefeasibility based on fraud in the relevant sense had been established.

239 Say-Dee submitted that this was not a matter that was ever pleaded, nor was any such submission made to the primary judge in the court below. However, the principle of immediate indefeasibility from registration is subject to any personal obligation by which the registered proprietor might be forced in personam to deal with the registered title in some particular manner. The crucial passage in Frazer v Walker [1967] 1 AC 569 at 585 states that

"this principle in no way denies the right of a plaintiff to bring against a registered proprietor a claim in personam founded in law or in equity, for such relief as a court acting in personam may grant."

240 A further fallacy in Farah's argument is that if it applies to Mrs Elias and the two daughters, then it must also apply to Mr Elias and Lesmint, each of whom became registered for an estate in fee simple in a unit in No. 15 and the whole of No. 13 respectively. It is not suggested by Farah that indefeasibility of title prevents a declaration that Mr Elias and Lesmint hold their interests in No. 13 and 15 on constructive trust. If this be so, then the same principle applies to Mrs Elias and the two daughters where they have benefited from and are in receipt of an interest in the property the acquisition of which constituted a breach by their husband and/or father of his fiduciary duties. Accordingly, in my opinion, Mrs Elias and her daughters as well as Mr Elias and Lesmint hold their respective interests in Nos. 13 and 15 on a constructive trust.

241 As I have noted, Say-Dee submitted that receivers should be appointed of Nos. 11, 13 and 15, which should then be sold in one line and the relevant profit resulting from that sale should be determined by apportioning the purchase price of each of the three properties to the total price for which all three are sold. After allowing for all costs and expenses in respect of each purchase (including the discharge of any relevant mortgages), the net profit should then be divided equally so that Say-Dee receives 50% of the net profit on one hand and Farah, Mr and Mrs Elias, the two daughters and Lesmint receive 50% on the other.

242 However, Farah submitted that Say-Dee is not entitled to a declaration that the relevant Farah interests hold their interests in Nos. 13 and 15 upon a constructive trust for the No. 11 venture as Say-Dee contends. Rather, the "profit" for which the Farah interests are accountable is the difference (as at the date of trial) in the value of Nos. 13 and 15 insofar as that value is attributable to their aggregation with No. 11 and not to the values of Nos. 11, 13 and 15 aggregated together. As I understand this submission, the relevant "profit" to which Say-Dee would be entitled is 50% of the aggregated site value of Nos. 11, 13 and 15 over and above the aggregated site value of Nos. 13 and 15. It is only the difference between those two sums in respect of which a relevant profit has been made from Farah and/or Mr Elias' breach of fiduciary duty.

243 It is not entirely clear to me why it is necessary, on Say-Dee's submission, for the relevant profit to be determined by apportioning the purchase price for each of the three properties to the total price for which all three are sold in one line and then, after allowing for costs and expenses, dividing the net profit equally between Say-Dee on the one hand and the Farah interests on the other. It seems to me that Say-Dee's submission does not require any such apportionment: it merely seeks that the three properties be sold in one line and that from the gross proceeds of sale there should be deducted all relevant costs and expenses including borrowing costs and charges and the resultant net profit divided equally as if all three properties were part of the joint venture.

244 Farah does not appear to accept that the three properties should be sold in one line but, rather, that they should be valued in their aggregated state and that value used to determine the relevant profit in respect of which Say-Dee would be entitled to 50%. However, such a submission smacks of one which favours equitable compensation rather than an award of an account of profits. If Farah's submission is accepted, then the Farah interests will be entitled to retain their respective interests in Nos. 13 and 15 with the result that they will reap any future increase in the value of those properties in circumstances where they already hold a one half interest in No. 11.

245 Furthermore, that would place Say-Dee at a distinct disadvantage in circumstances where the only purchaser for its one half interest in No. 11 would be the Farah interests as the adjoining owners of Nos. 13 and 15 and the half owner of No. 11. There can be no relevant market for a half-interest in a property. It is true that that might place Say-Dee in a position whereby it can hold the Farah interests to ransom depending upon the extent to which the Council would permit them to redevelop Nos. 13 and 15 without including No. 11. On the other hand if, as the primary judge found, Say-Dee is in financial difficulties and that is still the case, then it would be in a position of significant disadvantage in terms of bargaining with the Farah interests for the sale to them as the only purchaser of its one half interest in No. 11. I have already referred in [184] above to the position of Farah to exert undue pressure upon Say-Dee to sell that interest to Farah or its nominee.

246 In my opinion the proper orders or directions should be those advanced by Say-Dee. Subject to the question of any allowance for the entrepreneurial efforts of Mr Elias in acquiring Nos. 13 and 15 to enable them to be amalgamated with No. 11, in my opinion the orders sought by Say-Dee should be made. Accordingly, receivers should be appointed to obtain a development consent from the Council with respect to the amalgamated site if advised that this would increase its value on sale and it should then be sold in one line. The costs and expenses associated with any application to the Council for development consent should be borne equally by Say-Dee as to 50% and the Farah interests as to 50%.

247 Upon the sale of the amalgamated site in one line, which would involve the discharge of the various mortgages upon the properties, there should be a reference to an Associate Judge for the taking of accounts between the parties in order to determine the net profit generated by the sale. That profit should then be divided equally between Say-Dee on the one hand and the Farah interests on the other.

248 A final matter requiring consideration concerns the allowance, if any, which should be made for the entrepreneurial activities of Mr Elias in acquiring No. 13 and 15 to enable them to be amalgamated with No. 11. Say-Dee has submitted that, although the acquiring parties "placed their assets on the line" when acquiring Nos. 13 and 15 (or at least No. 15), there was little or no evidence before the Court of what risks, if any, they took in making those acquisitions. Accordingly, Say-Dee submitted that any allowance for Mr Elias' entrepreneurial skills should be, at the highest, a minimum amount and should in fact be nothing. This was a case, so it was contended, where there was active concealment on the part of Mr Elias even if it be found, contrary to the view I have formed, that the primary judge was correct in finding that Dalida and Sadie were aware that Mr Elias was negotiating to purchase No. 15 and then No. 13 and that he invited Say-Dee to participate therein.

249 It was submitted that findings as to any conscious wrong-doing by, or absence of bona fides of, Mr Elias as the directing will and mind of Farah were relevant to any limitations which might otherwise be placed upon an appropriate allowance to be made by the Court to the defaulting fiduciary as a consequence of its entrepreneurial skills and efforts.

250 It was further submitted that the authorities established that a fiduciary is required to account to the beneficiary for the gain it has made from a breach of its duties, and that equity grants such relief as is appropriate in the circumstances to take that gain away from the defaulting fiduciary: Paul A Davies (Aust) Pty Limited v Davies [1983] 1 NSWLR 440 at 444.

251 There is no doubt that Mr Elias, as the managing director of Farah, utilised his own skill and other assets to arrange loans for the funds necessary to enable the acquisition of No. 13 in the name of Lesmint and No. 15 in the name of himself, his wife and infant daughters. It is reasonable to assume that he and his wife gave personal guarantees for the repayment of the sum loaned at least in respect of the acquisition of No. 15. It was therefore submitted that these contributions were matters proper to be brought to account as just allowances, at least where the relevant entrepreneur is not guilty of conscious wrongdoing. On this basis, it was proper that there be provision made in any final accounting for just allowances which should be assessed on a "liberal scale".

252 However, it seems well established that the mere acceptance of personal covenants to repay a mortgage advance in the present circumstances is not to be treated as a provision by Mr and Mrs Elias of their own monies: see Davies at 455 per Mahoney JA; see also Hagan v Waterhouse (1991) 34 NSWLR 308 at 355 per Kearney J; Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd [1988] 2 Qd R 1 at 12. In the present case there has been misleading conduct on the part of Mr Elias and, therefore, Farah. Say-Dee made reference to a passage in the judgment of Brinsden J in Green & Clara Pty Ltd v Bestobell Industries Pty Ltd (No 2) [1984] WAR 32 at 37 where his Honour cited from Lord Denning MR in Phipps v Boardman when in the Court of Appeal [1965] 1 Ch 992. At 1020, his Lordship referred to the making of an allowance for remuneration for the defaulting trustees' working skills as the beneficiary's claim for repayment cannot be allowed to extend further than the justice of the case demands. Accordingly, the Court, in its discretion, may allow the defaulting party some recompense unless he has been guilty of any dishonesty, bad faith or surreptitious dealing in which event the discretion may be exercised against allowing any such remuneration or reward.

253 In Green &Clara, Brinsden J pointed out (at 38) that the conduct of the defaulting fiduciary must be taken into account in deciding what is a just allowance bearing in mind that this branch of the law is prophylactic and not solely restitutionary, there being a penal element calculated to deter others from behaving in the same way. However, in that case it was held that there should still be an allowance but not one which was liberal: see also Bailey v Namol (1994) 53 FCR 102 at 112.

254 In my opinion, although there has been a not insignificant degree of surreptitious conduct and bad faith on the part of Mr Elias as the managing director of Farah, nonetheless that should not necessarily disentitle him to some allowance for his entrepreneurial skills and efforts in acquiring Nos. 13 and 15. However, any such allowance should not be liberal but its ultimate amount should be left to the determination of the Associate Judge in the light of the extent to which the acquisition of Nos. 13 and 15 has added to the value of No. 11 and in the light of the ultimate net profit which is achieved by the amalgamation of the three properties and their ultimate sale with or without the benefit of a development consent from the Council.

What orders should now be made?

255 For the foregoing reasons, in my opinion the appeal should be allowed, the orders made by Palmer J on 19 August 2004 and 22 November 2004 be set aside and the parties directed to bring in draft Short Minutes of Order within 14 days to reflect the relief which I have indicated above should be granted. Costs should follow the event. I would grant the parties liberty to apply, at the direction of President, to me on 48 hours' notice for further directions in the event that they are unable to agree on an appropriate form of Short Minutes to give effect to these reasons for judgment.

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03/08/2006	-	Removal of excess paragraph numbers with flow on effect - Paragraph(s) (from [168])
03/08/2006	-	Minor typographical/style amendments - Paragraph(s) [171], [172], [178], [190], [195], [208], [216], [221], [220], [227]