Talacko v Talacko

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION No. 7393 of 1998

HELENA MARIE TALACKO, ALEXANDRA BENNETT, MARTIN TALACKO, ROWENA TALACKO AND MARGARET HELEN TALACKO	Plaintiffs
v
JAN EMIL TALACKO	Defendant

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JUDGE:	Kyrou J
WHERE HELD:	Melbourne
DATE OF HEARING:	7-9, 12-15, 21, 26-30 October 2009
DATE OF JUDGMENT:	24 November 2009
CASE MAY BE CITED AS:	Talacko v Talacko
MEDIUM NEUTRAL CITATION:	[2009] VSC 533

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EQUITY – Breach of terms of settlement – Entitlement to enter judgment for equitable compensation for breach of fiduciary duty – Failure to share with siblings family properties recovered by way of restitution after the fall of the former communist regimes in Czechoslovakia and East Germany.

EQUITY – Principles for assessment of equitable compensation for breach of fiduciary duty – Robust approach due to defendant’s conduct making accurate assessment impossible – No allowance for defendant’s personal exertion – Date for valuation of properties subject to fiduciary duty – Selection of exchange rate.

PENALTY – Whether principles apply to an assessment of equitable compensation by the Court – Whether principles apply where there is an admission of liability for relief sought.

CONTRACT – Construction – Uncertainty – Election and repudiation where plaintiffs pursued parallel proceedings in the Czech Republic – Damages for breach.

SPECIAL REFEREE – Valuation of properties – Adoption of special referee’s report – Rule 50.04 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic).

PRACTICE AND PROCEDURE – Preliminary question tried before final hearing – Question cannot be re-agitated at final hearing – Rule 47.04 of the Rules.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr S J Howells with Ms L Kinda	Holding Redlich
For the Defendant	Mr D J Williams	Findlay Arthur Phillips

TABLE OF CONTENTS

PART 1 – INTRODUCTION AND SUMMARY......................................................................... 1

PART 2 – FACTS......................................................................................................................... 3

(1) Facts taken to be admitted – amended statement of claim dated 18 May 2000.................... 3

(2) Factual findings based on evidence at trial....................................................................... 17

PART 3 – CLAUSE 6 OF THE TERMS OF SETTLEMENT........................................................ 19

(1) Ruling made on 8 October 2009 on the effect of cl 6 of the Terms..................................... 21

(2) Interrelationship between cl 6 and the release in cl 8 of the Terms.................................... 25

(3) Meaning of ‘Properties’ in cl 6 of the Terms..................................................................... 27

(a) ‘Properties’ is defined by reference to paragraph 6 and not paragraph 24 of the 2000 ASC..... 28
(b) ‘Properties’ does not include interests purchased by the defendant...................................... 31
(c) ‘Properties’ does not include those restituted after 23 February 2001.................................. 32
(d) Properties falling within paragraph 6 of the 2000 ASC..................................................... 33
(e) Determination regarding the properties referred to in cl 6 of the Terms............................... 39

PART 4 – SPECIAL REFEREE.................................................................................................... 39

(1) Questions referred to special referee................................................................................ 39

(2) Special referee’s reports................................................................................................... 40

(a) Special referee’s valuation of Prague 1 Properties............................................................. 43
(b) Special referee’s valuation of land in Řepy....................................................................... 43
(c) Special referee’s valuation of land at Suchá...................................................................... 44
(d) Special referee’s valuation of all Restituted Properties....................................................... 45
(e) Special referee’s estimates of rental value......................................................................... 45

(3) Adoption of special referee’s report................................................................................. 48

PART 5 – ASSESSMENT OF EQUITABLE COMPENSATION................................................ 49

(1) Principles for assessing equitable compensation for breach of fiduciary duty................... 49

(2) Application of the principles – general comments............................................................ 55

(3) Ruling made on 13 October 2009 on evidence of the defendant’s conduct........................ 55

(4) Equitable compensation based on value of Restituted Properties..................................... 60

(a) Which valuation date should be adopted?......................................................................... 60
(b) Should the Initial or Revised Valuation of the Prague 1 Properties be adopted?.................... 62
(c) Valuations of two-thirds interests rather than value of properties as a whole........................ 64
(d) Component of equitable compensation based on two-thirds of property values...................... 66

(5) Equitable compensation based on net income from Restituted Properties........................ 66

(a) Did the defendant earn any net income from the Restituted Properties?.............................. 66
(b) What rental income did the defendant earn from the Restituted Properties?......................... 68
(c) What expenditure did the defendant incur on the Restituted Properties?............................. 70
(d) Component of equitable compensation based on two-thirds of net income............................. 73

(6) Allowance for defendant’s rent-free use of an apartment in Haštalská 12......................... 74

(7) Should an allowance be made for the defendant’s personal exertion?.............................. 75

(8) Conclusion on amount of equitable compensation........................................................... 79

PART 6 – DEFENCE: CLAUSE 6 CONSTITUTES A PENALTY............................................... 80

(1) General principles relating to penalties............................................................................ 81

(2) Principles in the context of settlement agreements........................................................... 84

(3) Trend in the authorities supporting freedom of contract.................................................. 88

(4) Admissibility of evidence on the question of penalty....................................................... 89

(5) Evidence in the present case............................................................................................. 89

(6) Decision on penalty......................................................................................................... 93

(a) An amount of equitable compensation assessed by the Court cannot be a penalty.................. 93
(b) Clause 6 cannot be a penalty because of an implicit acknowledgment of liability................... 94
(c) Analysis if the traditional tests are applied....................................................................... 97

PART 7 – DEFENCE: CLAUSE 6 IS UNCERTAIN.................................................................. 100

(1) Principles....................................................................................................................... 101

(2) Observations in the Preliminary Judgment..................................................................... 102

(3) Decision on uncertainty................................................................................................. 103

PART 8 – DEFENCES BASED ON PARALLEL CZECH PROCEEDING................................. 103

(1) Commencement of Czech proceeding and grant of preliminary injunction.................... 104

(2) Osborn J’s ruling of 26 June 2008.................................................................................... 108

(3) Court of Appeal decision of 21 November 2008.............................................................. 110

(4) My ruling of 11 March 2009............................................................................................ 112

(5) Developments in the Czech proceeding after May 2009.................................................. 113

(6) Oral evidence relating to the Czech proceeding.............................................................. 113

(7) Submissions of the parties on the defences of repudiation and election.......................... 114

(8) Decision on defence of repudiation................................................................................ 116

(9) Decision on defence of election...................................................................................... 117

(10) Defence based on international comity......................................................................... 118

PART 9 – ALTERNATIVE CLAIM: DAMAGES FOR BREACH OF THE TERMS................. 119

(1) Findings on breach of the Terms in the Preliminary Judgment....................................... 120

(2) Ruling made on 12 October 2009 precluding evidence of further breaches..................... 121

(3) Assessment of damages for breach of the Terms............................................................ 125

PART 10 – PROPOSED ORDERS............................................................................................ 128

HIS HONOUR:

PART 1 – INTRODUCTION AND SUMMARY

This proceeding was commenced in 1998 against Jan Emil Talacko (‘defendant’) by his sister, Helena Marie Talacko (‘Helena’), and the widow and children of their deceased brother, Peter Talacko (‘Peter’).

Helena has sued through a litigation guardian. Initially, the litigation guardian was her daughter, Anna Talacko. Since July 2005, however, the litigation guardian has been her son, Jan Talacko (‘Dr Talacko’). Peter’s widow is Margaret Helen Talacko (‘Margaret’) and the children are Alexandra Bennett (‘Alexandra’), Martin Talacko (‘Martin’) and Rowena Talacko (‘Rowena’).

The plaintiffs allege that the defendant has not honoured agreements he made with his siblings in the early 1990s to share equally any interests in land he obtained in the Czech Republic, Slovakia and Germany as a result of the restitution of properties that had been confiscated from their parents – Alois and Anna Talacko[1] – by the communist governments of Czechoslovakia and East Germany after the Second World War.
[1]Unless stated otherwise, further references to Anna Talacko are to Helena’s daughter rather than to her mother.

The proceeding was settled when the parties entered into Terms of Settlement dated 23 February 2001 (‘Terms’). In July 2005, however, the plaintiffs reinstated the proceeding on the basis that the Terms had been breached by the defendant. They applied for judgment in accordance with the Terms.

The allegation that the defendant had breached the Terms was heard as a preliminary question by Osborn J in November 2007 (‘Preliminary Hearing’) pursuant to r 47.04 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) (‘Rules’). On 24 April 2008, his Honour decided that the defendant had breached the Terms (‘Preliminary Judgment’).[2] I heard the remaining issues in the proceeding, which concerned the plaintiffs’ entitlement to judgment for equitable compensation pursuant to cl 6 of the Terms.
[2]Talacko v Talacko [2008] VSC 128.

Although the Terms are fully set out in [26] below, as cl 6 is central to this judgment, it is appropriate to set it out here. It states:

In the event that the Defendant breaches any term, condition or warranty in this agreement, then the Plaintiffs shall be entitled to enter judgment for an order that the defendant pay equitable compensation for breach of fiduciary duty in respect of each of the Properties and interests in the Properties (as defined in the amended statement of claim) recovered or obtained by him, together with the costs of entering such judgment, and the production of these terms of settlement shall be conclusive evidence of the defendant’s irrevocable consent to the entry of such judgment.[3]

[3]The Terms were handwritten and contain some minor errors.

It was common ground that the amended statement of claim that is referred to in cl 6 of the Terms is the amended statement of claim dated 18 May 2000 (‘2000 ASC’). However, there was little agreement between the parties on any other aspect of cl 6.

The key questions for determination by me, and the conclusions I have reached for the reasons set out below, are as follows:

(a)Are the plaintiffs entitled to enter judgment for equitable compensation without having to prove that the defendant owed them a fiduciary duty or that he breached it? : Yes.
(b)Which properties are relevant to the assessment of equitable compensation? : The properties that had been restituted to the defendant as at the date of the Terms.[4]
(c)What is the date by reference to which the relevant properties are to be assigned values and what is to be the basis for those values? : The date is the date of this judgment and the values are to be based on those determined by the special referee as at the date of his report.[5]
(d)Is cl 6 a penalty? : No.
(e)Is cl 6 uncertain? : No.
(f)By pursuing parallel proceedings in the Czech Republic, did the plaintiffs repudiate the Terms or make an election that precludes them from obtaining judgment for equitable compensation pursuant to cl 6 of the Terms? : No.
(g)What is the amount of equitable compensation payable by the defendant to the plaintiffs? : €8,955,016 together with $881,017.[6]

[4]See Table 1 at [77] below.

[5]See Table 5 at [104] below. ‘Special referee’ is defined in [89] below.

[6]See [215] below. It was common ground between the parties that it was not necessary for me to distinguish between the entitlements of each plaintiff for the purposes of this judgment. I note also that Margaret was a plaintiff as executor and trustee of Peter’s estate, and that she did not seek equitable compensation on her own behalf.

For convenience, I have included a list of terms, abbreviations and key individuals at the end of this judgment.

PART 2 – FACTS
(1) Facts taken to be admitted – amended statement of claim dated 18 May 2000

The plaintiffs’ claims against the defendant stem from agreements they allege in the 2000 ASC were entered into by Helena, Peter and the defendant (‘siblings’) in Melbourne in 1991 and 1992 (‘Sibling Agreements’).

On 8 October 2009, I ruled that cl 6 of the Terms entitled the plaintiffs to enter judgment for equitable compensation for breach of fiduciary duty without needing to prove either the existence of such a duty or its breach. As a result of the settlement in 2001 and my ruling of 8 October 2009, the facts alleged in the 2000 ASC have not been, and will not be, the subject of judicial determination in this proceeding. As will be seen from the reasons for my ruling of 8 October 2009, which are set out in Part 3(1) of this judgment, all facts alleged by the plaintiffs in the 2000 ASC in support of their claim for equitable compensation under cl 6 of the Terms are taken to be admitted by the defendant.

In these circumstances, in order for this judgment to be properly understood, it is necessary for me to set out significant portions of the 2000 ASC.

The relevant parts of the 2000 ASC are as follows:[7]
[7]The particulars to paragraphs 9, 11, 17, 19, 20, 21 and 25, and parts of the particulars to paragraph 26, of the 2000 ASC have been omitted.

1.The first plaintiff (“Helena”), the defendant and the late Peter Talacko (“Peter”) are the children of the late Alois Talacko (“Alois”) and the late Anna Talacko (“Anna”).
2.(a) Alois died on 13 January 1964;
(b)Anna died on 30 May 1984;
(c)Peter died on 24 November 1995.

3.At all material times:
(a)Helena and the defendant have been; and
(b)Peter was,
Czech citizens.

4.The second plaintiff (“Alexandra”), the third plaintiff (“Martin”) and the fourth plaintiff (“Rowena”) are the children of Peter.
…
6.Prior to 1948, Alois, Anna and Helena variously owned or owned interests in a number of real properties situated in:
(a)the Czech Republic, the Slovak Republic (both formerly Czechoslovakia) (the “Czech Properties”); and
(b)Germany (the “German Properties”),
(collectively, the “Properties”).
Particulars
The Czech Properties
Hastalska 12 (cp 751), Prague 1                   100%
Ramova 8 (cp 939), Prague 1  100%
Rybna 8 (cp 753), Prague 1  100%
Melantrichova (cp 465), Prague 1                67/144
Hastalska 15 (cp 755), Prague 1                   7/12
Kollarova (cp 330), Holesovice-Bubny        100%
Agricultural land
17.4473 hectares of land in Repy
- Approximately 0.8 hectares of land in Kbely
Land situated in Slovakia
Approximately 364 hectares of land in Sucha
The German Properties

Kiefernstrasse 19, Dresden (land titles reference “Grundbuch von Dresden-Neustadt, Blatt 2247
Kiefernstrasse 19b, Dresden (land titles reference “Grundbuch von Dresden-Neustadt, Blatt 1621, Flurstueck 1595i)
Further particulars may be provided following discovery and interrogation, or otherwise as they become available to the plaintiffs.
7.(a) The Czech Properties were confiscated or nationalised by the communist Czech government between about 1948 and 1989.
(b)The German Properties were both placed under government management by the communist East German government in about 1952.
(c)The second of the German Properties, Kiefernstrasse 19b, Dresden, was formally expropriated, pursuant to statute, by the communist East German government on about 16 July 1984.

8.(a) In about 1989, after the communist regime in Czechoslovakia came to an end, there were reports that the new, democratically elected government, led by President Havel, might return property so confiscated or nationalised in and after 1948 to the former owners and their next of kin.
(b)In about 1989 or 1990, as part of the process of reunification of East and West Germany, the governments of East and West Germany issued a joint statement to the effect that any unjust dealings with property situated in East Germany should be addressed and rectified.

9.(a) In January or February 1990, Helena, the defendant and Peter (the “siblings”) met at 312 Glenferrie Road, Malvern, Victoria (the “first meeting”), to discuss the reports concerning restitution of property and the manner in which they should undertake reclamation of the Properties.
(b)At the first meeting, the siblings promised and agreed with each other that:
(i)they would act in unison and together should there be an opportunity in the future to regain the Properties, and that the Properties would, once regained, be divided between them in equal shares;
(ii)each would take such action as he or she could on behalf of the siblings to procure the restitution of the Properties, although it was understood that Helena’s capacity to assist in non-financial ways was limited due to her ill health.

10.(a) On about 11 July 1990, the East German government issued a decree outlining the procedures for the lodgement of claims for property located in East Germany confiscated or placed under state administration or trusteeship.
(b)The reunification treaty between the two German states of 31 August 1990 annexed legislation entitled “Vermoegensgesetz” which provided, inter alia, that former owners or successors of former owners of property seized under either the former national-socialist German government or the communist East German government may claim the return of the property or, alternatively, monetary compensation, such claims to be lodged by 30 June 1993.

11.Following the first meeting, in late 1990, and in pursuance of the mutual promises and agreement referred to in paragraph 9 above, the defendant, on behalf of the siblings:
(a)travelled to the Czech Republic, where he remained for about three months before returning to Australia:
(i)in order to investigate;
(ii)and investigated,

on behalf of the siblings, the possible restitution of the Czech Properties to the siblings;
(b)sent to the Stadtverwaltung Dresden Nord (the Council of the City of Dresden) and the Consulate General of the Federal Republic of Germany a letter claiming ownership of two of the German Properties, as well as war damage for the loss of the other German Properties and damages for confiscation and loss of income in respect of the German Properties, on behalf of the heirs of Herr Alois Talacko, being the siblings.

12.Also following the first meeting, the Czech legislature enacted the following laws (collectively, the “restitution laws”):
(a)in about October 1990, law no. 403/1990 (the “first restitution law”);
(b)in about February 1991, law no. 87/1991 (the “second restitution law”);
(c)later in 1991, law no. 229/1991 (the “third restitution law”).

…
16.On about 4 March 1991, the siblings met (the “second meeting”) at 312 Glenferrie Road.
17.At the second meeting, the siblings promised, and agreed with each other:
(a)that they would act in unison and together to procure restitution of the Properties;
(b)that each would take such action as he or she could on behalf of the siblings to procure the restitution of the Properties;
(c)that any interest in the Properties, or income from the Properties, or proceeds from the sale of the Properties, recovered or obtained by any one or more of the siblings would be held by the relevant sibling for the benefit of himself or herself and the others in equal shares, provided that, if any of the siblings were to die, that sibling’s share was to be held for the benefit of his or her children;
(d)that any of the Properties which were recovered by any one or more of the siblings would be divided between the siblings in equal shares, provided that, if any of the siblings were to die prior to such division, that sibling’s share was to go to his or her children;
(e)further or alternatively, that any interest in the Properties, or income from the Properties, or proceeds from the sale of the Properties, recovered or obtained by any one or more of the siblings would be divided between the siblings in equal shares, provided that, if any of the siblings were to die prior to such division, that sibling’s share was to go to his or her children;
(f)further, or alternatively, that:
(i)the defendant and Peter would make claims for restitution in respect of the Properties on behalf of themselves and Helena, due to Helena’s ill health;
(ii)the defendant would make claims for restitution in respect of the Czech Properties under the restitution laws on behalf of himself and Peter as well as Helena if Peter failed to obtain permanent residency in the Czech Republic prior to the expiry of the time limitations under the restitution laws;
(iii)Peter would make claims for restitution in respect of the Czech Properties under the restitution laws on behalf of himself and the defendant as well as Helena if the defendant failed to obtain permanent residency in the Czech Republic prior to the expiry of the time limitations under the restitution laws;

(g)that the costs of obtaining restitution of the Properties or any of them and other related expenditure would be borne equally by the siblings, provided that, if any of the siblings were to die, the obligation to meet that sibling’s share of such costs or expenditure was to be borne by his or her estate.

18.Further, during the course of the second meeting, in consideration of and pursuant to the mutual promises and agreement referred to in the preceding paragraph, the siblings exchanged the following documents in order to give effect to the terms of those mutual promises and agreement:
(a)declarations in favour of each of the other siblings to the effect that the sibling making the declaration ceded all of his or her rights or entitlements to the Properties to the sibling in whose favour the declaration was made;
Particulars
The declarations were in writing, dated 4 March 1991, and were comprised as follows:
(1)declaration of Helena in favour of the defendant, Jan Talacko;
(2)declaration of Helena in favour of Peter;
(3)declaration of Peter in favour of the defendant;
(4)declaration of Peter in favour of Helena;
(5)declaration of the defendant in favour of Peter;
(6)declaration of the defendant in favour of Helena.

Copies of the declarations made by Helena in the Czech language, together with English translations of such documents, are available for inspection by prior appointment at the offices of the plaintiffs’ solicitor. The plaintiffs do not presently have, or have copies of, the other declarations.
Further particulars may be provided following discovery.
(b)bequests to each of the other siblings of the whole of the interest in the Properties to which the sibling making the bequest was, at the date of his or her death, entitled;
Particulars
The bequests were in writing, dated 4 March 1991, and were comprised as follows:
(1)bequest of Helena to the defendant;
(2)bequest of Helena to Peter;
(3)bequest of Peter to the defendant;
(4)bequest of Peter to Helena;
(5)bequest of the defendant to Peter;
(6)bequest of the defendant to Helena.

Copies of the bequests made by Helena in favour of Peter and the defendant, and by the defendant in favour of Helena, in the Czech language, together with English translations of such documents, are available for inspection by prior appointment at the offices of the plaintiffs’ solicitor. The plaintiffs do not presently have, or have copies of, the other bequests.
Further particulars may be provided following discovery.

19.In the premises, there was an agreement (the “Agreement”) between the siblings, in consideration of the mutual promises referred to in paragraphs 9 and 17 above, to the effect:
(a)that the siblings would act in unison and together to procure restitution of the Properties;
(b)that each of the siblings would take such action as he or she could on behalf of the siblings to procure the restitution of the Properties;
(c)that any interest in the Properties, or income from the Properties, or proceeds from the sale of the Properties, recovered or obtained by any one or more of the siblings would be held by the relevant sibling for the benefit of himself or herself and the others in equal shares, provided that, if any of the siblings were to die, that sibling’s share was to be held for the benefit of his or her children;
(d)that any of the Properties which were recovered by any one or more of the siblings would be divided between the siblings in equal shares, provided that, if any of the siblings were to die prior to such division, that sibling’s share was to go to his or her children;
(e)further or alternatively, that any interest in the Properties, or income from the Properties, or proceeds from the sale of the Properties, recovered or obtained by any one or more of the siblings would be divided between the siblings in equal shares, provided that, if any of the siblings were to die prior to such division, that sibling’s share was to go to his or her children;
(f)further, or alternatively, that:
(i)the defendant and Peter would make claims for restitution in respect of the Properties on behalf of themselves and Helena, due to Helena’s ill health;
(ii)the defendant would make claims for restitution in respect of the Czech Properties under the restitution laws on behalf of himself and Peter as well as Helena if Peter failed to obtain permanent residency in the Czech Republic prior to the expiry of the time limitations under the restitution laws;
(iii)Peter would make claims for restitution in respect of the Czech Properties under the restitution laws on behalf of himself and the defendant as well as Helena if the defendant failed to obtain permanent residency in the Czech Republic prior to the expiry of the time limitations under the restitution laws;

(g)that the costs of obtaining restitution of the Properties or any of them and other related expenditure would be borne equally by the siblings, provided that, if any of the siblings were to die, the obligation to meet that sibling’s share of such costs or expenditure was to be borne by his or her children;
(h)that any of the siblings who recovered any of the Properties would effect a transfer of the Properties or such interests in the Properties to the other or others as would be necessary to give effect to the foregoing terms of the Agreement.

20.Further or alternatively, in the premises each of the siblings was in a fiduciary relationship with each of the other siblings, and thereby owed to each of the other siblings a fiduciary duty, in relation to the recovery, administration, and disposal or distribution of the Properties:
(a)to act honestly and fairly towards each other and in the interests of the others and each of them;
(b)not to act for his or her own benefit alone;
(c)not to act capriciously or unconscionably towards the others or either of them.

21.Pursuant to, and for the purposes of carrying out, the Agreement and the fiduciary relationship referred to in the preceding paragraph:
(a)Peter travelled to Prague in about March or April 1991 in order to ascertain whether the first restitution law applied to any of the Czech Properties, and to progress generally the claims of the siblings in relation to restitution of the Properties, for which purpose he, inter alia:
(i)engaged a solicitor, Dr Buresova, to pursue on behalf of the siblings restitution of the Czech Properties situated in Prague under the restitution laws, and paid her a retainer of KC3000;
(ii)engaged another solicitor, Dr Elbrs, to pursue on behalf of the siblings restitution of the Czech Properties situated in Repy under the restitution laws, and paid him a retainer of KC5000;

(b)at some time after March or April 1991, Peter made an application for permanent residency in the Czech Republic;
(c)the siblings met on Peter’s return from Prague in about May 1991, at which meeting Peter reported to the siblings the things he had done while in the Czech Republic, as set out in sub-paragraph (a), and the siblings decided that the defendant would travel to the Czech Republic next in order to further the siblings’ claims for restitution in relation to the Czech Properties;
(d)on about 10 July 1991, Peter paid to the defendant A$5,000 in order to help meet the expenses of pursuing the siblings’ claims for restitution in relation to the Properties;
(e)the defendant travelled to Prague in July 1991 and was joined there in September 1991 by Peter;
(f)in about September 1991, the defendant and Peter established a joint bank account at the Zivnotencka Bank in Prague, to which they were both signatories and into which they each deposited US$500, for use in pursuing the siblings’ claims for restitution in relation to the Czech Properties;
(g)in about September 1991, the defendant and Peter established a bank account at the Ceska Sporitelna Savings Bank in Prague in the name of the defendant, to which they were both signatories and into which they each deposited KC200 for use in pursuing the siblings’ claims for restitution in relation to the Czech Properties;
(h)in about September 1991, while Peter was in Prague, he assisted the defendant in preparing applications for restitution in respect of the Czech Properties on behalf of the siblings, it having been agreed between Peter and the defendant (pursuant to the Agreement, on behalf of themselves and Helena) that such applications would be made in the name of the defendant only, since he was the only one of the siblings who had, at that stage, obtained permanent residency of the Czech Republic;
(i)on about 28 January 1992, Peter paid to the defendant A$5,000 in order to help meet the expenses of pursuing the siblings’ claims for restitution in relation to the Properties;
(j)on some date after April 1991, the defendant instructed the solicitor Buresova to pursue a formal application in the name of, and on behalf of, all three of the siblings for restitution of the German Properties (the “German application”);
(k)[f]rom February 1994 until his death, Peter paid all solicitors’ fees and like charges relating to the German application;
(l)pursuant to the German application:
(i)on about 27 June 1995, the German land titles register was amended to record that the property at Kiefernstrasse 19, Dresden, was owned by Peter, Helena and the defendant;
(ii)on about 3 May 1996, the restitution office at Dresden decreed that the property at Kiefernstrasse 19b, Dresden, was to be returned to the beneficiaries of the estates of Anna and Alois, namely, the siblings.

(m)Peter and Helena have, since restitution of the German Properties, paid their share of all land taxes and other charges, including Ablosebetrag, with respect to the German Properties.

22.(a) The defendant was granted permanent residency in the Czech Republic in about August 1991.
(b)Peter was granted permanent residency in the Czech Republic on 2 October 1991, which was two days after expiry of the 30 September 1991 deadline applicable to the lodging of restitution claims under the second restitution law.

…
24.Since August 1991, the defendant has:
(a)obtained, recovered or been granted title to, or entitlements or interests in;
(b)obtained income from,
some or all of the Czech Properties pursuant to the restitution laws.
Particulars

The following Properties or interests have been obtained by or granted to the defendant pursuant to the restitution laws:
(a)Seven twelfths share of Hastalska 15 (cp 755) and building lot 860, Prague 1;
(b)253/288 share of 11 Melantrichova (cp 465) and building lot 425, Prague 1;
(c)Ramova 8 (cp 939) and building lot 821, Prague 1;
(d)Rybna 8 (cp 753) and building lot 832, Prague 1;
(e)Hastalska 12 (cp 751) and building lot 823, Prague 1.

These are the best particulars the plaintiffs are presently able to give. The plaintiffs do not know whether further Properties have been restituted to the defendant. Further particulars may be provided following discovery and interrogation.
25.In the premises, the defendant has, at all material times, held any interest in or entitlement to the Properties:
(a)       pursuant to the terms of the Agreement;
(b)       in his capacity as a fiduciary of:
(i)        the siblings, and
(ii)following the death [of] Peter, Helena and Alexandra, Martin and Rowena, as children of Peter;

(c)on trust for:
(i)the siblings, and
(ii)following the death of Peter, himself, Helena and Alexandra, Martin and Rowena, as children of Peter.

26.Wrongfully, and in breach of:
(a)the Agreement;
(b)his fiduciary duty to the other siblings, and, following the death of Peter, to Helena and to Alexandra, Martin and Rowena, as children of Peter;
(c)trust,
the defendant:
(i)did not act honestly and fairly towards the plaintiffs or in their interests;
(ii)acted for his benefit alone, to the detriment of the plaintiffs;
(iii)acted capriciously and unreasonably towards the plaintiffs;
(iv)maintained, and continues to maintain, that he is the sole beneficial owner of the Properties and that none of the plaintiffs has any interest therein;
(v)failed and refused to divide the Properties recovered by him under the restitution laws between the siblings in equal shares, and, following the death of Peter, to divide the Properties so recovered by him between himself (as to a one third share), Helena (as to a one third share) and Alexandra, Martin and Rowena (as to a one ninth share each);
(vi)further or alternatively, failed and refused to divide any interest in the Properties, or income from the Properties, or proceeds from the sale of the Properties, recovered or obtained by him between the siblings in equal shares, and, following the death of Peter, to divide any such interest, income or proceeds between himself (as to a one third share), Helena (as to a one third share) and Alexandra, Martin and Rowena (as to a one ninth share each);
(vii)further, or alternatively, [failed and refused] to make claims under the restitution laws on behalf of himself and Helena, on account of her ill health, and Peter, on account of the fact that he did not obtain permanent residency in the Czech Republic prior to 30 September 1991;
(viii)failed and refused, upon recovering the Properties (or any of them) or any interest in the Properties (or any of them), to effect a transfer of the relevant Properties or interests such that the Properties or interests would be shared equally by the siblings and, following the death of Peter, shared between the defendant (as to a one third share), Helena (as to a one third share) and Alexandra, Martin and Rowena (as to a one ninth share each);
(ix)failed and refused to account to Helena and Peter and, following the death of Peter, the plaintiffs, for:
(A)their respective shares of any net income from the Properties;
(B)their respective shares of the net proceeds of any sale of the Properties or any interest in them;

(x)failed and refused to pay over to Helena and Peter and, following the death of Peter, to the plaintiffs:
(A)their respective shares of any net income from the Properties;
(B)their respective shares of the net proceeds of any sale of the Properties of any interest in them;

(xi)failed and refused to keep … Helena and Peter and, following the death of Peter, the plaintiffs, informed of details relating to the Properties or interests in the Properties of which he had obtained restitution, and when such restitution was obtained;
(xii)otherwise failed and refused to act in a manner consistent with his obligations under the Agreement, and as a fiduciary and trustee.

Particulars
…
(3)On 8 November 1992, Helena sent a letter by certified mail to the defendant seeking the following information in relation to recovery of the Properties:
(a)the Properties already recovered from the Czech and German governments as well as those which the defendant was still endeavouring to obtain, and the details of any expenses to be offset against each of those Properties;
(b)the name and addresses of banks at which the defendant had accounts pertaining to the Properties, and the balances in these accounts;
(c)the whereabouts (and return of) the declarations and bequests signed by Helena, and referred to in paragraph 18 above;
(d)the approximate expenses incurred by the defendant during his visits to Prague for the purposes of recovering the Czech Properties under the restitution laws;
(e)financial remuneration which the defendant considered appropriate for his efforts in relation to recovering the Properties.

(4)By letter dated 14 November 1992, in reply to Helena’s letter of 8 November 1992, the defendant:

(a)denied that he was a trustee of the Properties for the siblings;
(b)alleged that he was pursuing restitution of the Properties in his own right, on behalf and for the benefit of himself and his immediate family, and not on behalf and for the benefit of the siblings or, following their death, their children;
(c)refused to provide the information sought in Helena’s letter dated 8 November 1992.

…

27.By reason of the said breaches, the plaintiffs have suffered loss and damage.
Particulars

The plaintiffs have suffered loss and damage because the defendant has not transferred or otherwise accounted to them for their share of the Properties, or interests in the Properties, or income or sale proceeds from the Properties, which the defendant has obtained or received. The plaintiffs are at present unable to particularise the extent of the loss and damage they have suffered. Further particulars may be provided following discovery and interrogation.

The prayer for relief in the 2000 ASC sought:

A.A declaration that, subject to the deduction of any expenses properly incurred by the defendant in obtaining restitution of any of the Properties, or any interests or entitlements in the Properties, he holds the same on trust for himself, as to a one third share, Helena, as to a one third share, and for Alexandra, Martin and Rowena, as to a one ninth share each.
B.A declaration that, subject to the deduction of any expenses reasonably incurred by the defendant in obtaining income from any of the Properties, or selling any of the Properties, he holds such income and any proceeds of such sales on trust for himself, as to a one third share, Helena, as to a one third share, and for Alexandra, Martin and Rowena, as to a one ninth share each.
C.An account as at the date of judgment in this proceeding of:
(i)each of the Properties and all interests in the Properties recovered or obtained by the defendant;
(ii)all income derived from the Properties by the defendant;
(iii)the proceeds of any sale of any of the Properties, or interests in the Properties, recovered or obtained by the defendant.

D.An order for payment by the defendant to the plaintiffs of all sums found to be due from the defendant to the plaintiffs on the taking of the account under the preceding paragraph.
E.Further or alternatively, damages for breach of contract.
F.Further or alternatively, equitable compensation for breach of fiduciary duty and/or breach of trust.
G.Further or alternatively, an order restraining the defendant from dealing in the Properties except in accordance with the Agreement.
H.Interest.
I.Costs.
J.Such further or other order as to the Court seems fit.

It will be necessary for me to refer to particular parts of the 2000 ASC in detail later in this judgment.

(2) Factual findings based on evidence at trial

The plaintiffs’ primary witnesses were Alexandra, Martin, Rowena and Dr Talacko (‘active plaintiffs’),[8] who swore or affirmed multiple affidavits. The plaintiffs also relied on affidavits of various Czech and Australian lawyers. Only the active plaintiffs were cross-examined.
[8]Although Dr Talacko is not a plaintiff, but the litigation guardian of one of the plaintiffs (Helena), for convenience, I will include him in the defined expression ‘active plaintiffs’.

I accept the evidence of all the plaintiffs’ witnesses. The active plaintiffs gave evidence honestly and to the best of their recollection. Mr Williams, who appeared for the defendant, did not submit otherwise.

Despite filing several affidavits for the trial, the defendant did not call any evidence.

Notwithstanding that the defendant did not give evidence, it will be necessary for me to make some findings about his conduct and the reliability of statements he has made to this Court for two main reasons. The first reason is that Mr Howells, who appeared for the plaintiffs, tendered certain pages of the transcript of the defendant’s evidence at the Preliminary Hearing, and he and Mr Williams made conflicting submissions about the conclusions that I should draw from that evidence. The second reason is that the plaintiffs have urged me to assess equitable compensation in a ‘robust manner’ on the basis that the defendant is a wrongdoer whose withholding of information from the Court and the special referee has made an accurate assessment of equitable compensation problematic.[9] This principle is discussed in [132] below.
[9]Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46, 59 (‘Houghton’).

Some of the plaintiffs’ evidence relates to particular issues, such as the defendant’s defences of penalty, repudiation and election and his claims for an allowance for his personal exertion, and will be discussed in the context of those issues. What follows are factual findings based on the plaintiffs’ evidence and matters arising during the interlocutory history of the proceeding which are not in dispute. These findings establish the context for some of the issues in this proceeding and also provide a basis upon which further findings are made on specific issues.

The defendant is currently 80 years old. He has been married to Judith Talacko (‘Judith’) since 1965 and they have four children, including David Talacko (‘David’) and Paul Talacko (‘Paul’), who live in Prague.

The defendant has Czech and Australian passports. It is not in dispute that, when in Melbourne, he lives at his wife’s home at 312 Glenferrie Road, Malvern[10] and that, when in Prague, he lives in an apartment at Haštalská 12. This is one of the properties in issue in this proceeding. The defendant has lived in the apartment since 1992.
[10]This home was owned by the defendant and his wife jointly between 2 July 1980 and 16 October 1998. The defendant transferred his interest in the property to his wife in 1998 ‘[i]n consideration of [their] marriage’, but nothing turns on this transfer for the purpose of this proceeding.

According to international movements records that the Department of Immigration and Multicultural Affairs produced on subpoena, the defendant has travelled to and from Australia every year since 1990. As the defendant has not given evidence to refute the contents of the records, I accept them as accurate statements of the defendant’s travel to and from Australia. The records specify dates of arrival and departure, but do not disclose any information about the defendant’s movements between those dates. Given the defendant’s strong ties to Melbourne and Prague, it can safely be inferred that the defendant spent nearly all of his time in Melbourne on each of the occasions he travelled to Australia and that he spent nearly all of his time in Prague whenever he travelled outside of Australia. On this basis, according to the Department’s records, the defendant has spent, on average, six months in Melbourne in each year since 1990.

I commenced to manage this proceeding on 10 March 2009. During the directions hearing on 10 and 11 March 2009, I informed the parties that, in principle, I favoured the appointment of a special referee to value the properties in issue in this proceeding and that I would endeavour to have the proceeding fixed for trial in September 2009.[11] On 25 March 2009, I fixed the trial for 5 October 2009 and reiterated that I was minded to appoint a special referee.
[11]Talacko v Talacko [2009] VSC 98, [25], [26].

It was common ground that, on 12 May 2009, the defendant and his Prague-based sons, David and Paul, executed documents to transfer to David and Paul by way of gift all of the defendant’s interests in all of the Czech properties in issue in this proceeding. The properties are those listed in Table 2 at [100] below and those listed next to the headings ‘Řepy’ and ‘Kbely’ in Table 11 at [369] below (‘Czech Properties’). It appears that, although the transfer documents were registered some time later, they took effect from 12 May 2009. Tables 2 and 11 indicate that the Czech Properties are currently worth at least €14 million.

PART 3 – CLAUSE 6 OF THE TERMS OF SETTLEMENT

The trial of the proceeding, as originally constituted, commenced on 21 February 2001 before Ashley J (as his Honour then was). The executed Terms were dated 23 February 2001. They provide:

In full settlement of the matters the subject matter of the proceeding the plaintiffs and the defendant agree as follows:
1.The defendant to transfer all the right, title and interest that he has or shall have, to such person or entity as shall be nominated by the plaintiffs, in respect of the following:
(a) Kiefernstrasse 19 and Kiefernstrasse 19b, Dresden, Germany;
(b)17.4473 hectares of land in Repy, as defined in the particulars under paragraph 6 in the Amended Statement of Claim herein;
(c)approximately 0.8 hectares of land in Kbely, as defined in the particulars under paragraph 6 in the Amended Statement of Claim herein;
(d)approximately 364 hectares of land in Sucha, as defined in the particulars to paragraph 6 of the Amended Statement of Claim herein.

This clause does not apply to any interest in land purchased by the defendant as from this date.
2.To give effect to paragraph 1, the defendant will sign all necessary documents and give all necessary documents and attend at any place as required by law in respect of the signing of such documents.
3.If by reason of applicable law, or some other cause, paragraph 1, or any part thereof, cannot be given effect to within 12 months of the date of these terms in respect of a particular property or properties the defendant shall at the direction of the plaintiffs and at their cost, take all reasonable steps to sell such property or properties at best market value and shall pay the net proceeds of such sale, after the deduction of all expenses, to the plaintiffs or at their direction.
4.The plaintiffs to be responsible for and pay in the first instance all transfer costs, expenses, taxes, duties, levies and charges in any way payable in respect of the transfer or sale of the properties.
5.The defendant to pay to the solicitor for the plaintiffs the sum of $150,000 in part payment of the plaintiffs’ costs on or before 23 June 2001.
6.In the event that the Defendant breaches any term, condition or warranty in this agreement, then the Plaintiffs shall be entitled to enter judgment for an order that the defendant pay equitable compensation for breach of fiduciary duty in respect of each of the Properties and interests in the Properties (as defined in the amended statement of claim) recovered or obtained by him, together with the costs of entering such judgment, and the production of these terms of settlement shall be conclusive evidence of the defendant’s irrevocable consent to the entry of such judgment.
7.The parties shall forthwith consent to orders of the Court that the proceeding be struck out with no order as to costs, together with a right of reinstatement for the purpose of enforcing these terms.
8.The parties agree to release each other from all actions, suits, demands, liabilities and costs arising out of or in any way related to the subject matter of the proceeding.
9.The defendant warrants that:
(i)he has not reduced his right, title and interest in the properties the subject of these terms since the commencement of the proceeding;
(ii)the properties the subject of these terms, or any of them, are not encumbered;
(iii)that he shall not deal with the properties the subject of these terms otherwise than in accordance with these terms; and
(iv)that until transfer or sale he will pay costs, taxes and expenses associated with each property the subject of these terms.[12]

[12]All errors are in the original handwritten Terms.

As I have said already, the Preliminary Judgment determined that the defendant breached the Terms. The precise breaches that were found by Osborn J will be discussed in Part 9(1) of this judgment. At this point, it suffices for me to say that cl 6 was enlivened as a result of the defendant’s breach of the Terms.

The meaning and effect of cl 6 of the Terms were not determined by the Preliminary Judgment. Those matters fall to be determined by me.

(1) Ruling made on 8 October 2009 on the effect of cl 6 of the Terms

On 7 October 2009, the first day of the trial before me, Mr Howells made an application for a ruling on whether cl 6 of the Terms, properly construed, entitled the plaintiffs to enter judgment without having to prove that the defendant owed a fiduciary duty or that, if the defendant owed such a duty, it had been breached.

Not surprisingly, Mr Howells submitted that cl 6 entitled the plaintiffs to enter judgment against the defendant without proving that he owed a fiduciary duty or that the duty had been breached, while Mr Williams submitted that, if cl 6 was enforceable, it did not relieve the plaintiffs of their obligation to prove these matters.

On 8 October 2009, I made the following ruling:

Clause 6 of the terms of settlement dated 23 February 2001 means that once the Court has found that the defendant has breached any term, condition or warranty in the terms of settlement, the plaintiffs are entitled to enter judgment for an order that the defendant pay equitable compensation for breach of fiduciary duty in respect of each of the Properties and interests in the Properties (as defined in the amended statement of claim) recovered or obtained by him, together with the costs of entering such judgment, without needing to prove either the existence of the fiduciary duty or the breach of it.
This is because by entering the terms of settlement the defendant has irrevocably consented to such judgment being entered against him on the bases that he is taken to have (1) owed the fiduciary duty as alleged in the amended statement of claim; and (2) committed the breach of the fiduciary duty as alleged in the amended statement of claim.

I informed the parties that I would deliver reasons for the ruling in my judgment. I now set out the reasons for the ruling.

The parties agreed that the principles to be applied in construing the Terms were correctly stated by Osborn J in the Preliminary Judgment. In that judgment, his Honour said that ‘the fundamental principles governing the construction of the terms’[13] were stated by the High Court in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd.[14] His Honour referred to the following passage in Toll:
This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.[15]
[13]Talacko v Talacko [2008] VSC 128, [26].
[14](2004) 219 CLR 165 (‘Toll’).
[15](2004) 219 CLR 165, 179 [40] (citations omitted).
In accordance with the above principles, in interpreting cl 6, I have taken as my starting point the words used by the parties. Clause 6 states that, once the defendant breaches any term, condition or warranty in the Terms, ‘the plaintiffs shall be entitled to enter judgment for an order that the defendant pay equitable compensation for breach of fiduciary duty’ and that ‘the production of [the Terms] shall be conclusive evidence of the defendant’s irrevocable consent to the entry of such judgment.’ It is to be noted that cl 6 states that the plaintiffs shall be entitled to ‘enter judgment’, rather than stating that they shall be entitled to ‘apply for judgment’. This form of wording clearly favours Mr Howells’ construction of cl 6.

If, as Mr Williams contended, cl 6 meant no more than that, once the clause was engaged, the plaintiffs were entitled to reinstate the proceeding to pursue their claim for equitable compensation for the breach of fiduciary duty alleged in the 2000 ASC, cl 6 would have no work to do. This is because any judgment in favour of the plaintiffs would result from them proving the existence of a fiduciary duty and its breach, rather than from any entitlement to judgment founded in cl 6. Mr Williams’ construction ignores the critical words in cl 6 which confer upon the plaintiffs an entitlement to judgment.

When I put this to Mr Williams during the course of argument, he submitted that his construction of cl 6 did not deprive it of any benefit to the plaintiffs. He said that one benefit of cl 6 was that it prevented the defendant from arguing that the plaintiffs would be abusing the process of the Court by pursuing the original claim for breach of fiduciary duty against him. He informed me that, prior to the commencement of the original trial before Ashley J in 2001, the defendant had sought a stay of the proceeding on the basis that it constituted an abuse of process because the plaintiffs had instituted similar proceedings against the defendant in the Czech Republic. He submitted that cl 6 protected the plaintiffs from a similar stay application in the event that they reinstated the proceeding for the purpose of pursuing the claim for breach of fiduciary duty in the 2000 ASC.

I do not accept that the benefit referred to by Mr Williams in any way supports the construction contended for by him. It is plain from the wording of cl 6 that the benefit sought to be obtained by the plaintiffs in agreeing to cl 6 was an entitlement to judgment for equitable compensation on the basis of an admitted breach of fiduciary duty, rather than on the basis of a breach of fiduciary duty which had first to be proved by them.

No reasonable person would have believed that the plaintiffs had agreed to cl 6 in order to obtain a benefit of the type referred to by Mr Williams. Put simply, the value of such a benefit would have been eclipsed by the detriment that the plaintiffs would have suffered if cl 6 had the meaning advocated by Mr Williams. This is because such a meaning would confine the plaintiffs to the claim for breach of fiduciary duty in the 2000 ASC and preclude them from pursuing the alternative claims in the 2000 ASC for breach of contract and breach of trust.

Clearly, both parties sought to obtain a benefit by entering into the Terms. Mr Williams submitted that cl 6 was exclusively for the benefit of the plaintiffs and Mr Howells did not cavil with this. Yet, Mr Williams’ construction of cl 6 would deprive the clause of any real benefit to the plaintiffs. Indeed, it would place them in a worse position than a clause that simply said that, upon breach by the defendant of any term, condition or warranty in the Terms, the plaintiffs had the option of reinstating the proceeding and pursuing their claims in the 2000 ASC. This is because, as I have already explained, the 2000 ASC included claims for breach of contract and breach of trust as well as breach of fiduciary duty, whereas cl 6 is confined to a claim for breach of fiduciary duty.

If, as Mr Williams argued, cl 6 merely enabled the plaintiffs to reinstate the proceeding in order to pursue one of their claims against the defendant as pleaded in the 2000 ASC, it would have been expressed in simpler and more direct language than that which is contained in cl 6. There certainly would not have been any reference to the entering of judgment.

I have considered the surrounding circumstances at the time the Terms were signed. The trial commenced on Wednesday, 21 February 2001. The plaintiffs opened their case on that day and the opening continued on Thursday, 22 February. On that day, Ashley J adjourned the hearing until Monday, 26 February to enable the parties to participate in a mediation on Friday, 23 February. The mediation took place before a private mediator as planned. On Monday, 26 February, the parties appeared before Ashley J and sought an adjournment until Wednesday, 28 February to enable settlement discussions to continue. Senior counsel for the plaintiffs said that he expected the proceeding to settle. Senior counsel for the defendant said that ‘[w]e have had very amiable discussions and I consent to the adjournment.’ Ashley J granted the adjournment. On Wednesday, 28 February, the parties informed Ashley J that the proceeding had settled and his Honour made an order by consent dismissing the proceeding with no order as to costs.

The above circumstances indicate that the parties signed the Terms in order to resolve their dispute and to avoid a lengthy hearing. This is borne out by the opening words of the Terms, which state that the Terms were entered into ‘[i]n full settlement of the matters the subject matter of the proceeding’. The release in cl 8 of the Terms also supports the view that the parties were seeking to finalise all issues in the proceeding and to substitute the rights and obligations set out in the Terms for those alleged in the pleadings in the proceeding.

The construction contended by Mr Williams would not achieve the above objective of finality. For the reasons already given, on Mr Williams’ construction, in the event of a breach by the defendant, the plaintiffs would be in a worse position than they had been at the commencement of the trial. On the other hand, the construction contended by Mr Howells would facilitate the objective of finality by obviating the need for the plaintiffs to adduce evidence of what took place between 1990 and 2001 to establish the existence and breach of the Sibling Agreements and, in turn, the existence and breach of a fiduciary duty owed by the defendant.

On Mr Howells’ construction, a reinstated action would proceed on the basis that the defendant would be taken to have admitted the existence of the fiduciary duty and the breach of that duty as alleged in the 2000 ASC. As Mr Howells correctly pointed out, the Terms do not contain a clause –commonly found in terms of settlement – by which the defendant does not admit liability to the plaintiffs.

For the above reasons, I agree with Mr Howells’ construction of cl 6. Once cl 6 is invoked, the defendant is taken to admit all facts alleged by the plaintiffs in the 2000 ASC in support of their claim for equitable compensation under the clause. Those facts obviously include all facts relating to the fiduciary duty that is said to be owed by the defendant to the plaintiffs and his breach of that duty. Those facts, in turn, include facts relating to the Sibling Agreements and their breach by the defendant.

(2) Interrelationship between cl 6 and the release in cl 8 of the Terms

There was some debate before me as to the interrelationship between cl 6 and cl 8 of the Terms. Mr Williams submitted that the mutual release in cl 8 extinguished all claims against the defendant other than the remedies of specific performance, damages or equitable compensation under cl 6. This was because the mutual release was not expressed to take effect upon compliance by the defendant with his obligations under the Terms and it therefore took effect when the Terms were signed. He submitted that the presence of cl 8 in the Terms was an important contextual matter to take into account in interpreting the scope of cl 6. He said that, apart from liability for judgment for equitable compensation for the breach of fiduciary duty set out in cl 6 and the costs of that judgment, the defendant was released from any further liability to the plaintiffs in respect of the properties referred to in the 2000 ASC. This meant, so it was said, that the defendant did not owe the plaintiffs any ongoing fiduciary duties and was not liable to them for any alleged breaches which post-dated the Terms.

During an exchange with the Bench, Mr Williams accepted that cl 8 did not have the effect of releasing the defendant in respect of the rights conferred by cl 6. He also agreed that the Court was required to apply normal principles of construction in interpreting the scope and effect of cl 6. Those principles have already been discussed in Part 3(1) of this judgment.

In my opinion, cl 8 has the effect of releasing the defendant from all claims set out in the 2000 ASC which have not been converted into obligations embodied in, or arising from, the Terms. As the plaintiffs elected to pursue judgment for equitable compensation for breach of fiduciary duty under cl 6 of the Terms, their rights must be determined in accordance with cl 6. This means, for example, that the plaintiffs can no longer claim against the defendant for the breach of contract and breach of trust claims set out in the 2000 ASC in relation to the properties covered by the 2000 ASC. There is no doubt, however, that the plaintiffs are entitled to exercise fully any rights that are conferred by cl 6 and that the exercise of those rights is unaffected by the release in cl 8. In this sense, cl 8 is subject to cl 6.

The critical issue is the nature and scope of the rights conferred by cl 6. I have determined that the plaintiffs are entitled to enter judgment for equitable compensation for breach of the fiduciary duty set out in the 2000 ASC and, for this purpose, the defendant is taken to admit to having committed that breach of fiduciary duty. Accordingly, for the purposes of cl 6, the defendant is a defaulting fiduciary and is liable to pay equitable compensation to the plaintiffs for the breach of fiduciary duty set out in the 2000 ASC. For the purposes of this Court assessing equitable compensation, the defendant is taken to remain a defaulting fiduciary until the time of judgment.

However, the defendant’s ongoing status as a defaulting fiduciary for the purposes of the Court’s assessment of equitable compensation pursuant to cl 6 is confined to the breach of fiduciary duty set out in the 2000 ASC. In making that assessment, the Court cannot take into account any breaches of fiduciary duty not set out in the 2000 ASC. It is not necessary for me to decide whether the defendant remained a fiduciary after the date of the Terms for any purpose unconnected with the relief sought under cl 6. Nor is it necessary for me to decide whether the plaintiffs may claim against the defendant for any alleged breaches of fiduciary duty which are not set out in the 2000 ASC in any separate proceeding. In particular, it is not necessary for me to decide what rights, if any, the plaintiffs have in respect of any alleged breach of fiduciary duty in connection with any property falling outside the 2000 ASC and therefore outside cl 6 of the Terms.

It is to the question of which properties fall within cl 6 that I now turn.

(3) Meaning of ‘Properties’ in cl 6 of the Terms

It will be recalled that, pursuant to cl 6 of the Terms, the plaintiffs are entitled to equitable compensation ‘for breach of fiduciary duty in respect of each of the Properties and interests in the Properties (as defined in the amended statement of claim) recovered or obtained by’ the defendant.

Unsurprisingly, there was a dispute between the parties as to which properties cl 6 referred to. Mr Howells submitted that the plaintiffs’ entitlement to equitable compensation should be assessed by reference to two-thirds of the value of the properties currently held by the defendant in the Czech Republic, Slovakia and Germany, without any distinction between interests that were restituted to him and interests that were purchased by him. Mr Williams submitted that if cl 6 was enforceable, equitable compensation should be assessed by reference to two-thirds of the value of the interests in the properties listed in paragraph 24 of the 2000 ASC. He submitted that interests in properties that were purchased by the defendant could not be taken into account.

(a) ‘Properties’ is defined by reference to paragraph 6 and not paragraph 24 of the 2000 ASC

The starting point for the analysis of which properties are encompassed by cl 6 of the Terms is the 2000 ASC. This is because cl 6 incorporates the definition of ‘Properties’ in the 2000 ASC. The relevant provisions of the 2000 ASC are set out in [13] above. The only paragraph of the 2000 ASC which, in terms, defines ‘Properties’ is paragraph 6. As noted already, that paragraph states:

Prior to 1948, Alois, Anna and Helena variously owned or owned interests in a number of real properties situated in:
(a)the Czech Republic, the Slovak Republic (both formerly Czechoslovakia) (the “Czech Properties”); and
(b)Germany (the “German Properties”),
(collectively, the “Properties”).
Particulars
The Czech Properties
Hastalska 12 (cp 751), Prague 1                 100%
Ramova 8 (cp 939), Prague 1  100%
Rybna 8 (cp 753), Prague 1  100%
Melantrichova (cp 465), Prague 1              67/144
Hastalska 15 (cp 755), Prague 1                 7/12
Kollarova (cp 330), Holesovice-Bubny       100%
Agricultural land
17.4473 hectares of land in Repy
- Approximately 0.8 hectares of land in Kbely
Land situated in Slovakia
Approximately 364 hectares of land in Sucha
The German Properties

Kiefernstrasse 19, Dresden (land titles reference “Grundbuch von Dresden-Neustadt, Blatt 2247
Kiefernstrasse 19b, Dresden (land titles reference “Grundbuch von Dresden-Neustadt, Blatt 1621, Flurstueck 1595i)
Further particulars may be provided following discovery and interrogation, or otherwise as they become available to the plaintiffs.

Paragraphs 9 to 19 of the 2000 ASC refer to the Sibling Agreements. Paragraph 20 alleges that by reason of the matters in the paragraphs that precede it, ‘each of the siblings was in a fiduciary relationship with each of the other siblings, and thereby owed to each of the other siblings a fiduciary duty, in relation to the recovery, administration, and disposal or distribution of the Properties’.

Paragraph 24 of the 2000 ASC states:

Since August 1991, the defendant has:
(a)obtained, recovered or been granted title to, or entitlements or interests in;
(b)obtained income from,
some or all of the Czech Properties pursuant to the restitution laws.
Particulars

The following Properties or interests have been obtained by or granted to the defendant pursuant to the restitution laws:
(a)Seven twelfths share of Hastalska 15 (cp 755) and building lot 860, Prague 1;
(b)253/288 share of 11 Melantrichova (cp 465) and building lot 425, Prague 1;
(c)Ramova 8 (cp 939) and building lot 821, Prague 1;
(d)Rybna 8 (cp 753) and building lot 832, Prague 1;
(e)Hastalska 12 (cp 751) and building lot 823, Prague 1.

These are the best particulars the plaintiffs are presently able to give. The plaintiffs do not know whether further Properties have been restituted to the defendant. Further particulars may be provided following discovery and interrogation.

Paragraph 25 of the 2000 ASC states that by reason of the matters set out in the paragraphs that precede it, ‘the defendant has, at all material times, held any interest in or entitlement to the Properties’ in his capacity as a fiduciary of the plaintiffs. Paragraph 26 then refers to conduct of the defendant which he allegedly engaged in ‘[w]rongfully, and in breach of … his fiduciary duty’. The conduct alleged includes that the defendant has failed to divide the ‘Properties’ recovered by him under the restitution laws and income from those ‘Properties’ between the siblings in equal shares. There is also an allegation that the defendant has failed to divide the net proceeds of the sale of any of the ‘Properties’, but no details are given of any properties that had been sold by the defendant.

Mr Williams submitted that the only properties that are relevant to the assessment of equitable compensation under cl 6 of the Terms are those properties that are set out in paragraph 24 of the 2000 ASC. He said that this followed from the fact that the equitable compensation is to be assessed for a breach of fiduciary duty constituted by the failure of the defendant to account to the plaintiffs for a two-thirds share of the properties that were restituted to him and from the fact that paragraph 24 is the only provision of the 2000 ASC which identifies the properties that were restituted to the defendant.

I reject this submission. Paragraph 24 of the 2000 ASC does not define ‘Properties’. Nor does it allege that the defendant breached his fiduciary duty only in respect of the properties there listed. The properties are defined in paragraph 6 of the 2000 ASC. The use of the defined term ‘Properties’ in paragraphs 25 and 26 of the 2000 ASC makes it clear that what is being alleged is that the defendant has breached his fiduciary duty in respect of all of the ‘Properties’ as defined in paragraph 6.

My conclusion that the expression ‘Properties’ in paragraph 26 of the 2000 ASC is not confined to the properties listed in paragraph 24 is supported by the reference in paragraphs 26(c)(ix)(B) and 26(c)(x)(B) to the ‘net proceeds of any sale of the Properties’ and the absence of any reference to a sale of any property in paragraph 24. I note that paragraph 26(c)(vi) also refers to ‘proceeds from the sale of the Properties’ and that a similar expression is contained in the particulars of loss in paragraph 27.

Accordingly, it is paragraph 6, rather than paragraph 24, of the 2000 ASC which is the starting point for determining which properties are encompassed within cl 6 of the Terms.

(b) ‘Properties’ does not include interests purchased by the defendant

Mr Howells submitted that the properties that are relevant to the assessment of equitable compensation under cl 6 of the Terms include interests in properties that were purchased by the defendant. He relied upon three grounds for this submission. The first ground was the use of the word ‘obtained’ in the reference in cl 6 to ‘the Properties and interests in the Properties … recovered or obtained by’ the defendant. The second ground was that the additional interests were purchased by the defendant out of income earned from the properties that were restituted to him. The third ground was that the defendant was able to obtain those additional interests only by exploiting his position as the recipient of the restituted properties, a position the defendant occupied by virtue of the fact that his siblings had earlier assigned their rights to him and entrusted him to act as the sole claimant to the benefit of them all.

I reject this submission. The expression ‘recovered or obtained by him’ in cl 6 of the Terms must be read in the context of the use of that expression in the 2000 ASC. As can be seen from paragraphs 19(c), 19(e) and 26(c)(vi) of the 2000 ASC, which are set out in [13] above, the composite expression refers to properties recovered by the defendant and income or sale proceeds obtained by him. The 2000 ASC does not refer to the purchase of interests in property by the defendant. Moreover, paragraph 26 of the 2000 ASC – the critical paragraph that sets out the breaches of fiduciary duty – refers to ‘Properties recovered by [the defendant] under the restitution laws’ and paragraph 24 refers to properties that the defendant has ‘obtained, recovered or been granted title to, or entitlements or interests in … the Czech Properties pursuant to the restitution laws.’

The question of whether the defendant has used income earned from restituted properties to purchase additional interests in some of the restituted properties is discussed in Part 5(5)(b) of this judgment. As will be seen, I have concluded that it is highly probable that the defendant partly funded the purchase of the additional interests from rental income that he earned from the restituted properties. Consistent with the 2000 ASC and the principles for assessing equitable compensation discussed in Part 5(1) of this judgment, however, the purchase of the additional interests in the properties would be relevant to the assessment of equitable compensation by virtue of the plaintiffs’ entitlement to two-thirds of that income, rather than because the additional interests in the properties themselves fall within the definition of ‘Properties’ in paragraph 6 of the 2000 ASC.

As for the third ground, it must fail because the breach of fiduciary duty set out in the 2000 ASC and the Sibling Agreements is based on restitution of properties and not augmentation of the restituted properties through purchase.

(c) ‘Properties’ does not include those restituted after 23 February 2001

Mr Howells submitted that cl 6 of the Terms required assessment of equitable compensation by reference to all properties restituted to the defendant irrespective of whether restitution took place prior to or after the execution of the Terms on 23 February 2001. He based this submission on the statement at the end of the particulars to paragraph 6 of the 2000 ASC that ‘[f]urther particulars may be provided following discovery and interrogation, or otherwise as they become available to the plaintiffs.’ As the plaintiffs provided further particulars dated 20 June 2008, which included interests in properties restituted to the defendant between 23 February 2001 and 20 June 2008, paragraph 6 of the 2000 ASC, and thus cl 6 of the Terms, extended to those additional interests.

I reject this submission. While the 2000 ASC had an ambulatory effect in relation to the definition of ‘Properties’ and could extend to interests in properties acquired by the defendant by way of restitution between the date of the 2000 ASC and the trial before Ashley J, once the claims in the 2000 ASC were settled by the execution of the Terms, the date of the Terms became significant in relation to the scope of the relief available to the plaintiffs. The expression ‘breach of fiduciary duty’ in cl 6 of the Terms refers to the breach of fiduciary duty set out in the 2000 ASC. Logically, that can only refer to a breach that had already taken place prior to the execution of the Terms. Any breach of fiduciary duty that post-dates the Terms cannot be a breach of fiduciary duty referred to in the 2000 ASC and cannot be the subject of an assessment of equitable compensation in accordance with cl 6 because it is not a breach that falls within that clause.

My conclusion that cl 6 does not extend to interests in property restituted to the defendant after 23 February 2001 is supported by a comparison between cl 1 and cl 6 of the Terms. Clause 1 imposes an obligation on the defendant ‘to transfer all the right, title and interest that he has or shall have’ in various specified properties. The expression ‘shall have’ clearly refers to interests in the specified properties acquired by the defendant after the date of the Terms. By way of contrast, cl 6 refers to ‘the Properties and interests in the Properties (as defined in the amended statement of claim) recovered or obtained by’ the defendant. It uses the past tense exclusively.

Mr Williams submitted that cl 8 of the Terms had the effect of releasing the defendant from all alleged breaches of fiduciary duty, whether the alleged breaches occurred before or after the execution of the Terms, and confined the plaintiffs to their remedy in cl 6. I have already discussed the interrelationship between cll 6 and 8 of the Terms in Part 3(2) of this judgment. I reject Mr Williams’ submission that cl 8 extends to releasing the defendant from liability in respect of breaches of fiduciary duty constituted by his failure to transfer to the plaintiffs two-thirds of any interest in property restituted to him after 23 February 2001. While such a breach of fiduciary duty cannot form part of the equitable compensation to be awarded under cl 6 of the Terms, that does not necessarily mean that it is not capable of forming the subject matter of a separate proceeding by the plaintiffs against the defendant.

For the reasons I have set out in Parts 8(8) and (9) of this judgment, there is, in substance, no inconsistency between the Victorian proceeding and the Czech proceeding. The material before the Court makes it clear that the Czech proceeding has been instituted as a defensive mechanism in case there is a difficulty in relation to any relief granted by this Court. There is no prospect of inconsistent obligations being imposed on the defendant arising from inconsistent orders of this Court and any Czech court. This is ensured by the undertakings that the plaintiffs have given to this Court. Those undertakings will also ensure that the plaintiffs will not be able to obtain double compensation from this Court and the Czech courts arising out of the same subject matter.

If the plaintiffs seek to enforce this judgment in the Czech Republic, the Czech courts will no doubt take into account the existence of the Czech proceeding in deciding the extent to which, if any, they are prepared to enforce this judgment.

Accordingly, in so far as the defendant seeks to pursue a defence based on international comity, I reject it.

PART 9 – ALTERNATIVE CLAIM: DAMAGES FOR BREACH OF THE TERMS

As I have concluded that cl 6 of the Terms is valid and enforceable, and that the plaintiffs are entitled to judgment for equitable compensation pursuant to it, it is not necessary for me to decide the plaintiffs’ alternative claim for damages for breach of the Terms. As the issue was argued before me, however, I will set out my views on the damages to which the plaintiffs would have been entitled if they could not rely upon cl 6 of the Terms.

(1) Findings on breach of the Terms in the Preliminary Judgment

It will be recalled that cl 1 of the Terms required the defendant to transfer to the plaintiffs or their nominee the defendant’s interest in the Clause 1 Properties.

In the Preliminary Judgment, Osborn J said that, although the pleadings raised a series of complex issues, he had ‘come to the view that it is sufficient in the first instance to consider the plaintiffs’ case with respect to the Dresden transfers.’[172] After considering the evidence, his Honour concluded as follows:
[172]Talacko v Talacko [2008] VSC 128, [112].

even on the defendant’s own case, the defendant failed to execute the Dresden transfers between their delivery in October 2003 and June 2006, during which period the terms remained on foot.
The reasons offered for the defendant’s failure to execute the documentation were variously described in evidence by the defendant, but I am satisfied that the fundamental reason was simply that he did not accept the plaintiffs were entitled, as a matter of fairness, to a transfer of the properties the subject of the terms. In turn, he wished to evade compliance with his obligation to execute the transfer documentation. Thus, he variously stated concerning his obligations with respect to the terms:
•It was his job to recover the property and he had to correct the evils of the past;
•You don’t offer a bunch of flowers to someone who attacks you;

• He did all the work;
•He spent a lot of money by way of incidental costs in pursuing recovery of the land;
•Helena did nothing by way of comparable effort;
•Peter visited the country but couldn’t bear it and didn’t want to come back
•‘I know I spent a lot of time a lot of … a lot of expenses and I could not see that somebody could come along and get the benefit of all my work without moving a finger and I think on reflection if that was the case I would do the same thing again because that’s how I felt at the time.’

These views are to be understood against a background of serious antipathy to the plaintiffs arising in a context of perceived family grievance …
It follows that I am satisfied:
(a)that the defendant was obliged to execute and deliver up the Dresden transfer documentation provided to him;
(b)that the failure to do so was actuated by extraneous considerations, inconsistent with the plaintiffs’ obligations under the terms and forms part of a larger body of evidence supporting the view that after receipt of the Dresden transfer documentation the defendant refused to proceed with the terms.[173]

[173]Talacko v Talacko [2008] VSC 128, [133]-[136] (citations omitted).

His Honour considered and rejected the defendant’s allegation that the plaintiffs had repudiated the Terms. He then said:

Although it is strictly unnecessary having regard to the conclusions I have already expressed, I shall for the sake of completeness deal in a summary fashion with the other allegations made on behalf of the plaintiffs concerning alleged breaches of the terms by the defendant.[174]

[174]Talacko v Talacko [2008] VSC 128, [185].

His Honour then considered the other breaches of the Terms alleged by the plaintiffs and rejected all of them, other than the breach alleged in respect of the defendant’s failure to pay his share of government charges pertaining to the Dresden Properties that were incurred subsequent to the date of the Terms. His Honour held that the defendant’s failure to pay his share of these charges breached cl 9(iv) of the Terms.[175] In relation to the plaintiffs’ allegation that the defendant had breached the Terms by failing to execute the framework agreement – which provided a framework for managing the transfer of the land at Řepy, Kbely and Suchá – his Honour did ‘not accept that the framework agreement constituted documentation which [the defendant] was in strictness required to execute.’[176]
[175]Talacko v Talacko [2008] VSC 128, [201].
[176]Talacko v Talacko [2008] VSC 128, [189].

(2) Ruling made on 12 October 2009 precluding evidence of further breaches

On 12 October 2009, the plaintiffs applied for a ruling in the following terms:

The parties be at liberty to lead such further evidence as they may be advised, relevant to the question raised by paragraphs 29 and 39 of the amended statement of claim of 5 November 2007, namely whether the refusal or failure by the defendant to execute the Czech and Slovak properties transfer documents constituted breaches of the Terms of Settlement dated 23 February 2001.

On the same day, I made the following ruling:

the parties are not at liberty to lead further evidence relevant to the question raised by paragraphs 29 and 39 of the amended statement of claim of 5 November 2007, namely whether the refusal or failure by the defendant to execute the Czech and Slovak properties transfer documents constituted breaches of the terms of settlement dated 23 February 2001.

I informed the parties that I would deliver reasons for the ruling in my judgment. I now set out the reasons for the ruling.

The defendant strongly opposed the ruling sought by the plaintiffs. Mr Williams submitted that permitting a party to reagitate at the final hearing issues that had been the subject of a preliminary hearing in accordance with r 47.04 of the Rules would be unprecedented. Mr Howells did not refer me to any case where this course had been adopted.

On 4 November 2005, Williams J made an order that there be a separate trial of liability and quantum in this proceeding. This order was vacated by Osborn J on 8 November 2007. In lieu of the vacated order, his Honour made the following order:

pursuant to Rule 47.04 there be tried before the trial of the proceeding the questions raised by the following paragraphs of the pleadings, namely:
(a)paragraphs 10 to 50 (both inclusive) of the amended statement of claim dated 5 November 2007; and
(b)paragraphs 10 to 50 (both inclusive), 54A, and 57 to 64 (both inclusive) of the amended defence dated 2 November 2007; and
(c)paragraphs 1, 1A, 2, and 4 to 11 and 6 of the amended reply dated 5 November 2007.

The paragraphs of the pleadings referred to in the order of 8 November 2007 deal with the plaintiffs’ allegations regarding the defendant’s breaches of the Terms. It is thus clear from that order that the questions raised by those paragraphs would be tried by his Honour and would not form part of the final trial unless they were expressly reserved for the final trial by any subsequent order. In this regard, on 8 November 2007, Osborn J made a ruling that the question of penalty be dealt with at the final trial. Further, as set out in [293] above, in the Preliminary Judgment, his Honour reserved to the defendant the right to reagitate the question of uncertainty at the final trial.

In my opinion, it is a corollary of the order made by Osborn J under r 47.04 splitting the trial of the questions relating to breach from the trial of the questions relating to the relief to be awarded consequent to the findings as to breach that the plaintiffs cannot now seek supplementary findings about breach. Nor can they lead evidence about breaches of the Terms in addition to the breaches found by his Honour.

It would defeat the purpose of an order under r 47.04 if the questions that are the subject of hearing and determination at a preliminary hearing could be reagitated at the final hearing. Apart from the obvious case management difficulties that this would raise, there would also be a risk of inconsistent findings being made, particularly where the final hearing is before a different judge.

Mr Howells said that Osborn J’s Preliminary Judgment made findings on all of the alleged breaches except the alleged breach of cl 1 in respect of the defendant’s failure to execute transfers relating to the land at Řepy, Kbely and Suchá. He submitted that any findings that I made on those issues would not be inconsistent with his Honour’s findings. He further submitted that I could make such findings by reference to the affidavits that were relied upon at the Preliminary Hearing and the relevant parts of the transcript of the Preliminary Hearing.

Mr Williams submitted that, as well as being unprecedented, the ruling sought by the plaintiffs would be inappropriate and unworkable. He said that, at the Preliminary Hearing, both parties relied on lay as well as expert evidence in relation to the alleged breaches by the defendant. Osborn J had the advantage of seeing the witnesses give evidence before him, whereas I would not have that advantage if I were simply to read the affidavits and relevant parts of the transcript, as the plaintiffs submitted that I should do.

Mr Williams also submitted that [189] of the Preliminary Judgment contained a finding by Osborn J that the defendant had not breached the Terms in relation to the non-execution of transfers relating to the land at Řepy, Kbely and Suchá. In the alternative, he submitted that, in so far as his Honour had left this issue open, he had done so because it was not necessary for him to make such a finding. According to Mr Williams, this was because the plaintiffs had pleaded and conducted their case before Osborn J on the basis that they would be entitled to equitable compensation under cl 6 if any breach of the Terms was established.

I do not agree with Mr Williams’ primary submission that Osborn J made a finding that the defendant had not breached the Terms in relation to the non-execution of transfers relating to the land at Řepy, Kbely and Suchá. Paragraph 189 of the Preliminary Judgment merely referred to the framework agreement and did not refer to any transfers.

I do, however, agree with Mr Williams’ alternative submission that Osborn J decided that it was not necessary for him to make a finding on whether the defendant breached the Terms by failing to execute transfers in relation to the land at Řepy, Kbely and Suchá. This is apparent from [185] of the Preliminary Judgment.

The amended statement of claim dated 5 November 2007 was clearly drafted on the premise that, if the plaintiffs established a single breach of the Terms by the defendant, they would be entitled to enter judgment for equitable compensation in accordance with cl 6. As Mr Williams pointed out, although the prayer for relief in the statement of claim contained an alternative claim for damages, there was, prior to the commencement of the final hearing before me, no express allegation in the statement of claim that the plaintiffs suffered loss as a result of any breach of the Terms. During the trial, I gave leave to the plaintiffs to add an express allegation to this effect.

Having pleaded and conducted their case before Osborn J on the basis that any breach of the Terms entitled them to equitable compensation under cl 6, the plaintiffs cannot now complain about the absence of an express finding in the Preliminary Judgment as to whether the defendant had breached the Terms by failing to execute transfers in respect of the land at Řepy, Kbely and Suchá. It is to be noted that the plaintiffs first raised this issue on the first day of the final hearing on 7 October 2009.

For the above reasons, I declined to make a ruling in the terms sought by the plaintiffs.

(3) Assessment of damages for breach of the Terms

There was a dispute between the parties as to whether Osborn J had found that the only breach of cl 1 of the Terms that the defendant had committed was his failure to transfer the Dresden Properties, or whether he had made a more general finding that the defendant had breached the Terms by failing to transfer all of the Clause 1 Properties. I note that the parties did not focus on his Honour’s finding that the defendant breached cl 9(iv) of the Terms, and that the plaintiffs did not lead any evidence relating to the amount of government charges that the defendant had failed to pay in relation to the Dresden Properties.

Read in context, the only specific finding in the Preliminary Judgment of a breach in relation to cl 1 of the Terms is constituted by the defendant’s failure to transfer the Dresden Properties. This is made clear in [133], [136] and [185] of the Preliminary Judgment. This interpretation also finds support in Osborn J’s ruling on costs, where his Honour said that the plaintiffs had been successful ‘in establishing a breach of the terms arising out of the failure and refusal by the defendant to execute documentation relating to the transfer of land at Dresden’ and that ‘the plaintiffs failed to make out further alternative allegations as to alleged breaches of the terms’.[177]
[177]Talacko v Talacko [2008] VSC 312, [7], [8].

If the above interpretation of the Preliminary Judgment is correct, the loss suffered by the plaintiffs from the defendant’s breach of the obligation to transfer his one‑third interest in the Dresden Properties is one-third of the value of those properties at the time of the breach. Paragraph 133 of the Preliminary Judgment suggests that Osborn J held that the failure to transfer the Dresden Properties was a continuing breach of the Terms. On this basis, it is appropriate to adopt the special referee’s valuation of the Dresden Properties as at 24 September 2009, namely €185,000, as the basis for assessing damages. Accordingly, the plaintiffs’ damages are one-third of that amount, namely €61,666.

The SR Report states that the Dresden Properties are dilapidated and have been vacant for up to six years. It follows that no additional amount for lost income will be added to the damages amount.

As the plaintiffs did not lead evidence of the amount of government charges the defendant failed to pay in relation to the Dresden Properties, I am unable to increase the damages amount on account of the defendant’s breach of cl 9(iv) of the Terms. Similarly, although in their written submissions the plaintiffs sought ‘an amount for lost opportunity and an amount for exemplary damages’, they did not explain the bases for awarding such amounts. Accordingly, I will not make any adjustment to the damages amount set out in [363] above.

Notwithstanding my conclusion that the only breach of the Terms that Osborn J found was in respect of the defendant’s failure to transfer the Dresden Properties, I acknowledge that the alternative construction – that is, that Osborn J found that the defendant breached cl 1 in its entirety – has considerable force. This is particularly so having regard to his Honour’s statement that the defendant did not execute the transfer for the Dresden Properties because ‘he did not accept the plaintiffs were entitled … to a transfer of the properties the subject of the terms’[178] and his subsequent statement that there was ‘a larger body of evidence supporting the view that after receipt of the Dresden transfer documentation the defendant refused to proceed with the terms.’[179] I note also that the judgment of the Court of Appeal proceeded on the basis that his Honour had found that the defendant had breached the Terms by failing to transfer all of the Clause 1 Properties.[180]
[178]Talacko v Talacko [2008] VSC 128, [134].
[179]Talacko v Talacko [2008] VSC 128, [136]. His Honour also said (at [181]), in the context of the defendant’s failure to sign the framework agreement, that ‘the defendant chose for unrelated reasons to simply refuse to proceed with the terms.’ In so far as these statements refer to an anticipatory breach of the Terms, I note that the plaintiffs have expressly refrained from accepting any repudiation by the defendant and have purported to reserve their right to do so in the future.
[180]Talacko v Talacko [2008] VSCA 229, [42], [43].

There is therefore a real possibility that my interpretation of the Preliminary Judgment is incorrect. For this reason, I set out below the damages that I would have awarded to the plaintiffs if the breach of the Terms extended to all of the Clause 1 Properties and was not confined to the Dresden Properties.

Clause 1 of the Terms required the defendant to transfer the following properties to the plaintiffs:

(a) Kiefernstrasse 19 and Kiefernstrasse 19b, Dresden, Germany;
(b)17.4473 hectares of land in Repy, as defined in the particulars under paragraph 6 in the Amended Statement of Claim herein;
(c)approximately 0.8 hectares of land in Kbely, as defined in the particulars under paragraph 6 in the Amended Statement of Claim herein;
(d)approximately 364 hectares of land in Sucha, as defined in the particulars to paragraph 6 of the Amended Statement of Claim herein.

Table 11, below, sets out the defendant’s current interests in the above properties and the special referee’s valuations of the properties as at 24 September 2009:

Table 11: Valuation of Clause 1 Properties

Property Location Plots & total area, m² 2009 Valuation (€) Interest held Damages (reflecting defendant’s interest) (€)

Řepy

West of Slánská Road
Per Table 3 Area: 5196m² 534,561 100% 534,561

Additional land – west of Slánská Road
Plots 1234/52, 1234/72, 1234/73, 1234/74
Area: 8,323 m² 856,439 50% 428,219

East of Slánská Road
Per Table 3
Area: 38,449m² 2,446,000 100% 2,446,000

North of Karlovarska Street Per Table 3
Area: 4,080m² 81,000 100% 81,000

South of Karlovarska Street Per Table 3
Area: 3,121m² 682,000 100% 682,000

Součkova Street
Plots 1502/156, 1502/158, 1502/159
Area: 5,435m² 756,000 50% 378,000

Sub-total: Total area: 64,604m² 5,356,000 4,549,780

Dresden Kiefernstrasse 19 and Kiefernstrasse 19b 185,000 1/3 61,666

Kbely Plots 1964/2, 1965/4
Area: 9,394m² 373,000 1/8[181] 46,625

Suchá 369.94 hectares 1,251,629 100% 1,251,629

TOTAL 7,165,629 5,909,700
[181]The defendant erroneously submitted that he and Helena jointly own a one-eighth interest in the Kbely land. Dr Mareš’ affidavit of 5 September 2005 makes it clear they each own a one-eighth interest.

Property	Location	Plots & total area, m²	2009 Valuation (€)	Interest held	Damages (reflecting defendant’s interest) (€)
Řepy
West of Slánská Road	Per Table 3 Area: 5196m²	534,561	100%	534,561
Additional land – west of Slánská Road	Plots 1234/52, 1234/72, 1234/73, 1234/74 Area: 8,323 m²	856,439	50%	428,219
East of Slánská Road	Per Table 3 Area: 38,449m²	2,446,000	100%	2,446,000
North of Karlovarska Street	Per Table 3 Area: 4,080m²	81,000	100%	81,000
South of Karlovarska Street	Per Table 3 Area: 3,121m²	682,000	100%	682,000
Součkova Street	Plots 1502/156, 1502/158, 1502/159 Area: 5,435m²	756,000	50%	378,000
Sub-total:	Total area: 64,604m²	5,356,000	4,549,780
Dresden	Kiefernstrasse 19 and Kiefernstrasse 19b	185,000	1/3	61,666
Kbely	Plots 1964/2, 1965/4 Area: 9,394m²	373,000	1/8[181]	46,625
Suchá	369.94 hectares	1,251,629	100%	1,251,629
TOTAL	7,165,629	5,909,700

Based on Table 11, I find that if the plaintiffs’ damages need to be assessed by reference to a breach of cl 1 of the Terms in its entirety, the amount of those damages is €5,909,707.

PART 10 – PROPOSED ORDERS

As I mentioned in [116] above, I propose to make an order that the SR Report be adopted subject to the adjustments set out in this judgment.

I also propose to make an order that the defendant pay to the plaintiffs equitable compensation as set out in [215] above.

At first instance, however, it may be appropriate to adjourn the proceeding to a date to be fixed to enable the parties to make submissions on:

(a)the exchange rate to be used in converting the amount in euros set out in [215] above to Australian dollars or the amount in Australian dollars set out in [215] to euros;
(b)any interest to be awarded to the plaintiffs;
(c)costs; and
(d)the precise form of the orders to be made to give effect to this judgment.

LIST OF TERMS, ABBREVIATIONS AND KEY INDIVIDUALS

2000 ASC The plaintiffs’ amended statement of claim dated 18 May 2000.

active plaintiffs Alexandra, Martin, Rowena and Dr Talacko.

Alexandra Alexandra Bennett, the secondnamed plaintiff, daughter of Peter and Margaret and sister of Martin and Rowena.

Anna Talacko The daughter of Helena and sister of Dr Talacko. Anna was Helena’s litigation guardian until 2001. Helena’s mother was also named Anna Talacko.

Clause 1 Properties The properties listed in cl 1 of the Terms (see [26] of this judgment).

Czech proceeding Proceeding issued by the plaintiffs against the defendant in the District Court of Prague 1 on 22 February 2008.

Czech Properties The Prague 1 Properties and the properties listed next to the headings ‘Řepy’ and ‘Kbely’ in Table 11 at [369] of this judgment.

CZK The Czech currency, commonly referred to as Czech crowns.

David David Talacko, one of the defendant’s four children. He is based in Prague.

defendant Jan Emil Talacko, the brother of Peter (twin) and Helena, the husband of Judith and the father of David and Paul.

Dresden Properties The properties at Kiefernstrasse 19 and Kiefernstrasse 19b in Dresden, Germany.

Dr Talacko Jan Talacko, the son of Helena and brother of Anna Talacko. Dr Talacko has been Helena’s litigation guardian since July 2005.

ERVs The special referee’s estimated rental values for the Prague 1 Properties.

First Supplementary SR Report The first supplementary report of the special referee dated 27 October 2009.

Helena Helena Marie Talacko, the firstnamed plaintiff, the sister of Peter and the defendant; mother of Dr Talacko and Anna Talacko. Helena’s mother was also named Anna Talacko.

Initial SR Report The initial report of the special referee dated 24 September 2009.

Initial Valuation The special referee’s valuation of the Prague 1 Properties in the Initial SR Report.

Judith Judith Talacko, the defendant’s wife.

Margaret Margaret Helen Talacko, the fifthnamed plaintiff, Peter’s widow and the executor and trustee of Peter’s estate; mother of Alexandra, Martin and Rowena.

Martin Martin Talacko, the thirdnamed plaintiff, son of Peter and Margaret and brother of Alexandra and Rowena.

Paul Paul Talacko, one of the defendant’s four children. He is based in Prague.

Peter Peter Talacko, the deceased brother of the defendant (twin) and Helena; husband of Margaret and father of Alexandra, Martin and Rowena.

Prague 1 Properties The properties described as such in Table 1 at [77] of this judgment.

Preliminary Hearing Hearing before Osborn J in November 2007 on the question of whether the defendant breached the Terms.

Preliminary Judgment Judgment of Osborn J dated 24 April 2008 on the question of whether the defendant breached the Terms: Talacko v Talacko [2008] VSC 128.

Property Portfolio The Czech Properties, the Dresden Properties and the land listed next to the heading ‘Suchá’ in Table 11 at [369] of this judgment.

Restituted Properties The properties listed in Table 1 at [77] of this judgment.

Revised Valuation The special referee’s revised valuation of the Prague 1 Properties as described in the Second Supplementary SR Report.

Robust Assessment Principle The principle referred to in [132] of this judgment.

Rowena Rowena Talacko, the fourthnamed plaintiff, daughter of Peter and Margaret; sister of Alexandra and Martin.

Rules Supreme Court (General Civil Procedure) Rules 2005 (Vic).

Second Supplementary SR Report The second supplementary report of the special referee dated 29 October 2009.

Sibling Agreements Agreements the plaintiffs’ allege in the 2000 ASC were entered into by the siblings in Melbourne in 1991 and 1992.

siblings Helena, Peter and the defendant.

special referee James Andreas Hollas of the Prague office of Jones Lang La Salle, appointed pursuant to the SR Order.

SR Order The Order dated 23 June 2009, as amended by the Order of 24 July 2009, appointing the special referee.

SR Report The Initial SR Report as amended or clarified by the First and Second Supplementary SR Reports.

Terms Terms of Settlement executed by the plaintiffs and the defendant on 23 February 2001. Anna Talacko signed the Terms as litigation guardian for Helena.

Victorian proceeding This proceeding.

2000 ASC	The plaintiffs’ amended statement of claim dated 18 May 2000.
active plaintiffs	Alexandra, Martin, Rowena and Dr Talacko.
Alexandra	Alexandra Bennett, the secondnamed plaintiff, daughter of Peter and Margaret and sister of Martin and Rowena.
Anna Talacko	The daughter of Helena and sister of Dr Talacko. Anna was Helena’s litigation guardian until 2001. Helena’s mother was also named Anna Talacko.
Clause 1 Properties	The properties listed in cl 1 of the Terms (see [26] of this judgment).
Czech proceeding	Proceeding issued by the plaintiffs against the defendant in the District Court of Prague 1 on 22 February 2008.
Czech Properties	The Prague 1 Properties and the properties listed next to the headings ‘Řepy’ and ‘Kbely’ in Table 11 at [369] of this judgment.
CZK	The Czech currency, commonly referred to as Czech crowns.
David	David Talacko, one of the defendant’s four children. He is based in Prague.
defendant	Jan Emil Talacko, the brother of Peter (twin) and Helena, the husband of Judith and the father of David and Paul.
Dresden Properties	The properties at Kiefernstrasse 19 and Kiefernstrasse 19b in Dresden, Germany.
Dr Talacko	Jan Talacko, the son of Helena and brother of Anna Talacko. Dr Talacko has been Helena’s litigation guardian since July 2005.
ERVs	The special referee’s estimated rental values for the Prague 1 Properties.
First Supplementary SR Report	The first supplementary report of the special referee dated 27 October 2009.
Helena	Helena Marie Talacko, the firstnamed plaintiff, the sister of Peter and the defendant; mother of Dr Talacko and Anna Talacko. Helena’s mother was also named Anna Talacko.
Initial SR Report	The initial report of the special referee dated 24 September 2009.
Initial Valuation	The special referee’s valuation of the Prague 1 Properties in the Initial SR Report.
Judith	Judith Talacko, the defendant’s wife.
Margaret	Margaret Helen Talacko, the fifthnamed plaintiff, Peter’s widow and the executor and trustee of Peter’s estate; mother of Alexandra, Martin and Rowena.
Martin	Martin Talacko, the thirdnamed plaintiff, son of Peter and Margaret and brother of Alexandra and Rowena.
Paul	Paul Talacko, one of the defendant’s four children. He is based in Prague.
Peter	Peter Talacko, the deceased brother of the defendant (twin) and Helena; husband of Margaret and father of Alexandra, Martin and Rowena.
Prague 1 Properties	The properties described as such in Table 1 at [77] of this judgment.
Preliminary Hearing	Hearing before Osborn J in November 2007 on the question of whether the defendant breached the Terms.
Preliminary Judgment	Judgment of Osborn J dated 24 April 2008 on the question of whether the defendant breached the Terms: Talacko v Talacko [2008] VSC 128.
Property Portfolio	The Czech Properties, the Dresden Properties and the land listed next to the heading ‘Suchá’ in Table 11 at [369] of this judgment.
Restituted Properties	The properties listed in Table 1 at [77] of this judgment.
Revised Valuation	The special referee’s revised valuation of the Prague 1 Properties as described in the Second Supplementary SR Report.
Robust Assessment Principle	The principle referred to in [132] of this judgment.
Rowena	Rowena Talacko, the fourthnamed plaintiff, daughter of Peter and Margaret; sister of Alexandra and Martin.
Rules	Supreme Court (General Civil Procedure) Rules 2005 (Vic).
Second Supplementary SR Report	The second supplementary report of the special referee dated 29 October 2009.
Sibling Agreements	Agreements the plaintiffs’ allege in the 2000 ASC were entered into by the siblings in Melbourne in 1991 and 1992.
siblings	Helena, Peter and the defendant.
special referee	James Andreas Hollas of the Prague office of Jones Lang La Salle, appointed pursuant to the SR Order.
SR Order	The Order dated 23 June 2009, as amended by the Order of 24 July 2009, appointing the special referee.
SR Report	The Initial SR Report as amended or clarified by the First and Second Supplementary SR Reports.
Terms	Terms of Settlement executed by the plaintiffs and the defendant on 23 February 2001. Anna Talacko signed the Terms as litigation guardian for Helena.
Victorian proceeding	This proceeding.

[2009] VSC 533

24 November 2009