Thomson v Golden Destiny Investments Pty Limited

[2015] NSWSC 1176

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

David Alan Thomson v Golden Destiny Investments Pty Limited [2015] NSWSC 1176

Hearing dates:

9,10,11,12,13, 16, 17,18,19 March, directions 20 March, oral submissions 13, 14, 15 May 2015, written submissions, further directions hearing 22 May 2015, directions 11 June 2015, further written submissions 12 June 2015, further directions 15 June 2015

Date of orders:

21 August 2015

Decision date:

21 August 2015

Before:

Sackar J

Decision:

See [644]-[653]

Catchwords:

CONTRACTS – abandonment or abrogation – whether ongoing intention to be bound – objective assessment of conduct – where one party purported to terminate agreement – nature of agreement

CONTRACTS – breach of retainer – scope of retainer – where solicitor acting for multiple parties to transaction – conflict of interest – failure to advise

CONTRACTS – rescission – rescission on basis of solicitor’s conflict of interest – divergence between parties’ interests – failure to advise – entitlement to rescind

EQUITY – fiduciary duties – conflict of interest – where solicitor acting for both parties to transaction – where solicitor had personal interest in transaction – whether fully informed consent sought – whether causal relationship between loss and breach of duty – appropriate counterfactual for assessing loss

PROPERTY – caveats – lodgement of caveats – refusal to withdraw caveats – caveatable interest – where contribution made to purchase price by third party – where no contractual relationship between vendor and third party – nature of interest – constructive or resulting trust – whether trust conferred a beneficial interest in land

PROPERTY – caveats – whether caveator had honest belief on reasonable grounds that caveat could be lodged

Legislation Cited:

Civil Liability Act 2002 (NSW)
Competition and Consumer Act 2010 (Cth)
Corporations Act 2001 (Cth)
Professional Standards Act 1994 (NSW)
Real Property Act 1900 (NSW)
Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Aberaman Ironworks v Wickens (1868-69) LR 4 Ch App 101
Allied Pastoral Holdings Pty Ltd v FCT [1983] 1 NSWLR 1
Arkbay Investments Pty Ltd v Tripod Funds Management Pty Ltd [2014]
Avco Financial Services Ltd v White [1977] VR 561
Bahr v Nicolay (No 2) (1988) 164 CLR 604
Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd (1990) 21 NSWLR 459
Bedford Properties Pty Ltd v Surgo [1981] 1 NSWLR 106
Belvino Investments No 2 Pty Ltd v Australian Vintage Ltd [2014] NSWSC 978
Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384
Black Uhlans Inc v NSW Crime Commission (2002) 12 BPR 22,421
Browne v Dunn (1893) 6 R 67 (HL)
Calverley v Green (1984) 155 CLR 242
Carantinos v Magafas [2008] NSWCA 304
Castlereagh Motels Ltd v Davies-Roe (1966) 67 SR (NSW) 279
Chan v Zacharia (1984) 154 CLR 178
Clark Boyce v Mouat [1994] 1 AC 428
Corin v Patton (1990) 169 CLR 540
Cubillo v Commonwealth (No 2) (2000) 103 FCR 1
Davies v Uratoriu (1995) 6 BPR 13,917
Dering v Earl of Winchelsea (1787) 1 Cox 318
Dow Securities Pty Ltd v Manufacturing Investments Ltd (1981) 5 ACLR 501
Farrington v Rowe McBride & Partners [1985] 1 NZLR 83
Fox v Percy (2003) 214 CLR 118
Hart Security Australia Pty Ltd v Boucousis [2014] NSWSC 1654
Hewett v Court (1983) 149 CLR 639
Jones v Sutherland Shire Council [1979] 2 NSWLR 206
Kation Pty Ltd v Lamru Pty Ltd (2009) 257 ALR 336
Kimberley NZI Finance Ltd v AR Barr Investments Pty Ltd [1990] ANZ ConvR 438
Law Society of New South Wales v Harvey [1976] 2 NSWLR 154
Lee v Ross (No 2) (2003) 11 BPR 20,111
Lysaght v Edwards (1876) 2 Ch D 499
Maguire v Makaronis (1997) 188 CLR 449
Mahendran v Chase Enterprises Pty Ltd (2013) 17 BPR 32,733
Moody v Cox and Hatt [1917] 2 Ch 71
Municipal District of Concord v Coles (1905) 3 CLR 96
Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383
Re Broadcasting Station 2GB Pty Ltd [1964-5] NSWR 1648
Re Paul (1902) 19 WN (NSW) 114
Re Pile’s Caveats [1981] Qd R 81
Re Wadham (1879) 13 SALR 70;
Rose v Watson (1864) 11 ER 1187
Ryder v Frohlich [2004] NSWCA 472
Shaw v Foster (1871-72) LR 5 HL 321
Spellson v George (1992) 26 NSWLR 666
Summers v The Commonwealth (1918) 25 CLR 144
Valerica v Global (2001) NSW ConvR 55-963
Woolworths Ltd v Kelly (1991) 22 NSWLR 189

Texts Cited:

S Lindsay, Caveats Against Dealings in Australia and New Zealand (The Federation Press, 1995)
GR Northcote, Fry on Specific Performance (Stevens and Sons, 6th ed, 1921)

Category:

Principal judgment

Parties:

David Alan Thomson – first plaintiff
Tracy Spencer – second plaintiff
Joseph Luis Alonso – third plaintiff
Kay Alison Brunton Alonso – fourth plaintiff
John Sydney Wolfe – fifth plaintiff
Janyce Robin Wolfe – sixth plaintiff
Malcolm Richard Smith – seventh plaintiff
Katherine Anne Smith – eighth plaintiff
Pera Marion Webb – ninth plaintiff
Maureen Lee Theobald – tenth plaintiff
Golden Destiny Investments Pty Ltd (ACN 163 123 359) – first defendant
MV Golden Destiny Development (Turramurra) Pty Ltd (ACN 169 649 923) – second defendant
New Galaxy Investments Pty Ltd (ACN 163 095 234) – third defendant

Representation:

Counsel:
G Sirtes SC, N Bilinsky - plaintiffs
M Darke SC, J C Lee - first defendant, thirteenth defendant
M Ashhurst SC, D Allen - second defendant
M Cashion SC, J Donohoe (until 26 May 2015), M Einfeld QC and D Krochmalik (after 26 May 2015) - third defendant
L Gyles SC, B McManus - fourteenth cross-defendant

  Solicitors:
Fox & Staniland Lawyers - plaintiffs
MBP Legal (until 21 January 2015), Ren Zhou Lawyers (after 21 January 2015) – first defendant
Dib Lawyers (until 3 March 2015), Ketakos Lawyers (after 3 March 2015) – second defendant
Avondale Lawyers (until 26 May 2015), Websters Lawyers (after 26 May 2015) - third defendant
Kennedys – fourteenth cross-defendant

File Number(s):

2014/228930

Publication restriction:

N/A

Judgment

1. These proceedings concern three groups of interrelated parties. Before describing the relief sought by various of the parties, it is apposite to set out, in brief, the relationships between them. There is some complexity attendant upon those relationships and the context in which the interactions between the relevant parties took place.

2. The plaintiffs (Vendors) owned six adjacent properties in Turramurra (Turramurra Properties or Properties).

3. The first defendant, Golden Destiny Investments Pty Ltd (GDI), was an incorporated company named as the purchaser under six contracts for the sale of land exchanged with the Vendors on 23 April 2014 (the New Contracts). Mr Haizhon Cai (Mr Cai), the husband of Ms Louise Lin (Ms Lin), and Mr Zu Feng Wu (Mr Wu), were at all material times the directors of GDI.

4. The second defendant, MV Golden Destiny Development (Turramurra) Pty Ltd (MVGDD), is an incorporated company which had placed caveats on the Properties on the basis of a novation provision under the New Contracts (as defined below) permitting the substitution of purchasers.

5. The third defendant, New Galaxy Investments Pty Ltd (NGI), is an incorporated company which had also placed caveats on the Properties on the basis of an alleged equitable interest. Ms Katherine Gai (Ms Gai) is the director of NGI. She initially had, indirectly, a 40% shareholding in NGI through Gold Stone Venture Capital Pty Ltd (GSVC). This later increased to 60%.

6. The thirteenth defendant to the cross-claim filed by NGI, Ms Lin, is a conveyancer and registered migration agent.

7. The fourteenth cross-defendant to the cross-claim filed by GDI, Mr Kristjan Geering (Mr Geering), is a solicitor who acted for both GDI and NGI in relation to the transaction. Mr Geering is the director, principal solicitor and a 50% shareholder in Austleg Lawyers (Austleg). GDI, NGI and Austleg all shared an office space. Ms Lin was, indirectly, a 50% shareholder in Austleg.

8. Ms Gai and Mr Geering are now married and were de facto partners (with the exception of a brief separation) when the events relevant to the proceedings took place.

9. At all material times NGI was the trustee for the Gold Stone Future Investments Property Fund (Property Fund). The Property Fund held an Australian Financial Services Licence through an entity known as Ergo Capital Pty Ltd (Ergo Capital).

The claims of the parties

10. The Vendors, by their Amended Statement of Claim, sought declarations concerning the identity of the proper purchaser of the Properties. The Vendors also sought orders that NGI remove the caveats it had lodged over those properties, and claimed compensation from NGI pursuant to s 74P of the Real Property Act 1900 (NSW) (RPA). Finally, the Vendors sought orders for specific performance of the New Contracts.

11. NGI filed a cross-claim (NGI’s Cross-Claim) against the Vendors, GDI, and Ms Lin. NGI sought orders for specific performance of agreements alleged to subsist between it and GDI, and declarations that GDI and the Vendors were estopped from novating the New Contracts to any person other than NGI or its nominees. In the alternative, it alleged breach of fiduciary duty, misleading conduct and unconscionable conduct by GDI in the context of $6 million that NGI paid to the Vendors as part of the purchase price under the New Contracts. NGI claimed that GDI and/or the Vendors held an interest in the Turramurra Properties to the value of $6 million on constructive trust and that NGI had an equitable charge over those properties. Finally, NGI alleged breaches of duty as a shadow or de facto director of NGI and breaches of duty as an agent of NGI against Ms Lin.

12. A second cross-claim was filed by GDI (GDI’s Cross-Claim). The current version of this claim is a further amended statement of cross-claim filed in court on 9 March 2015. It essentially advanced claims against NGI and the fourteenth cross-defendant, Mr Geering. GDI sought a declaration that a deed it entered into with NGI on 24 February 2014 (Short Form Deed) had been abandoned or terminated on the basis of NGI’s repudiation. Alternatively, GDI sought orders for rescission of the Short Form Deed, claiming that it was induced to enter into the Short Form Deed on the basis of misleading conduct in contravention of sch 2 of the Competition and Consumer Act 2010 (Cth) (the Australian Consumer Law) (ACL) and/or on the basis that Mr Geering had an actual or potential conflict of interest and so breached his fiduciary duty to GDI. Finally, GDI sought damages from NGI pursuant to s 74P of the RPA as well as equitable compensation from Mr Geering for his breach of duty and damages for negligence.

13. During the trial MVGDD filed a cross-claim (MVGDD’s Cross-Claim) seeking referral out of its claim against NGI pursuant to an undertaking as to damages and against GDI pursuant to an indemnity given by GDI in cl 2(a) of a deed between them dated July 2014. That cross-claim was therefore not addressed in MVGDD’s closing submissions.

14. The hearing stretched over many days in March. I then had to adjourn because of other commitments. Final oral submissions occurred in May. They were preceded by extensive, and in some cases belated, written submissions.

15. On the third day of final submissions, i.e. 15 May 2015, Mr Donohoe, then counsel for NGI, indicated to the Court that he had been instructed to concede that NGI was not at that time ready, willing and able to complete the New Contracts. Mr Donohoe also conceded that at that time there was no legal basis on which he could maintain the caveats. After a brief adjournment, Mr Donohoe indicated that the documentation to facilitate the withdrawal of the caveats was being prepared and he asked to be excused to attend to that process.

16. The submissions then concluded and, apart from a short directions hearing to determine what issues remained, I reserved my decision.

17. However, on 5 June 2015 my associate was notified by email that the representatives of the third defendant had changed and there were new solicitors and counsel. I was asked to relist the matter.

18. When the matter was relisted Mr Einfeld QC announced his appearance with Mr Krochmalik for NGI. A motion had been filed purporting to apply to the Court for an order that order 1 of the orders I made on 22 May 2015 be set aside. That order was that “the date for the completion of the contracts for sale between the plaintiffs and the second defendant (MVGDD), as set forth in the Schedule annexed to these orders, be fixed for 19 June 2015”. If granted, that would have deferred the settlement proposed for 19 June 2015. No supporting material was filed in support of the motion. After some argument I indicated I would not, in light of what had been filed, contemplate setting order 1 aside, but that I would grant leave to the third defendant to file further written submissions on a limited number of points. That then occurred.

Background facts – overview

19. Many of the events described below will be subject to further elaboration over the course of the consideration of the factual narrative commencing at [113], which takes into account the evidence of the relevant witnesses and the contemporaneous documents. To assist in providing context for that discussion, however, the following provides an overview of the relevant events.

Background prior to entry into the Short Form Deed

20. GSVC was established in 2012 by Ms Lin, Ms Gai and Mr Geering for the purpose of attracting Chinese investors to Australia (CB8/2400B_004). From that point until 29 May 2014 the shareholdings in GSVC were maintained as follows (CB6/1448):

• 40% owned by Ms Gai;

• 20% by Mr Geering; and

• 40% by Zoom Capital Pty Ltd (Zoom), a company associated with Ms Lin, of which Ms Zhu was the sole director and shareholder.

21. NGI was established as a wholly owned subsidiary of GSVC in early 2013 by Ms Lin, Ms Gai and Mr Geering. The purpose of establishing NGI was so that it could be trustee and manager of the Gold Stone Income Fund (Income Fund) (CB2400B_002). NGI also became the trustee and manager of the Property Fund once the Property Fund was established (CB82400B_005). Until 22 April 2014 Ms Gai and Ms Lin’s mother, Ms Zhu, were the directors of NGI (CB6/1449-1450; CB8/2400A_009).

22. Austleg was incorporated on 26 July 2013. Mr Geering has at all times been the principal lawyer carrying on practice via that company. From September 2013 he was also Austleg’s sole director. Despite his retainer or retainers for NGI and/or GDI, Mr Geering hoped to profit from GSVC’s commercial activities including through fees earned by NGI on monies invested in the Income Fund and Property Fund (T466/14-16, 466/58-467/8).

23. Until 22 April 2014 Ms Zhu was a director and a 40% shareholder of GSVC. From 29 May 2014 onwards Mr Geering was a 40% shareholder in GSVC and, as a consequence, indirectly of NGI. Prior to this point he had been a 20% shareholder in GSVC. On 22 April 2014 he acquired 20% of Ms Zhu’s shareholding for no consideration. The other 20% of Ms Zhu’s shareholding was transferred to Ms Gai.

The purchase of the Turramurra Properties

24. GDI entered into a costs agreement (Costs Agreement) with Austleg on 13 December 2013. This agreement related to conveyancing work and advice concerning the purchase of the Turramurra Properties. Mr Geering was listed in the Costs Agreement as the solicitor who would be undertaking the work on behalf of Austleg. The agreement stated that Mr Geering would not continue to work for GDI if, on reasonable grounds, he believed he may have a conflict of interest (Exhibit 14XD-1/8).

25. GDI entered into six contracts for the purchase of the Turramurra Properties on 17 December 2013 (Old Contracts), in addition to a Deed with Century 21 Real Estate Agents (C21 Deed). The global price was $15.1 million. The C21 Deed related to development costs said to have been incurred by Century 21. These costs related to ensuring that the Turramurra Properties were prepared in a way that allowed them to be sold to a developer like GDI. It is common ground between the parties that GDI paid $1.51 million as a deposit under the Old Contracts and the C21 Deed. The completion date for the Old Contracts was 17 March 2014.

26. Special condition 48 of the Old Contracts provided that the contracts could be novated to another purchaser, but only simultaneously upon completion.

Joint venture between GDI and NGI

27. Discussions about a joint venture between NGI and GDI in relation to the purchase and the development of the Turramurra Properties began in 2013. Between 9 December 2013 and late January 2014 there were meetings and emails between Ms Gai, Mr Geering and Ms Lin. During one conversation Ms Gai indicated to Ms Lin that it would be possible for NGI to raise $9 million. This would theoretically enable NGI to acquire a 50% share in the joint venture, allowing for a premium intended to compensate GDI for the initial risk and outlay in entering into the Old Contracts. It was intended GDI would provide $7 million of the purchase price.

28. Ms Lin and Mr Geering had a conversation in early February 2014 concerning NGI taking over the development of the Turramurra Properties. Around the middle of February, Ms Gai indicated to Ms Lin and Mr Geering that NGI would be able to fund $10.5 million of the purchase price by the completion date of the Old Contracts. At this meeting it was understood that GDI would be able to finance up to $5.5 million to allow completion to occur, including the $1.5 million deposit already paid.

29. However, by 27 January 2014 the structure of the proposed joint venture changed and the parties intended that NGI would become the registered proprietor of the Properties, with GDI being a lender to the development.

30. In around the middle of February 2014 Ms Gai, Mr Geering and Ms Lin met to discuss the commercial terms of what was to become the Short Form Deed. Ms Lin said she no longer wanted to develop the project because of the risk. Ms Gai stated that NGI had the capacity to complete the purchase of the Properties and develop the project. She was happy to accept a loan from GDI or Gold Stone Capital Pty Ltd (GSC). She said she was confident of raising all monies required.

31. GDI, NGI, GSC and Ergo Investment entered into a Deed (Short Form Deed) on 24 February 2014. It is alleged that GDI entered into the Short Form Deed on the basis of the representation of Ms Gai that NGI would be able to fund $10.5 million of the purchase price. Mr Geering who had earlier prepared (acting for GDI and NGI) draft Heads of Agreement was charged and willingly accepted the task of drafting the terms of the deed. He chose the language contained in the Deed.

32. The Short Form Deed relevantly provided that:

1. NGI would secure funding arrangements for the “Purchase Price”, being the amount of $15.1 million payable under the Old Contracts and the C21 Deed plus stamp duty (expected to be around $900,000): cl 2.1; Lin 1 [49] (CB6/1458);

2. all parties, directors, related entities and associates thereof would use their best endeavours to assist NGI to obtain that funding: cl 2.8;

3. after NGI secured the funding, GDI would seek to novate the Old Contracts to NGI under special condition 48 of those contracts: cl 2.1;

4. if novation was successful:

1. NGI as trustee for the Property Fund would own the Turramurra project and be entitled to the profit and liable for the loss thereof: cl 2.2;

2. the deposit which had been paid by GDI under the Old Contracts would be assigned to NGI, and NGI would reimburse GDI for it and issue GDI with 750,000 units in the Property Fund: cll 2.3-2.5;

3. GSC or GDI would loan NGI up to $5.5 million and interest of 20% per annum (if the loan was from GSC) or 15% per annum (if the loan was from GDI): cl 2.7;

4. NGI would reimburse Ergo Investment for payments made to third parties to further the Turramurra project, and the contracts with those third parties would be novated to NGI: cl 2.9; and

5. NGI would engage Ergo Investment to conduct the sales and marketing of the Turramurra project, to sell the project’s finished product, and to sell units in the Property Fund: cl 2.10; and

5. the parties would do all things reasonably required for completely effectuating the provisions of the deed: cl 3.1.

The events of March and April 2014

33. Discussions between GDI and the plaintiffs concerning the potential for delaying the settlement date or, in the alternative, entering into an agreement for a staged settlement of the Old Contracts, ensued in March 2014 as NGI had not been able to raise the required funds. The settlement was ultimately slightly delayed due to the death of one of the Vendors, pursuant to special condition 32(a) of the Old Contracts.

34. On 12 March 2014 Mr Geering forwarded novation notices to the Vendors. These had the effect of nominating NGI as the novated party to replace GDI on completion. On the same day Ms Lin emailed Mr Geering and Ms Gai to say that GDI did not have the funds required to settle the Old Contracts. It is alleged that Ms Lin also stated that NGI would complete the Old Contracts, consistent with the Short Form Deed and on the basis of the assumption that NGI would comply with the terms of the Short Form Deed.

35. On 13 March 2014 Mr Bruce Yahl, the legal representative of the Vendors, wrote to Mr Geering rejecting the novation notices.

36. During March 2014 Ms Lin, it seems acting on the basis of concerns that NGI would not be able to raise the required finance, investigated potential joint venture partners, including a Mr Victor Fong, who controlled MVGDD. Mr Fong conducted due diligence and received material in relation to the project between 17 March 2014 and early April 2014.

37. Between mid-March and mid-April 2014 NGI made applications for finance with Centenary Advisory Group Pty Ltd (CAG) and Eclipse Prudent Mortgage Corporation (Eclipse). The application with the latter sought an amount of $6 million with a draw down date of 17 April 2014.

38. On 4 April 2014 the legal representatives of the Vendors attempted to serve notices to complete for the Old Contracts. There was subsequent correspondence between GDI and the Vendors and a new settlement date of 22 April 2014 was agreed.

39. Mr Geering met with the Vendors’ legal representatives on 8 April 2014. He requested additional time to settle the Old Contracts and indicated to Mr Yahl that “his clients” had $8 million in liquid funds. The following day Ms Lin informed Mr Geering that Mr Fong had almost finished due diligence on the Turramurra Properties and that a legal representative of Mr Fong would contact Mr Geering.

40. On 10 April 2014 a draft Joint Venture agreement between Mr Fong and GDI was circulated between Mr Fong, Mr Fong’s legal representatives, Ms Lin and Mr Cai.

41. On the same day, Mr Geering directed an email to Ms Lin and Ms Gai regarding Mr Fong’s involvement in the project.

42. Several meetings took place between 11 April and 15 April 2014 between Ms Lin, Ms Gai, Mr Cai and Mr Geering regarding the proposal made by Mr Yahl that the $8 million be released to the Vendors as a condition of any new contractual arrangement between the parties.

43. On 22 April 2014 Mr Brett Scott, a solicitor acting for Eclipse, sent a letter to NGI offering conditional finance to NGI providing certain conditions were met.

44. It is GDI and Ms Lin’s submission that those conditions were not met.

45. The Old Contracts did not settle on 22 April 2014 and the time for settlement was extended until 23 April 2014 at 10am.

46. However, on 22 April 2014 Ms Zhu resigned as a director of GSVC and NGI. Mr Geering and Ms Gai acquired her interests.

47. On 23 April 2014 GDI entered into the New Contracts with a settlement date of 22 July 2014, and a Deed of Release in relation to the Old Contracts and the C21 Deed. The New Contracts stipulated a global purchase price of $15.3 million and the release of $8 million on exchange to the Vendors. On the same date GDI made a payment for an additional $490,000 to the Vendors and NGI made a payment of $6 million to Century 21, the Vendors’ agent.

The events of May 2014

48. A number of emails passed between Mr Geering, Ms Lin, Ms Gai, Mr Cai and Mr David Darmali on 1 May 2014 concerning Mr Fong’s interest in the development of the Properties. Mr Darmali, as responsible manager of the Property Fund, wished to meet regarding the basis on which NGI had transferred $6 million of investors’ funds in the absence of any written agreement.

49. At Mr Geering’s request, on 3 May 2014, Mr Cai emailed Mr Geering saying that GDI held $6 million of NGI’s money on trust, referring to the monies that had been paid to Century 21, as the Vendors’ agent, by NGI. On 10 May 2014 Ms Lin emailed Mr Geering, Mr Darmali, Ms Gai and Mr Cai sating that GDI proposed to enter into a joint venture with an experienced property developer such as Mr Fong.

50. On 5 May 2014 GDI terminated Austleg’s retainer.

51. An email of 13 May 2014 from Ms Lin indicated that, based on the best interests of GDI and investors in NGI, GDI would novate the contracts to a suitable developer.

52. On 20 May 2014 MVGDD was incorporated as a special purpose vehicle to facilitate Mr Fong developing the Turramurra Properties.

The events of July and August 2014

53. GDI and MVGDD entered into a deed to the effect that MVGDD was to be the novated party and GDI was to procure the release of all parties from the Short Form Deed prior to novation in early July 2014. During July 2014 GDI, MVGDD, Ms Zhang (an investor), and a property trust called Australia Jing’s Investments Pty Limited entered into an Umbrella Finance Agreement in respect of the Turramurra Properties.

54. On 3 July 2014 NGI’s lawyers wrote to Dib Lawyers asserting that NGI had obtained the required funding and wanted to exercise its right to novation pursuant to the Short Form Deed. This was followed by a letter of 7 July 2014 attaching six New Contracts identifying NGI as the new purchaser and Ms Gai as the new guarantor. On 7 July 2014 GDI’s lawyers sent six copies of proposed New Contracts to the Vendors nominating MVGDD as the new purchaser.

55. On 18 July 2014 NGI lodged caveats over the Properties. On 22 July 2014 Mr Fong attended settlement and, it is alleged by GDI, was willing, ready and able to complete the New Contracts. NGI did not remove the caveats over the Properties and the settlement could not proceed.

56. On 4 August 2014 the Vendors commenced these proceedings.

Primary contentions of the parties

57. The plaintiffs’ position is that there has never been a legitimate basis for the caveatable interest claimed by NGI over the Properties, and as such NGI should be liable for losses under s 74P of the RPA.

58. The central contentions advanced by GDI and Ms Lin are as follows:

1. The Short Form Deed was terminated or abandoned on or around 23 May 2014 when Ms Gai emailed Ms Lin purporting to terminate the Deed and Ms Lin replied to say that there was no contractual relationship between GDI and NGI;

2. In the alternative, the Short Form Deed is liable to be rescinded either because it was mediated by Mr Geering in breach of his fiduciary duties or because GDI’s entry into it was induced by NGI’s misleading conduct;

3. Consequent upon (1) and (2), NGI cannot obtain specific performance of the Short Form Deed, and none of the other agreements of which it sought specific performance have been established by the evidence;

4. Accordingly, orders should be made for the novation of the New Contracts to MVGDD and for MVGDD to complete the novated contracts;

5. When that occurs, the Vendors will be obliged to repay GDI the $6.49 million which has been released to them as part payment of the purchase price under the New Contracts, and GDI will be obliged to transfer $6 million to NGI;

6. GDI should not be ordered to pay interest to NGI on this $6 million because NGI would have received $6 million on 22 July 2014 had it not lodged caveats over the Properties which prevented MVGDD’s purchase of those properties from completing;

7. GDI is entitled to damages for misleading conduct from NGI under s 236 of the ACL and to compensation for loss caused to it by NGI’s caveats under s 74P of the RPA; and

8. GDI is also entitled to damages or equitable compensation from Mr Geering for his breaches of fiduciary duty, breaches of retainer and/or negligence.

59. MVGDD had submitted that NGI was not entitled to specific performance of the Short Form Deed because:

1. The Short Form Deed stated that it applied only to the Old Contracts, which were rescinded on 23 April 2014, it did not apply to the New Contracts;

2. Pursuant to special condition 48(ii) of the New Contracts, the time in which a request for novation must have been served expired on 7 July 2014; and

3. If there was an agreement still in existence between NGI and GDI regarding the New Contracts, it was terminated by NGI on 23 May 2014.

60. These arguments to a large extent became academic by reason of what happened as a result of conduct by NGI during final submissions and my findings recorded later.

61. NGI initially maintained all of its claims against GDI and others in respect of its caveatable interest and/or its damages case against GDI. It relied on the existence (in the alternative) of various types of trust to found its caveatable interest.

62. It also relied on estoppel to found its caveatable interest.

63. It denies any liability under s 74P of the RPA.

64. It denies it abandoned the Short Form Deed and alleges breaches by GDI. It submitted the Deed applied to the New Contracts, and that GDI was in breach of the Deed.

65. In addition it alleges breaches of the Corporations Act 2001 (Cth) by Ms Lin.

Legal Principles

Whether NGI had a caveatable interest

66. Section 74F(1) of the RPA makes express reference to “a legal or equitable estate or interest in land.” In Re Pile’s Caveats [1981] Qd R 81 Dunn J stated that “the existence of a prima facie equity to relief involving land is not necessarily the same as the prima facie existence of an interest in land.” In S Lindsay, Caveats Against Dealings in Australia and New Zealand (The Federation Press, 1995), it was said at 153 that “an interest in the land must ultimately trace back to an interest created by or otherwise binding upon the registered proprietor.”

67. NGI initially relied upon the existence of an express or resulting trust to support the claim that there exists a caveatable interest. It relied on a number of authorities in doing so, including Calverley v Green (1984) 155 CLR 242 and Bahr v Nicolay (No 2) (1988) 164 CLR 604. These authorities are discussed later in the judgment, as are those relied upon by the third defendant’s new legal team.

68. It was said in Municipal District of Concord v Coles (1905) 3 CLR 96 at 108 that “[t]he lodging of a caveat is really in the nature of the initiation of litigation, and only those persons should be entitled to initiate litigation who are entitled to litigate the matter of the dispute which is set up by the caveat.” It is clear that a caveat may only be lodged by a person who claims an interest in land, such as:

• A person claiming an interest under a contract for purchase or unregistered transfer: Re Wadham (1879) 13 SALR 70;

• A person claiming an easement over the land: Re Paul (1902) 19 WN (NSW) 114;

• An equitable mortgage holder or the holder of an equitable charge: Avco Financial Services Ltd v White [1977] VR 561.

69. A person who merely has an interest in the proceeds of the sale of land does not have a sufficient interest in the land to caveat, except in circumstances where he has a right to compel sale: Davies v Uratoriu (1995) 6 BPR 13,917.

70. Further authorities raised by the parties are discussed in the consideration of the arguments below.

71. The new legal team representing the third defendant put a number of submissions in support of a purchaser’s lien. They cited Hewett v Court (1983) 149 CLR 639 at 645 and 659 as authority for the proposition that upon part-payment of the purchase price, a lien arises upon and by reason of part-payment of the purchase money. Further, they submitted that the lien existed even if the contract is not capable of specific performance: 650, 659, 664. A purchaser’s lien, they said, is a charge over the land and thus a caveatable interest. They cited a variety of authorities for that proposition, including Rose v Watson (1864) 11 ER 1187.

72. The new legal team also submitted that the position of a “sub-purchaser” or assignee is analogous to that of a purchaser, citing Aberaman Ironworks v Wickens (1868-69) LR 4 Ch App 101 (Aberaman Ironworks v Wickens) at 109-10; Shaw v Foster (1871-72) LR 5 HL 321 (Shaw v Foster) at 349-50 and Valerica v Global Minerals (2001) NSW ConvR 55-963 at [13]. These authorities are dealt with further below.

Section 74P of the RPA

73. Section 74P of the RPA provides as follows:

74P Compensation payable in certain cases

(1) Any person who, without reasonable cause:

(a) lodges a caveat with the Registrar-General under a provision of this Part,

(b) procures the lapsing of such a caveat, or

(c) being the caveator, refuses or fails to withdraw such a caveat after being

requested to do so,

is liable to pay to any person who sustains pecuniary loss that is attributable to an act, refusal or failure referred to in paragraph (a), (b) or (c) compensation with respect to that loss.

(2) Compensation referred to in subsection (1) is recoverable in proceedings taken in a court of competent jurisdiction by the person who claims to have sustained the pecuniary loss.

(3) A person who is a caveator is not entitled to bring proceedings under subsection (1)

(b) if that person, having had an opportunity to do so, has failed to take all reasonable steps to prevent the caveat from lapsing.

74. In Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd (1990) 21 NSWLR 459 there was some divergence in the construction of this section. Clarke JA held that in order for a claim under this section to succeed, it needed to be demonstrated that the caveator did not have a caveatable interest, that the caveator did not have an honest belief based on reasonable grounds that such an interest existed, and that the caveator deliberately lodged the caveat to infringe the interest of the registered proprietor or other interested person. Waddell CJ in Eq held that the plaintiff in such a case must not only show that the caveat was lodged without reasonable grounds, but also that the caveator had no caveatable interest.

75. A person who places a caveat on property accepts the risk that he or she may be liable for loss attributable to wrongful lodgement of the caveat. The vendor is expected to seek to mitigate their loss by seeking to have the caveat removed in a timely fashion, but that is his or her only obligation: Lee v Ross (No 2) (2003) 11 BPR 20,111.

76. When considering whether a caveator had reasonable cause for lodging a caveat, the court will consider “whether the caveator has an honest belief, based on reasonable grounds”: Lee v Ross at [85]

77. In Bedford Properties Pty Ltd v Surgo [1981] 1 NSWLR 106 Wootten J considered at 109 that:

The drastic nature of the power is relevant in considering what is “reasonable cause” for its use, just as the dangerous character of a thing is relevant to deciding what is reasonable care in handling it. Before exercising such a power, a person can reasonably be expected to get proper advice, and be reasonably sure of his ground. If he does not, he may find that he has acted at his peril. This is all the more so when he knows, as Mr Richards knew, and indeed intended, that his action will prevent an important transaction involving a large sum of money.

78. In Arkbay Investments Pty Ltd v Tripod Funds Management Pty Ltd [2014] NSWSC 1003 Robb J said at [107]:

17   The onus is on the plaintiffs to show that the caveator acted without reasonable cause. For there to be reasonable cause it is not necessary that the caveator actually have a caveatable interest, but it is necessary that the caveator have an honest belief based upon reasonable grounds that the caveator has such an interest. Wootton J in Bedford Properties noted at 108 that an honest belief on the part of the caveator based on reasonable grounds may not be sufficient to provide a reasonable cause for lodging or maintaining a caveat, if the caveat is lodged "not for the protection of his interest but for an ulterior motive and without regard to its effect on transactions to which the caveator had agreed."

79. In Mahendran v Chase Enterprises Pty Ltd (2013) 17 BPR 32,733 at [52]-[53], Barrett JA (with whom Emmett and Gleeson JJA agreed) considered:

52   Had the matter been approached in that way, the central question would have been whether the lodgment of the caveat by Chase was "without reasonable cause"; and that would have led to an inquiry of the kind suggested by the following passage in the judgment of Biscoe AJ in Natuna Pty Ltd v Cook [2007] NSWSC 121 (at [195]):

"'Reasonable cause' for the lodgement of a caveat exists where the caveator has an honest belief, based upon reasonable grounds, that the caveator has a caveatable interest. In order to establish liability under s 74P, the onus is on Mr Cook [the registered proprietor] to prove, first, that Natuna [the caveator] had no caveatable interest and, secondly, that Natuna did not have an honest belief based on reasonable grounds that a caveatable interest existed. As to the second issue, the test is partly subjective and partly objective. It is subjective in that it requires an examination of the caveator's actual belief and whether it was honestly held. It is objective in that it requires that the belief be held on reasonable grounds: see Lee v Ross (No. 2) (2003) 11 BPR 20,991; [2003] NSWSC 507 at [21]-[23]; Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd (1990) 21 NSWLR 459 at 469 - 470 (CA); Bedford Properties Pty Ltd v Surgo Pty Ltd [1981] 1 NSWLR 106; Northstate Carpet Mills Pty Ltd v B R Industries Pty Ltd [2006] NSWSC 1057 at [61]. A caveator may have reasonable grounds on which to believe that it has a caveatable interest even though it is mistaken and it is ultimately held that it did not: Ceda Nominees Pty Ltd v Registrar of Title [1982] ANZ ConvR 524."

53   The Court of Appeal of Western Australia has adopted the "honest belief based upon reasonable grounds" test in relation to the corresponding legislation of that State: Brogue Tableau Pty Ltd v Binningup Nominees Pty Ltd v [2007] WASCA 179; (2007) 35 WAR 27 at [81].

Whether NGI abandoned or abrogated the agreement

80. In Summers v The Commonwealth (1918) 25 CLR 144, Isaacs J considered at 151-152 (footnotes omitted):

Whatever the terms of a contract may be, it is possible for the parties so to conduct themselves as mutually to abandon or abrogate it. A position not altogether dissimilar arose in the case of De Soysa v. De Pless Pol. There, neither party had repudiated or refused to perform the contract, nothing in the nature of rescission had occurred, but, said Lord Atkinson for the Privy Council: -“One party to a contract is not bound to give to the other unlimited time after a day named to do that which the other has contracted to do. There must be some point of time at which delay or neglect amounts to refusal … In truth, the projects seem to have been to a great extent, if not altogether, abandoned by all the parties concerned.” In my opinion, that is the legal position here. Informally, but effectively, the parties have so acted in relation to each other as to abandon or abrogate the contract.

81. In Ryder v Frohlich [2004] NSWCA 472 McColl JA (with whom Hodgson and Ipp JJA agreed) made the following observations regarding abandonment:

135   Where it is plain from the conduct of parties to a contract that neither intends that the contract should be further performed the parties will be regarded as having so conducted themselves as to abandon or abrogate the contract: DTR Nominees Pty Limited v Mona Homes Pty Limited [1978] HCA 12; (1978) 138 CLR 423 at 434 (per Stephen, Mason and Jacobs JJ with whom Aickin J agreed); Summers v The Commonwealth [1918] HCA 33; (1918) 25 CLR 144 at 151 – 152 per Isaacs J. The inference of abandonment will be drawn where “an ‘inordinate’ length of time has been allowed to elapse, during which neither party has attempted to perform, or called upon the other to perform, a contract made between them … What is really inferred in such a case is that the contract has been discharged by agreement, each party being entitled to assume from a long-continued ignoring of the contract on both sides that … ‘the matter is off altogether’ ”: Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420 at 432 per Dixon CJ and Fullagar J.

136   Whether there is abandonment or abrogation of a contract is a matter of fact to be inferred from an objective assessment of the conduct of the parties: see CIC Insurance Limited v Bankstown Football Club Limited (1995) 8 ANZ Ins Cas ¶61 – 232 per Kirby P; Wallera Pty Limited v CGM Investments Pty Limited [2003] FCAFC 279 at [2] per Ryan J, at [30] – [32] per Kiefel J; at [57] per Gyles J; Marminta Pty Limited v French [2003] QCA 541 at [22] per Jerrard JA, Williams JA and Philippides J agreeing.

137   The underlying premise of the abandonment cases is that a period of time elapses during which neither party to the contract manifests any intention to perform the contract, leading to the inference that the contract has been abandoned. It is clear that the question whether an “inordinate length of time has been allowed to elapse” is relative. In DTR Nominees Pty Limited v Mona Homes Pty Limited the High Court was prepared to infer abandonment after a period of less than five months had elapsed during which neither party took any steps to perform the contract. In Fitzgerald v Masters it was held that a contract for the sale of land had not been abandoned even though proceedings for its specific performance were not commenced until 26 years after its execution.

Conflict of Interest

82. Two issues regarding conflict arise in this case. The first is the issue of “solicitor-client” conflict, being a conflict between a solicitor’s duty to her or his client and his or her personal interest. The second is the question of “client-client” conflict, where a conflict of loyalty arises between a solicitor’s duty to each client when she or he “attempts to serve two masters at the same time in the same transaction”: Farrington v Rowe McBride & Partners [1985] 1 NZLR 83, 89 (Richardson J), cited in Maguire v Makaronis (1997) 188 CLR 449 (Makaronis) at 466 and 471 (Brennan CJ, Gaudron, McHugh and Gummow JJ).

83. In Clark Boyce v Mouat [1994] 1 AC 428 at 435-6 it was said that:

[i]nformed consent means consent given in the knowledge that there is a conflict between the parties and that as a result the solicitor may be disabled from disclosing to each party the full knowledge which he possesses as to the transaction or may be disabled from giving advice to one party which conflicts with the interests of others.

84. Fully informed consent (by the person to whom the fiduciary duty is owed) is a defence to breach of fiduciary duty: see Chan v Zacharia (1984) 154 CLR 178, 204 (Deane J). Where there is a conflict of duties, it is necessary that informed and effective assent be demonstrated in order “to escape the stigma of an adverse finding of breach of fiduciary duty, with consequent remedies”: Makaronis at 466 (Brennan CJ, Gaudron, McHugh and Gummow JJ).

85. The onus of proof lies on the fiduciary: see Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384, 398 (Isaacs J) and the cases cited therein.

86. In order for informed consent to be demonstrated the person to whom the duty is owed must have full knowledge of the precise nature of the fiduciary’s interest in a certain transaction or the existence and scope of the potential conflict to the fiduciary’s duty of undivided loyalty to the client: Woolworths Ltd v Kelly (1991) 22 NSWLR 189, 212 (Samuels JA). Street CJ explained the requirement as follows in Law Society of New South Wales v Harvey (1976) 2 NSWLR 154 at 170:

Where there is any conflict between the interest of the client and that of the solicitor, the duty of the solicitor is to act in perfect good faith and to make full disclosure of his interest. It must be a conscientious disclosure of all material circumstances, and everything known to him relating to the proposed transaction which might influence the conduct of the client or anybody from whom he might seek advice. To disclose less than all that is material may positively mislead. Thus for a solicitor merely to disclose that he has an interest, without identifying the interest, may serve only to mislead the client into an enhanced confidence that the solicitor will be in a position better to protect the client’s interest. The conflict of interest may, and usually will, be such that it is not proper, or even possible, for the solicitor to continue to act for and advise his client. A solicitor, who deals with his client while remaining his solicitor, undertakes a heavy burden.

87. In Makaronis, the joint judgment provided as follows at 466 (footnotes omitted):

What is required for a fully informed consent is a question of fact in all the circumstances of each case and there is no precise formula which will determine in all cases if fully informed consent has been given. The circumstances of the case may include (as they would have here) the importance of obtaining independent and skilled advice from a third party.

88. In Spellson v George (1992) 26 NSWLR 666 (Spellson) Handley JA recognised at 669 that consent “may take various forms”. Young AJA considered at 682 that where what is in issue is whether X has consented to Y’s act and has communicated that consent, what the court is concerned with is whether X did in fact consent and communicate that consent by words or action or both. In Spellson the Court accepted that the degree of knowledge required, in the context of a breach of trust, to demonstrate that a beneficiary had “full knowledge of all material facts” is that stated by Wilberforce J in Re Pauling at 108:

…the court has to consider all the circumstances in which the concurrence of the cestui que trust was given with a view to seeing whether it is fair and equitable that, having given his concurrence, he should afterwards turn round and sue the trustees: that, subject to this, it is not necessary that he should know that what he is concurring in is a breach of trust, provided that he fully understands what he is concurring in, and that it is not necessary that he should himself have directly benefitted by the breach of trust.

89. Full disclosure will include the nature and extent of a fiduciary’s interest in the proposed dealing or transaction: Castlereagh Motels Ltd v Davies-Roe (1966) 67 SR (NSW) 279, 286 (Jacobs and Asprey JJA). In O’Reilly v Law Society of New South Wales (1988) 24 NSWLR 204, Kirby P considered at 208 that the law requires “full candour and appropriately complete disclosure” before an apparent conflict on the part of the solicitor will be excused.

Unclean hands

90. Courts approach the application of equitable maxims with caution. As was said by Mason CJ and McHugh J at 557 of Corin v Patton (1990) 169 CLR 540 at 557, a maxim “is not a specific rule or principle of law. It is a summary statement of a broad theme which underlies equitable concepts and principles. Its precise scope is necessarily ill-defined and somewhat uncertain.”

91. The circumstances in which this maxim operates, as observed by Campbell J in Black Uhlans Inc v NSW Crime Commission (2002) 12 BPR 22,421 (Black Uhlans), can be derived from the judgment of Eyre LCB in Dering v Earl of Winchelsea (1787) 1 Cox 318 at 319:

It is not laying down any principle to say that his ill conduct disables him from having any relief in this court. If this can be founded on any principle, it must be, that a man must come into a Court of Equity with clean hands; but when this is said, it does not mean a general depravity; it must have an immediate and necessary relation to the equity sued for; it must be a depravity in a legal as well as in a moral sense.

92. In Black Uhlans Campbell J described these “two tests” -- firstly, an immediate and necessary relation to the equity sued for; and, secondly, a depravity in a legal as well as in a moral sense -- as “a necessary condition for the application of the ‘unclean hands’ maxim, but not a sufficient condition”. His Honour continued by saying that “[e]quitable relief is always discretionary, and other factors can influence the exercise of the discretion”: see [181].

93. Campbell J went on to summarise, as follows, applications of the clean hands maxim (at [160]):

Some examples of the circumstances in which the maxim has been the basis on which a case has been decided illustrate the breadth of application of the maxim. Thus, specific performance of a contract will not be granted at the suit of a plaintiff who has made a relevant misrepresentation to the defendant: Cadman v Horner (1810) 18 Ves Jun 10; 34 ER 221; Wall v Stubbs (1815) 1 Madd 80; 56 ER 31. Unclean hands can be a ground for refusing relief against forfeiture of a lease: Litvinoff v Kent (1918) TLR 298; Gill v Lewis [1956] 2 QB 1; [1956] 1 All ER 844. It can be a ground on which a court declines to enforce a trust: Gascoigne v Gascoigne [1918] 1 QB 223; Re Emery’s Investment Trusts; Emery v Emery [1959] Ch 410; [1959] 1 All ER 577; Tinker v Tinker [1970] 1 All ER 540; [1970] P 136. It can be a basis upon which the beneficiary of a trust, who has led the trustee to commit a breach of trust, can be denied a remedy for that breach: Cory v Gertcken (1816) 2 Madd 40; 56 ER 250. It can provide a ground for refusing an injunction to enforce a negative contractual stipulation, if that contract has been procured by a misrepresentation of the plaintiff: Hewson v Sydney Stock Exchange Ltd [1968] 2 NSWR 224. It can provide a basis for refusing an injunction to enforce a restrictive covenant, if a person entitled to the benefit of the covenant has represented it will not be enforced, and that representation is acted upon by the person bound by the covenant: Greater Sydney Development Association Ltd v Rivett (1929) 29 SR (NSW) 356 at 360–1. Where the plaintiff and the defendant are both bound by restrictive covenants

arising under a common building scheme, and the plaintiff is in serious breach of the covenant, unclean hands provides a basis on which the plaintiff cannot obtain an injunction to require the defendant to observe the restrictive covenant: Goddard v Midland Railway Co (1891) 8 TLR 126. It can provide a basis for refusing an injunction to prevent passing off, where the reputation which the plaintiff seeks to have protected has itself been built up by deceptive means: Kettles and Gas Appliances Ltd v Anthony Hordern and Sons Ltd (1934) 35 SR (NSW) 108. It can provide a basis for refusing equitable relief to prevent a breach of copyright where the work contained false statements calculated to deceive the public: Slingsby v Bradford Patent Truck and Trolley Co [1905] WN 122; [1906] WN 51. Further, some cases have held that it can provide a basis for refusing equitable relief in circumstances where a plaintiff has engaged in, or advocated, immorality of some kind: Bodly v - (1679) 2 Ch Cas 15; 22 ER 824; Glyn v Weston Feature Film Co [1916] 1 Ch 261, and cases referred to in Ashburner’s Principles of Equity, 2nd ed, p 467; cf now Stephens v Avery [1988] 1 Ch 449; [1988] 2 All ER 477.

94. The requisite nexus between the alleged misconduct and the equity sought was dealt with by Wootten J in Dow Securities Pty Ltd v Manufacturing Investments Ltd (1981) 5 ACLR 501 at 508:

The equity here arises out of [the plaintiff’s] substantial and bona fide claim under the 1976 agreement; no part of its case depends on asserting the loan transaction [which the defendant contended was unlawfully made], liability under which is admitted... [The plaintiff’s] rights, viz, to have its counter-claim determined by due process, exist, if at all, by reason of circumstances wholly independent of the misconduct; the wrong it complains of, viz, the threat to wind it up when it has not in fact “neglected” to pay its debt, is wholly independent of the alleged misconduct. The right which the court of equity is asked to protect or assist was not itself brought into existence or induced by the conduct complained of.

95. Scrutton LJ, in Moody v Cox and Hatt [1917] 2 Ch 71 at 87-88 remarked that “equity will not apply the principle about clean hands unless the depravity, the dirt in question on the hand, has an immediate and necessary relation to the equity sued for.”

96. More recently, Hodgson JA (with whom Allsop P agreed) made the following observations in Kation Pty Ltd v Lamru Pty Ltd (2009) 257 ALR 336 at [28]:

The relief sought was equitable relief. The court has the discretion whether or not to grant such relief, but there are principles guiding the exercise of that discretion. Some of those principles relate to the circumstances in which equitable relief may be refused because of unclean hands; and these principles require that the bad conduct in question have “an immediate and necessary relation to the equity sued for”. However, this is not a requirement that the relation be of the nature of contributing to or constituting the equity sued for; and since this requirement is not a rule of law but merely an aspect of principles guiding the exercise of discretion, it should not in my opinion be given a narrow or technical construction.

97. The position in Australia appears to be that the disentitling conduct need not have been directed to or practised on the person against whom relief is sought. In Carantinos v Magafas [2008] NSWCA 304 at [53] and [57], Hodgson JA, with whom Campbell JA and Handley AJA agreed, said:

53 Mr Kelly submitted that the [proposition that the discrediting conduct must have been directed at the defendant] was not supported by the decision of Campbell J in Black Uhlans Inc v New South Wales Crime Commission [2002] NSWSC 1060. This proposition was mentioned at paragraphs [161] to [162] only as a matter of legal history; and it was rejected by Campbell J at para [177], referring to Kettles & Gas Appliances Ltd v Anthony Hordern & Sons Ltd (1934) 35 SR(NSW) 108 and Armstrong v Sheppard & Short Ltd [1959] 2 QB 384 at 397.

…

57 In my opinion, the primary judge was in error in holding that the disentitling conduct must have been done to or directed at the defendant. In this regard, it is sufficient to refer to Kettles and Armstrong.

Credit

98. A trial judge is in no way restricted in his or her assessment of a witness. He or she is not bound to accept any of that which the witness attests to, or indeed may only accept part thereof: Cubillo v Commonwealth (No 2) (2000) 103 FCR 1 at [118]-[123]. Nor is a judge bound to accept the testimony of a witness where there has been no cross examination.

99. I am mindful of the remarks of Gleeson CJ, Gummow and Kirby JJ in Fox v Percy (2003) 214 CLR 118 at [30]-[31] where they said:

30. It is true, as McHugh J has pointed out, that for a very long time judges in appellate courts have given as a reason for appellate deference to the decision of a trial judge, the assessment of the appearance of witnesses as they give their testimony that is possible at trial and normally impossible in an appellate court. However, it is equally true that, for almost as long, other judges have cautioned against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses. Thus, in 1924 Atkin LJ observed in Société d’Avances Commerciales (Société Anonyme Egyptienne) v Merchants’ Marine Insurance Co (The “Palitana”):

“... I think that an ounce of intrinsic merit or demerit in the evidence, that is to say, the value of the comparison of evidence with known facts, is worth pounds of demeanour.”

31. Further, in recent years, judges have become more aware of scientific research that has cast doubt on the ability of judges (or anyone else) to tell truth from falsehood accurately on the basis of such appearances. Considerations such as these have encouraged judges, both at trial and on appeal, to limit their reliance on the appearances of witnesses and to reason to their conclusions, as far as possible, on the basis of contemporary materials, objectively established facts and the apparent logic of events. This does not eliminate the established principles about witness credibility.

100. Whilst it is too simplistic and arguably erroneous for a trial judge to be solely influenced in his or her findings by contemporaneous documents, they will often have a potent part to play in that process, especially when they were created against interest. If they appear, of course, to be self-serving, they may need to be viewed with some care. Effective cross examination will usually play an important part in assisting a judge to come to a view about the facts, importantly when inconsistencies are exposed which are not capable of rational explanation. In any fact finding exercise, however, a judge must always be astute, in particular when drawing inferences, carefully to distinguish in his or her mind between what is a reasonable inference as opposed to what may amount to no more than mere speculation: Jones v Sutherland Shire Council [1979] 2 NSWLR 206 at 222.

101. The rule in Browne v Dunn (1893) 6 R 67 (HL) was described as follows in Allied Pastoral Holdings Pty Ltd v FCT [1983] 1 NSWLR 1 at 16 by Hunt J:

It has in my experience always been a rule of professional practice that, unless notice has already clearly been given of the cross-examiner's intention to rely upon such matters, it is necessary to put to an opponent's witness in cross-examination the nature of the case upon which it is proposed to rely in contradiction of his evidence, particularly where that case relies upon inferences to be drawn from other evidence in the proceedings. Such a rule of practice is necessary both to give the witness the opportunity to deal with that other evidence, or the inferences to be drawn from it, and to allow the other party the opportunity to call evidence either to corroborate that explanation or to contradict the inference sought to be drawn.

The credit of the principal witnesses

102. The substantial factual dispute in the proceedings was between representatives of the first and third defendants and their sometime solicitor, the fourteenth cross-defendant. That evidence came from three witnesses: Ms Lin on behalf of GDI, Ms Gai on behalf of NGI, and Mr Geering, the solicitor. None of the witnesses was entirely satisfactory.

Ms Gai

103. I did not find Ms Gai to be a satisfactory witness. It seemed to me she had an entirely misconceived agenda. It was to resist the obvious, remain obstinate in the face of overwhelming evidence to the contrary, and hence not to make sensible concessions when they should have been made.

104. She gave inconsistent and frankly implausible accounts of important meetings.

105. She, for example, along with Mr Geering, obviously thought it would be forensically advantageous for NGI’s case if she was seen to distance herself as far as she could from knowledge of Mr Fong as a possible joint venture partner with GDI. In addition, given her relationship with Mr Geering, I am simply not satisfied she was able to or did give independent evidence on any important issue.

106. In passing, although I will return to it, I am satisfied she clearly intended on 23 May 2014 to terminate the Short Form Deed, despite her denial that she had such an intention. The email she insisted she herself drafted is objectively clear, unequivocal and sophisticated. Her denial as to its intended effect was false, in my view, in so far as this is relevant.

107. The difficulty for NGI, and in particular Ms Gai, is that Ms Lin was not really tested on some of the important events by counsel then appearing for NGI. A decision not to cross examine will often carry with it a clear concession that to do so would have been considered of no utility, especially when counsel making the forensic choice is senior or experienced counsel.

Mr Geering

108. I am satisfied that Mr Geering was from time to time during the relevant events in a position of hopeless conflict. He either could not see it or did not want to – perhaps mesmerised by his ambition to develop the project and profit from it.

109. His evidence was at times, if truthful, breathtakingly disingenuous. I cannot, however, accept he was that unsophisticated or inept. He plainly on occasions, to my mind, made his evidence up. He had, it seems to me, relinquished or substantially compromised his role as a lawyer and was attempting simultaneously to fulfil various other roles. I am satisfied he found it convenient, frequently, to appear to concede that in retrospect there was a conflict in circumstances where I would have expected a most junior lawyer would have immediately seen a problem at the time. I was therefore not satisfied his concessions were genuine.

108. As an example, he clearly knew of the potential involvement of Mr Fong from, at the very latest, early April 2014. He, like his partner Ms Gai, pretended not to know. The truth was, I consider, that he was out of touch with commercial reality so far as the development was concerned. In a cavalier, almost reckless fashion he proceeded undeterred with a project whilst out of his depth commercially and financially, while at the same time purporting to deliver legal services to clients with differing and conflicting agendas. Unsurprisingly, he failed on all counts.

Ms Lin

111. Ms Lin purported to recreate in considerable detail conversations with Ms Gai and Mr Geering, more often than not without the benefit of any contemporaneous notes of such conversations. I find it difficult to accept that her recollection is, or could as a matter of practical reality be, that accurate. True it is that the conversations reproduced took place only a year or so prior to the trial. On the other hand, she did have the benefit of emails and text messages to corroborate some important encounters.

112. In fairness, she perhaps did have a very good reason to recall the detail. She was the only person who had actually invested any of her own funds, as it were, in the project, and was focussed on ensuring they were not lost. However, I consider on occasions she clearly embellished some conversations. That said, on balance I am satisfied that she substantially told the truth. She saw risks early in 2014 with the project, which caused a change of heart on her part as to GDI’s involvement in the joint venture. She lost confidence, quite rightly, in Mr Geering and Ms Gai’s ability to consummate the purchase, let alone the development. She saw they were out of their depth, and with some justification.

The factual narrative in greater detail, and findings

113. I am satisfied that from about 2012 Ms Gai, Mr Geering and Ms Lin had established GSVC for the purpose of attracting Chinese investors to Australia and earning fees on the funds they invested. Mr Geering acceded to that proposition in his evidence (T466/1-9).

114. During the year 2012 to at least the end of May 2014 the three held various percentages of the shares in GSVC. Ms Gai owned 40%, Mr Geering 20% and Zoom held the remaining 40%.

115. Except for possibly the period January-February 2014, Ms Gai and Mr Geering were in a personal relationship, marrying in November 2014 (T467/25-29).

116. In early 2013 I am satisfied that Ms Gai, Mr Geering and Ms Lin decided to establish NGI. It was to be a wholly owned subsidiary of GSVC and it was formed for the purpose of being a trustee and manager of the Income Fund. A little later the Property Fund was established and NGI became the trustee and manager of that fund as well.

117. Until 22 April 2014 the directors of GSVC and NGI were Ms Gai and Ms Zhu. Mr Geering incorporated Austleg on 26 July 2013. At all times he has been the principal lawyer carrying on business via that company. From September 2013 he was Austleg’s sole director (T466/1-4 and T467/44-50).

118. Mr Geering had retainers for both NGI and GDI and was hopeful that he personally would profit from GSVC’s commercial activities, including from fees earned by NGI and monies invested in the Income Fund and the Property Fund. Again, he accepted that proposition unequivocally in his evidence (T466/14-16).

119. Mr Geering provided GDI with the Costs Agreement on 9 December 2013. Mr Geering sent this to GDI and accepted that in [2] of his letter he referred to the “current matter”. He agreed that reference was to GDI’s acquisition of the Turramurra Properties (T468/20-26). Mr Geering also accepted that he intended his retainer to apply to any future matters that he might have been instructed upon as well (T468/36-38).

120. The Costs Agreement which Geering had proposed, and which had been entered into, contained a representation that he would not continue to work for GDI if on reasonable grounds he believed that he may have a conflict of interest. He accepted, unsurprisingly, that given this clause, while he continued to act for GDI he was representing to it that in fact there was no conflict in relation to the matters on which he had been engaged (T469/1-20).

121. On 17 December 2013 GDI entered into the Old Contracts and the C21 Deed with a global price of $15.1 million. Under the C21 Deed GDI was required to pay Century 21 $1,451.511 in relation to costs Century 21 claimed to have incurred in obtaining the development consent for the Turramurra Properties.

122. On exchange, GDI paid $1.51 million as a deposit. Completion date for the Old Contracts and the C21 Deed was 17 March 2014. The Old Contracts also contained a special condition which allowed their novation to another purchaser simultaneously with completion (CB6/1872 at 1882, special condition 48).

123. Ms Lin sent an email to Mr Geering and Ms Gai on 22 December 2013. She referred to the 90 days for the settlement of the land with “GS” needing to raise $9 million and “GD” needing to raise $7 million. She said “the property market is hot and will stay hot in the next 12 months, so sale the trust units ismour [sic] priority not the development units. Sale the development units will help us get the bank loan and also lock into the profit. But it is not good to lock into profit earlier in a raising market”. The email went on in some considerable detail to set out a strategy for marketing and raising capital.

124. On 24 December 2013 Ms Gai and Ms Lin took Ms Zhang for lunch at the Zilver restaurant. The three discussed the possibility of Ms Zhang in effect becoming an investor in the Turramurra project. Ms Zhang is said to have expressed the view that she thought the project would do very well. To that end she wanted to withdraw $1 million from her $6 million investment in the Income Fund and transfer the balance of $5 million into the Property Fund for the purposes of directly investing in the Turramurra project. Subsequently, on 6 January 2014, Ms Zhang met Ms Lin in her office and she signed the mandate for the investment of her money.

125. On 28 December 2013 Mr Geering forwarded to Ms Gai and Ms Lin what he described as the “first draft” of Heads of Agreement. The agreement was to provide for a joint venture between GDI and NGI (as trustee for what was described as the “soon to be settled” Gold Stone Future Investment Property Fund – North Shore). Ms Lin sent an email to Mr Geering and Ms Gai on 2 January 2014. Her comments were directed to the proposed draft Heads of Agreement and various aspects of it.

126. It seems on or about 15 January 2014 Mr Geering drafted a letter which was to be sent to prospective investors in the Property Fund. The draft letter (which apparently was never sent) announced that GDI and the Property Fund had agreed to form an incorporated joint venture to develop the particular site and that it was envisaged that GDI and the fund would ultimately each own 50% of the joint venture.

127. I am satisfied Mr Geering acted for both GDI and NGI in relation to the proposed joint venture, including advising them on and preparing draft Heads of Agreement.

128. In cross examination Mr Geering accepted, in my view appropriately, that in doing so he was in a position of conflict between his duties to GDI and NGI. He was taken to a number of clauses. For example, in relation to cl 2.8.2 of the draft Heads of Agreement, he accepted that that particular provision was beneficial to NGI but potentially detrimental to GDI. He also accepted that the advice a solicitor might have given GDI about cl 2.8 too would be quite different to the advice that a solicitor might have given NGI about the same clause (T483/30-50). During further cross examination on the topic he accepted that looking at the matter now he could see his position of conflict (T484/29-34).

129. By around 27 January 2014 the proposed structure of the joint venture had changed and the parties intended that NGI would become the registered proprietor of the Turramurra Properties, with GDI being a lender to the development project. These matters were discussed at a meeting between Ms Gai, Ms Lin and Mr Geering on that day, which apart from about a 20 minute break started around 10.55am and concluded at 3.30pm. It covered other matters such as who would be the project manager and what fees would be paid in that regard. There were also detailed discussions concerning an interior designer, consulting architect and the sales of the completed apartments.

130. I am satisfied that by the middle of February 2014, at a meeting attended by Ms Gai, Mr Geering and Ms Lin, a discussion took place as to the commercial terms of what was to become the Short Form Deed. During the meeting I am also satisfied Ms Lin told Ms Gai and Mr Geering that GDI no longer wished to develop the Turramurra Properties because of the perceived risks involved. I also accept that Ms Gai stated that NGI had the capacity to complete the purchase of the Turramurra Properties and develop the project, and was happy to receive the $5.5 million loan from GDI or GSC to complete the purchase. In cross examination Ms Gai accepted that at this meeting she also said that she was confident that NGI would have all the monies to complete the Old Contracts by the end of February or early March 2014 (T281/37-40). Further, she accepted that because there had been so much interest in the project NGI may be able to reduce the amount of the loan from GDI or GSC to less than $5.5 million (T281/46-49).

131. On 24 February 2014 GDI, NGI, GSC and Ergo Investment entered into the Short Form Deed.

132. In substance, the Short Form Deed provided that NGI would secure funding arrangements for the purchase price (namely $15.1 million payable under the Old Contracts and the C21 Deed plus stamp duty). All parties, directors, related entities and associates promised each other to use best endeavours to assist NGI to obtain that funding. After NGI had secured the funding GDI would seek to novate the Old Contracts to NGI under special condition 48. Importantly, if the novation was successful NGI as trustee for the Property Fund would own the Turramurra Properties and be entitled to the profit and liable for any losses occasioned thereby. In addition, it was intended that the deposit which had been paid by GDI under the Old Contracts would be assigned to NGI and NGI would reimburse GDI for it and issue GDI with 750,000 units in the Property Fund. Then GSC or GDI would loan NGI up to $5.5 million and interest of 20% per annum (if the loan was from GSC) or 15% per annum (if the loan was from GDI). Lastly, NGI would reimburse Ergo Investment for payments made to third parties to further the project and the contracts of those third parties would also be novated to NGI, and NGI would engage Ergo Investment to conduct the sales and marketing of the project.

133. Mr Geering accepted that he had drafted the operative clauses of the Short Form Deed on behalf of all parties and the language of the Deed was largely, if not entirely, his (T488/26-42). Mr Geering accepted that he had left cl 2.1 completely uncertain as to the time for performance by NGI of its obligation to secure funding for the purchase price (T495/37-39). He either did not intend, or perhaps did not direct his mind to whether, NGI should be obliged to secure funding by the completion date as opposed to only imposing on NGI an obligation to make reasonable efforts to do so. He accepted that he gave no advice to either GDI or NGI that the time for performance of NGI’s obligation under cl 2.1 was uncertain.

134. He also accepted that had he been acting for GDI alone in respect of the joint venture with NGI it would have occurred to him to advise GDI on the need for certainty as to the timing of performance by NGI of its obligation to secure funding for the purchase price under the Old Contracts (T496/24-29).

135. Further, he accepted that had he been acting for GDI alone it would have been obvious to him that it was in GDI’s interests that the time for performance by NGI of the obligation to secure funding be fixed and made certain (T498/29034).

136. He also accepted that if advising GDI alone it would again have been obvious to him to advise GDI to include in the Short Form Deed a clause that gave it a clear right to terminate the Deed if NGI did not secure funding for the purchase price by the required time, and in addition it would have been obvious to him to advise GDI to include a term in the Short Form Deed to the effect that NGI would be liable in damages if it did not secure funding by the required time (T499/4-11). He also accepted that he would have advised GDI that it was at risk if the required time for performance of NGI’s obligation to secure funding for the purchase price was not the date for completion of the Old Contracts (T499/13-26).

137. Mr Geering accepted that he did not advise GDI on any of these matters (T499/9-12).

138. The following exchange occurred when Mr Geering was cross examined by counsel for GDI:

Q. Mr Geering, at the time you drafted this deed, you surely by then appreciated that there was a conflict between your duties to GDI and NGI.

A. No, not at that time, I didn't see.

Q. Looking at the matter now, you can see that there was, can't you?

A. Yes, I can see a conflict now.

Q. There was also, it follows, doesn't it, a conflict between your own personal interest and your duties to GDI.

A. Well, that's right, but my clients were aware of that.

Q. Mr Geering, you never said to anyone from GDI that your advice to GDI might be adversely affected by your acting for GDI or your personal interest in NGI, did you?

A. No, I didn't, no.

139. Mr Geering gave some confused evidence in relation to whether or not he had told Ms Lin he was not advising GDI on the Short Form Deed. However, he had earlier of course conceded (T488/40-41) that he had drafted the Short Form Deed on behalf of both parties, and had drafted the very words of the document.

140. Later in his cross examination he asserted that Ms Lin had in effect told him that she did not wish him to advise GDI on the Deed (T497/23-34). He was simply unable to explain why such a conversation was not included in any of his affidavits. I must confess, I formed the distinct impression that Mr Geering was simply making that evidence up. In those circumstances his evidence on that topic was, in my view, not the result of any confusion on his part but, I regret to say, deliberately untrue, and based on a realisation of the predicament he was in.

141. Between the end of February and 22 April 2014 NGI made a number of efforts to secure debt financing so as to be able to complete the purchase of the Turramurra Properties. In late February Ms Lin and Ms Gai approached a Mr Michael Feehan (Mr Feehan) to assist NGI in sourcing finance.

142. On 26 February 2014 Ms Lin sent an email to Mr Schiller (of Century 21). She informed him that NGI would be nominated as the party to complete the contracts. She went on, however, to indicate that the Development Approval (DA) was not included in the sale contract, nor were certain conditions attached to the DA, which she asserted amounted to a deficiency in the contract. She proposed fresh contracts be issued with a version of the DA attached, and that there should be a simultaneous rescission of the Old Contracts with GDI and an exchange of a new version of the contracts with the three month completion period. She also proposed that the original deposit paid under the Old Contracts be replaced with a new deposit cheque, and that 30% of the total contract price be released to the Vendors as partial payment by 17 March 2014. In addition, she proposed that the owners of each of the Properties could continue to live in the premises rent free until the start of construction.

143. On 27 February 2014, however, Mr Yahl, solicitor for the Vendors, responded. He rejected much of what Ms Lin had said and further rejected any right to terminate the Old Contracts for any reason. He asserted that they were binding and enforceable in their current form.

144. On the same day Mr Feehan, on behalf of NGI, submitted a funding application to CAG a finance broker. At that time NGI was seeking a loan of up to $7 million for up to 12 months secured by registered first mortgages over the Turramurra Properties.

145. On 8 March 2014 Mr Geering sent a letter to GDI in which he indicated that he had consulted with Mr Stephen Climpson of Counsel and discussed a number of matters with him. This largely involved the alleged costs of obtaining the DA. He indicated he would write a letter to Mr Yahl and provide a copy to Ms Lin for comment.

146. On 10 March 2014 Mr Geering sent a letter to Mr Yahl. The letter purported to complain about the costs of the DA assessed by Century 21. The letter further asserted that Mr Geering’s clients had been induced to act to their detriment by the misleading nature of certain representations concerning the costs of the DA.

147. On the same day Mr Yahl responded to Mr Geering describing the latter’s letter as a “lame attempt” to vary the contractual arrangements. Mr Yahl required confirmation that the contract would be completed in accordance with arrangements, on 17 March 2014. On 11 March 2014 Mr Geering sent a further letter confirming that his clients were ready to complete on 17 March 2014. He suggested a time and venue and invited the preparation of settlement and adjustment sheets.

148. Early in the morning of 12 March 2014 Ms Lin sent a text message to Mr Geering. She confirmed that the contracts would be novated to NGI. She further stated that GDI had not prepared for settlement but was prepared to fund $5.5 million as per the agreement between the parties that whereby GDI would provide a funds to assist NGI in meeting the purchase price. She informed Mr Geering that her husband had concluded four sales contracts.

149. Later that day Ms Lin sent a further text message to Mr Geering. She indicated that she had received an offer of $7 million at 8.74% for up to 12 months, and she said there were eight apartments that had been sold.

150. On 12 March 2014 Mr Geering sent an email to Ms Gai and Ms Lin. In it he indicated that he had sent a notice to the Vendors’ solicitors purporting to novate the sale from GDI to NGI. He confirmed that he had also sent correspondence to Century 21’s solicitor asking them to substantiate the $1.5 million for the DA costs. He further discussed the possibility of lodging caveats.

151. Later in the afternoon on 12 March 2014 Ms Lin responded to Mr Geering. Again, she indicated that GDI was not in the position to complete the contracts. She proposed that NGI should complete the contracts and that GDI would provide up to $5.5 million as per the Short Form Deed. She asserted that GDI had formally assigned its rights to NGI under the agreement. She expressed the view that the deposit paid under the contracts by GDI would be dealt with in accordance with the “Agreement” and therefore she asserted NGI would have a caveatable interest. That email was also sent to Ms Gai.

152. On 13 March 2014 Mr Yahl sent two letters to Mr Geering. In both he rejected comments made by Mr Geering and also indicated that any attempt to novate did not comply with special condition 48. He simply reiterated that the contracts were to be completed by 17 March 2014.

153. On 13 March 2014 Ms Lin sent an email to Mr Geering indicating that she had had some private discussions with Mr Schiller from Century 21, who had told her that he had at least two of the Vendors who supported rescission of the original sales contracts and issuing fresh contractual documents with NGI. She also indicated that the two Vendors had asserted they were prepared to negotiate a term allowing a further extension of time before completion.

154. On 14 March 2014 NGI executed a brokerage agreement with CAG. Ultimately, of course, NGI did not obtain finance through that entity.

155. On the same day Mr Chu, a solicitor employed by Mr Geering, wrote to Lane & Lane (Mr Yahl’s firm), enclosing six draft contracts with NGI as the nominated transferee.

603. Mr Gyles SC went on to say:

We say that if GDI cannot prove these matters, the case against Mr Geering fails. If GDI cannot prove that the contracts would have been completed or extended on 22 April, it cannot prove that any breach by Geering caused any loss to it. In fact, if the contracts had not been completed or extended on 22 April, GDI would have been materially worse off because it would have lost its deposit. That is the curiosity of the case so far as Mr Geering is concerned, your Honour, which is that we would say that Geering's alleged breach meant that it didn't lose its deposit because its breach, Mr Geering's alleged breach, gave GDI access to NGI's funds to enable the contracts to be extended or, more accurately, the old contracts to be rescinded and the new contracts entered into, and an avoidance of the losing of the deposit.

604. On the second day of submissions, there was some discussion as to whether Mr Geering should have advised GDI on 17 April 2014 that it could terminate the Short Form Deed. On the third day, it was clarified that GDI's case is predicated on the basis that Mr Geering should have advised GDI on 22 April 2014 that it could terminate the Short Form Deed.

605. NGI contests that, on a proper construction of the Short Form Deed, NGI had an obligation to provide the purchase monies by the date for completion of the contract and argues that a term would have been included if that was what was intended. This issue is discussed from T757, and I observed at T759 that the Short Form Deed does not bind the hands of the Vendors, such that it is not really a matter for GDI and NGI to set a timeframe. Further, at T761 Mr Geering submits that where the Vendors were willing to provide an extension of time for completion, it would have been in breach of an obligation of good faith were GDI to seek to terminate the Short Form Deed for anticipatory breach.

606. At T763, Mr Gyles SC on behalf of Mr Geering says:

"I'll move on. But we say the first hurdle that has to be crossed by Mr Darke's client is to establish that a prudent solicitor, whether Mr Geering or otherwise, would have advised GDI that it had a right to terminate the short form deed. We say that a prudent solicitor would not have given that advice because that right had not yet crystallised and would never have crystallised because we know that the date for completion of those contracts would have been extended and MGI [sic] would have found the money by that date.

607. GDI accepts that it is necessary for GDI to show that the losses for which equitable compensation is sought would not have occurred if there had not been a breach of fiduciary duty (see T816).

608. Mr Geering submits that his breach of duty was acting for GDI without its fully informed consent, and so the relevant counterfactual is what would have happened had fully informed consent been sought. Mr Geering submits, in effect, that GDI would have given its consent or at least would not have engaged a different solicitor.

609. GDI submits that this argument is fundamentally flawed. First, obtaining fully informed consent is not an aspect of the alleged breach by Mr Geering of his fiduciary duty. That duty is the fiduciary duty of undivided loyalty. Obtaining fully informed consent is merely a defence to an allegation of breach. I accept GDI’s submissions that framed that way, the counterfactual is erroneous.

610. It seems to me the question is not what the position would have been had Mr Geering sought GDI’s informed consent, but rather whether there is a sufficient connection between GDI’s claim for equitable compensation and Mr Geering’s failure to act in accordance with his duty. It seems to me on the evidence there is more than ample connection between the two.

611. In any event, Ms Lin gave unequivocal evidence that if she had been advised by Mr Geering that he was in a conflict GDI would have obtained separate legal advice and representation (T93/5-94/10). I would accept that evidence.

612. Mr Geering also submits that he had no fiduciary obligation to provide advice to GDI in respect of the joint venture with NGI. I have already rejected that submission. Clearly, in my view, his retainer did extend to providing such advice. His duty, in my opinion, extended to both matters which came within the scope of the relevant retainer.

613. Mr Geering submits that he did not act otherwise than in accordance with his instructions, nor did he prefer NGI’s interests over GDI’s. I do not consider that either of these propositions is an answer to the claim for equitable compensation. Whether Mr Geering consciously or otherwise preferred NGI’s interests over GDI’s I consider he plainly did, in fact, prefer NGI’s. By his own admission he failed to give GDI advice which he would have given had he not been in a conflict. I think this is testament to his preference.

614. Mr Geering also contends that NGI would never have agreed to a term in the Short Form Deed requiring it to perform its funding obligation under cl 2.1 by the date for completion of the Old Contracts. Again, I consider this submission quite contrary to the evidence. At the time of entry into the Short Form Deed Ms Gai said that she was confident that NGI would be able to perform its funding obligation by the end of February or early March 2014. However, had GDI been properly advised then it would have refused to enter into the Short Form Deed unless NGI agreed to perform its funding obligation by the time for completion of the Old Contracts. In that event there would have been no Short Form Deed and the probabilities are that GDI would have novated the Old Contracts to MVGDD (or another joint venture vehicle with Mr Fong) with a settlement date of 22 July 2014.

615. In its submissions in reply GDI points out a number of errors in Mr Geering’s submissions. They are to be found in [200]-[202]. First, it is pointed out that Ms Lin did not give evidence that she instructed Mr Geering to release the $6 million to the Vendors on 22 or 23 April 2014. GDI points out that the evidence at T163.1 to which Mr Geering refers concerns the events of 17 April 2014. Secondly, it is submitted that GDI did have access to $6 million as at 22 April 2014. Thirdly, GDI’s case does not turn on establishing that Mr Geering was disadvantaged specifically by allowing the release of $6 million to the Vendors.

616. NGI’s alternative case, of course, depends heavily on an assertion that the Short Form Deed was varied on a number of occasions between its execution (on 24 February 2014) and 22 April 2014. As GDI points out, none of that is relevant given that it was ultimately abandoned. In any event, I am invited not to accept the submission for the following reasons.

617. Both Ms Gai and Mr Geering, when cross examined by counsel for MVGDD, asserted that the Short Form Deed was never varied. In addition, both Ms Gai and Mr Geering accepted that no new agreement was ever made between NGI and GDI. GDI makes the appropriate submission that there is simply no evidence of any variations.

618. The difficulty, which GDI has pointed out more than once, with Mr Geering’s memorandum of 27 April 2014, is that it is not a mere statement of the Short Form Deed. The difference is that in [2] of the memorandum it is stated that NGI is entitled to a novation of the New Contracts having contributed $6 million to the purchase of the Turramurra Properties, whereas under the Short Form Deed NGI had to contribute at least $10.5 million to be so entitled. The memorandum by reference to the loan amounts and interest rate stated in the paragraphs are very different to those set out in the Short Form Deed. As GDI points out, if that is correct there must be a new agreement but presumably one in respect of which Ms Gai or Mr Geering had no knowledge.

619. GDI opposed specific performance for any number of reasons partly due to the fact that the Short Form Deed according to them, with which I agree, had been abandoned. The remedy and the facts surrounding it had, from NGI’s point of view, ceased to have any relevance, as outlined above, except on questions of costs.

620. However, GDI says that, had Mr Geering complied with his duties, the following would have been the case (see T816):

1. GDI would not have entered into the Short Form Deed, perhaps at all, but certainly not without a term that gave GDI express protection if NGI failed to secure funding before the completion date;

2. NGI's $6 million would not have been released to the plaintiffs in circumstances where there was uncertainty as to GDI and NGI's respective rights; and

3. GDI's interest would have been sufficiently protected so that if NGI was unable to raise the funds, GDI could have dealt with other parties such as Mr Fong.

621. Again, I am satisfied that on the evidence these were the probable consequences, and I would make findings to that effect.

Conclusions concerning causation

622. GDI submits that it would have novated the Old Contracts to MVGDD or some other joint venture vehicle with Mr Fong and those contracts would have completed at or about 22 April 2014, or it would have novated the New Contracts to MVGDD and those contracts would have completed on or about 22 July 2014. In either case the present litigation would not have ensued. For reasons which I have already discussed I consider the New Contracts but for the Short Form Deed would have completed by 22 July 2014.

623. GDI submits, I consider correctly, that but for Mr Geering’s failure to advise in respect of the drafting of the terms of the Short Form Deed it would not have suffered the loss and damage adverted to earlier in GDI’s submissions [191(a)(ii)] and [191(c)]. It is true, as GDI points out, that Mr Geering’s submissions about the difficulties with GDI’s claim for damages appear to be predicated on the proposition that GDI had no choice but to use NGI’s $6 million as at 22 April 2014 because there is no evidence MVGDD was in a position to settle the Old Contracts and GDI would have been unable to raise the $6 million itself.

624. I consider, for reasons I have already expressed, that the above statement is probably correct. Certainly as at 22 July 2014, GDI had, I am satisfied, access to substantial funds itself. Ms Lin gave evidence which was not challenged (Lin 2 [13]) that she had available with her husband a $2.4 million facility with Westpac. In addition she had available cash funds in excess of $5 million and GDI submits it could have used its own resources to procure the Vendors’ entry into the New Contracts had MVGDD not been available to do so. I am satisfied on the evidence that GDI had sufficient resources but I am not satisfied GDI would have used them to complete by 22 April 2014. More probably GDI, I consider, would have much preferred to lock in Mr Fong and use his resources and expertise, for reasons to which I have already referred.

625. Mr Geering, as discussed above, further contends in substance that the circumstances which GDI contends would have occurred but for Mr Geering’s breach of duty, namely the termination of the Short Form Deed, occurred in any event including when (as GDI contended in answer to NGI’s case for specific performance) in May 2014 the Short Form Deed was terminated or abandoned, therefore Mr Geering contends his conduct cannot have caused any loss.

626. I cannot accept this submission. GDI in my view correctly points out that but for Mr Geering’s incompetence the Short Form Deed (had it been entered into at all) would have included a term conferring on GDI an express right of termination in the event that NGI did not meet its funding obligations under cl 2.1 by the date of completion of the Old Contracts and GDI would have been advised to exercise and would in fact have exercised that right. As to the latter, I think that that is a reasonable inference given the animosity between the parties, certainly during April and May. In those circumstances, I think it is fair to say that the Short Form Deed would have been terminated in any event.

627. GDI submits that in any event, even had it asserted at the relevant time that the Short Form Deed could not be enforced because it had been abandoned, this litigation would not have been avoided unless Mr Geering had inserted a clear and unequivocal provision permitting GDI to terminate the Deed.

Claim for breach of fiduciary duty

628. Mr Geering accepts that he breached his fiduciary duties to GDI. What is left, as GDI points out, are questions of equitable compensation, rescission and “unclean hands” defences.

Unclean hands

629. Mr Geering submits that GDI should be refused equitable relief as it approaches the court with unclean hands. Something similar has been advanced by NGI. The difficulty with this is Mr Geering’s awareness, and for that matter NGI’s awareness, that as at 22 April 2014 and, if I may so, much earlier, one option for completing the New Contracts involved a joint venture with Mr Fong or a company associated with him. From the very moment the Short Form Deed came into existence Ms Lin not only did not wish to take the risk herself, as the days wore on she made it abundantly plain she did not think Mr Geering or NGI was up to the task of developing the property. Because of changed events, however, NGI’s argument is academic.

Professional standards defence

630. Mr Geering pleads that if he is found to be liable, then this liability Is an occupational liability within the meaning of the Professional Standards Act 1994 (NSW) (PSA). Mr Geering submits that as a solicitor with a practising certificate he is and was at all material times a member of an “occupational association” for the purposes of s 4 of the PSA.

631. Mr Geering submits that at all material times a scheme for limiting the occupational liability of practising solicitors was in force, being the Law Society of NSW Scheme (Scheme). Clause 5 of the Scheme provides that it commenced in 2012 and was intended to remain in force for a period of five years.

632. Clause 3.2 of the Scheme requires that members prove they held insurance cover insuring them in respect of the liability to which the cause of action relates. Mr Geering submits that at all material times Mr Geering was part of a law practice of less than 20 principals which generated total fee income of under $10 million. It is agreed that this is the case (T629/35-40). As such pursuant to the Scheme Mr Geering was required to hold insurance cover of a minimum of $1.5 million. He submits he did so, relying on Exhibit KG-3 to his affidavit sworn 5 March 2015. As a consequence, he submits that any liability to GDI should be limited to $1.5 million in damages.

633. GDI submits that Exhibit KG-3 is not sufficient to demonstrate that the professional standard defence should apply. The policy relied upon by Mr Geering purports to provide cover of $2 million for any one claim for the period “2014/15”. The problem is that it is not entirely clear what the relevant period is. The schedule to the policy leaved blank item 3, “period of insurance”.

634. I am not satisfied on the evidence that Mr Geering did hold the required insurance pursuant to cl 3.2 of the Scheme. However, given the importance of this matter to Mr Geering I am prepared to hear further argument on this matter, if necessary.

Contributory negligence

635. Mr Geering submits that if GDI suffered loss it was at least partly due to its own conduct and therefore any liability Mr Geering is found to have to GDI should be reduced to reflect the causal effect of that conduct.

636. I consider there are a number of conceptual difficulties, though, with such a claim. First, I do not see how it can apply to a claim of breach of fiduciary duty.

637. In any event, the factual matters upon which Mr Geering bases the defence, it seems to me, do not make good the proposition. What Mr Geering has to show, it seems to me on authority, is that GDI’s conduct involved a departure from exercising a reasonable standard of care for its own safety. The difficulty Mr Geering faces is that he was acting for GDI giving it advice and indeed it entered the Short Form Deed based upon his advice. I do not see in those circumstances how the defence of contributory negligence could possibly apply.

Damages

638. Mr Geering submits that if he is liable in damages to GDI then in respect of the first lien, being the loss of the use of the $1.5 million, interest should only be allowed on $510,000 and Mr Geering should only be liable for interest and not be liable for the principal amount of $186,959.94.

639. GDI accepts that interest should only be awarded on $510,000 from the date of the repayment of the $1 million by MVGDD to GDI, which occurred on 7 July 2014. It, in my opinion rightly, maintains its submission that interest should be awarded on the $1 million from 22 April 2014 to 7 July 2014. Further, GDI submits that the interest that should be awarded pursuant to rates prescribed by the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). GDI accepts, however, that if NGI fails to get specific performance then Mr Geering would not be liable for the $510,000 plus interest.

640. GDI claimed an amount of $186,959.94 predicated on a basis that seems to me is no longer relevant. If need be I will hear the parties further on this matter.

641. Mr Geering submits that his liability should not extend to indemnifying GDI for any interest GDI might be found liable to pay NGI on the amount of $6 million. GDI submits that this is based on a misconceived causation argument. I agree.

642. Mr Geering submits that his liability should not extend to indemnifying GDI for any liability GDI is found to have to MVGDD pursuant to the novation deed. Again, I accept GDI’s submission that this is misconceived. The notion that losses arising from litigation which have ensued as a consequence of Mr Geering’s breach of duty are too remote is, in my view, plainly wrong.

643. Mr Geering submits that GDI’s claim for indemnity from Mr Geering for any costs liability it is found to have in the proceedings is misconceived. I accept he should have such liability. The damages against Mr Geering (payable to GDI) should be assessed in accordance with Schedule 2 as prepared by GDI on this aspect of the case.

Conclusion

644. In relation to the case put by the plaintiffs, I am satisfied that NGI did not have a caveatable interest in the Turramurra Properties and, further, that NGI did not have reasonable cause to lodge the caveats. As a consequence, I am satisfied that the plaintiffs are entitled to compensation pursuant to s 74P of the RPA.

645. Insofar as GDI initially sought declarations concerning its entitlement to novate, those declarations are now academic.

646. In relation to the claims made by GDI against NGI, I accept that the Short Form Deed was terminated or abandoned. It is therefore not necessary for GDI to seek an order for its rescission. However, had I been required to make a finding in that regard, I consider that GDI would have been entitled to rescind the Short Form Deed on the basis of Mr Geering’s breach of his fiduciary obligations.

647. I am also satisfied that GDI would have been entitled to rescind pursuant to the Australian Consumer Law on the basis of the fact that entry into the Short Form Deed was induced by NGI on the basis of misleading or deceptive conduct, and that GDI is entitled to damages under s 236 of the Australian Consumer Law.

648. I am satisfied that, had GDI not entered into the Short Form Deed, then the contracts would have been novated and completed on 22 July 2014.

649. I am also satisfied that GDI would be entitled to damages pursuant to s 74P of the RPA for pecuniary loss attributable to the lodgement and refusal to withdraw NGI’s caveats over the land.

650. The majority of the claims made by NGI in their cross-claim are now academic. Had I been required to decide the matter, I would have found that the second and third agreements as alleged did not exist. I would also have found that NGI’s claim that an estoppel arose was unsuccessful.

651. Even if NGI had established that GDI owed it fiduciary duties, I consider that the conduct alleged in the cross-claim occurred significantly before any such duty could have come into existence.

644. In relation to GDI’s claims against Mr Geering, I am satisfied that Mr Geering breached his fiduciary duties. I am also satisfied that he breached his retainer by failing to exercise reasonable skill and care. For the same reasons, I am satisfied he breached his duty of care to GDI. In relation to causation, I am satisfied that but for Mr Geering’s failure to give proper advice regarding the Short Form Deed GDI would not have suffered loss and damage on the basis that the contracts would have completed on 22 July 2014.

645. I am satisfied that GDI is entitled to equitable compensation from Mr Geering. As outlined at [625] onwards, I do not accept Mr Geering’s submissions regarding damages.

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Decision last updated: 21 August 2015