Warren Aubrey Miles v Little Caesars Casino Pty Ltd - [2001] NSWSC 33

No judgment structure available for this case.

CITATION: Warren Aubrey Miles v Little Caesars Casino Pty Ltd & Ors [2001] NSWSC 33 revised - 23/02/2001

CURRENT JURISDICTION: Equity Division

FILE NUMBER(S): SC 4851 of 1999

HEARING DATE(S): 14, 15, 16, 17, 18, 21, 22, 23, 24 August, 2, 3, 7 and 8 November 2000

JUDGMENT DATE:
8 February 2001

PARTIES :

Warren Aubrey Miles (Plaintiff)
Little Caesars Casino Pty Limited as trustee of the White Bay Unit Trust (First Defendant)
Kablow Holdings Pty Limited as trustee of the Camvic Trust (Second Defendant)
M Cole Investments Pty Ltd as trustee of the M Cole Family Trust (Third Defendant)
Pevule Pty Limited as trustee of the Spencer Trust (Fourth Defendant)
William Edward Cole (Fifth Defendant)
Stephen Edward Manning (Sixth Defendant)
Kablow Holdings Pty Limited as trustee of the Miles Settlement (Seventh Defendant)
The Outdoor Company Pty Limited as trustee of the Outdoor Company No 1 Trust (Eighth Defendant)

JUDGMENT OF: Bergin J

COUNSEL : PM Biscoe QC/C Bevan/M Henry (Plaintiff)
FP Carnovale (Third, Fourth Fifth and Sixth Defendants)

SOLICITORS: Steingold Abel (Plaintiff)
Gillis Delaney Brown (Third, Fourth, Fifth and Sixth Defendants)

CATCHWORDS: FIDUCIARY OBLIGATIONS - Nature of fiduciary relationship and nature of breaches of fiduciary duties - Admission during trial that consent would not be argued - Effect of admission. ASSESSMENT OF LOSS - Relevant causal questions - Whether loss suffered.

CASES CITED: Barns v Hay (1988) 12 NSWLR 337
Beach Petroleum NL v Kennedy & Ors (1999) 48 NSWLR 1
Biala Pty Ltd & Anor v Mallina Holdings Ltd & Ors (1993) 11 ACSR 785
Dempster & Anor v Mallina Holdings Ltd & Anor (1995) 15 ACSR 1
Maguire v Makaronis (1997) 188 CLR 449
O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262
Phipps v Boardman (1967) 2 AC 46
Poseidon Ltd v Adelaide Petroleum NL (1994) 120 ALR 16; 68 ALJR 313
Regal (Hastings) Ltd v Gulliver (1967) 2 AC 134

DECISION: Equitable compensation ordered.

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BERGIN J

DATE: THURSDAY 8 FEBRUARY 2001

4851/1999 - WARREN AUBREY MILES v LITTLE CAESARS CASINO PTY LTD as trustee of THE WHITE BAY UNIT TRUST & ORS

JUDGMENT

1 Warren Aubrey Miles, the plaintiff, (Miles) and William Edward Cole, the fifth defendant (Cole) have until these proceedings been close friends for about 30 years. Together they conducted a successful outdoor sign business. They conducted that business in partnership until 1984 and thereafter through various trust structures.

2 Stephen Edward Manning, the sixth defendant, (Manning) has been a friend of Cole for about 15 years. Manning is an accountant who previously worked for the Australian Taxation Office. It was Manning who advised Cole and Miles to adopt the trust structures for the operation of the outdoor sign business.

3 These proceedings were heard at the same time as related proceedings between the parties. Put shortly, the various trusts became deadlocked by reason of insoluble conflict between Miles and Cole. There were many issues in both sets of proceedings, all but one of which were resolved in the last week of the hearing of the matters.

4 The matters were expedited and heard between 14 and 24 August 2000. The serious illness of a witness necessitated an adjournment and the matter proceeded on 2, 3, 7 and 8 November 2000. Mr Biscoe QC leading Mr C Bevan and Mr M Henry appeared for Miles and Mr Carnovale, of counsel, appeared for Cole and Manning and their associated entities, M Cole Investments Pty Ltd, as trustee for the M Cole Family Trust, the third defendant, and Pevule Pty Ltd as trustee for the Spencer Trust, the fourth defendant.

5 The second defendant, Kablow Holdings Pty Ltd as trustee for the Camvic Trust, the seventh defendant, Kablow Holdings Pty Ltd as trustee for the Miles Settlement and the eighth defendant, the Outdoor Company Pty Ltd as trustee for the Outdoor Company No.1 Trust, are entities controlled by Miles and Cole and which were deadlocked. They were not represented in the proceedings.

6 It was the more urgent matters that were resolved by the Consent Orders appointing Receivers to the various companies in the last week of the trial of this matter. This left the only issue involving Miles, Cole, Manning and the first defendant, Little Caesars Casino Pty Ltd as trustee of the White Bay Unit Trust (Little Caesars) for determination. Little Caesars was not represented in the proceedings.

7 Miles claims on behalf of Little Caesars an order that Cole and Manning pay equitable damages in the amount of $1,092,862.93, for breaches of fiduciary duty owed to Little Caesars in relation to certain poker machine permits.

8 The White Bay Unit Trust (the Trust) was settled on 15 June 1992. Little Caesars is the trustee of the Trust and the directors and shareholders of Little Caesars are Miles as to one third, Cole as to one third and Manning as to one third. The units in the Trust are owned equally by:

(a) the Camvic Trust, the trustee of which is Kablow Holdings Pty Ltd representing Miles’ interests;

(b) the M. Cole Family Trust, the trustee of which is M Cole Investments Pty Ltd representing Coles’ interests; and

(c) the Spencer Trust, the trustee of which is Pevule Pty Ltd representing Manning’s interests.

9 The Trust was formed for the purpose of acquiring the White Bay Hotel on Victoria Road, White Bay (the Hotel). The Hotel and the associated liquor licence was purchased by Little Caesars in June 1992. After Little Caesars purchased the Hotel it was never operated as an hotel, however Little Caesars continued to own the liquor licence. One of the main attractions to the Hotel was the prominence of the outdoor signs with the ability to erect further signs with their capacity to bring income from entities which hired the signs for advertisements.

10 Ian Gregory Fripp (Fripp), a friend of Manning, was a director and shareholder of a company known as Video Training Academy Pty Ltd (VTA). In 1994 Fripp had been known to Manning for about four years as an operator of a furniture business at Granville, known as the Barn, and a business producing and selling training videos for use in commerce and industry. Little Caesars granted a five year lease to VTA on 1 October 1994.

11 In early 1995 the person, who was not identified in the evidence, who held Little Caesars’ liquor licence did not wish to hold it any longer and it became necessary to find some other person to hold the licence. Manning could not do so because he was already the licensee of an hotel, known as the Family Inn Hotel at Rydalmere, in which he had an interest.

12 As Miles and Cole had no interest in completing the relevant training course, Manning, with their consent, arranged for Fripp to do the training course and become the licensee of the Hotel on behalf of Little Caesars from 28 April 1995.

13 On 5 October 1995 the lessee VTA changed its name to the The Barn Office Consulting Ltd (Barn) of which Manning became a director in May 1998.

14 As at July 1998 Manning and Cole had interests in other hotels, the Family Inn at Rydalmere (the Family Inn) and the Taverners Hill Hotel at Leichhardt (the THH). The Family Inn property was owned by Devoge Pty Ltd and the business was owned by Keenhost Pty Ltd. These two companies acted as trustees of unit trusts for the benefit of interests associated with Manning, Cole and others. The property and business of the THH were owned by Elswick Pty Ltd which purchased the THH on 2 July 1998 as trustee for a unit trust for the benefit of interests associated with Manning, Cole and others.

15 In July 1998 the New South Wales Government circulated an Information Memorandum entitled “Sale of Poker Machine Permits” to hotel licensees (the Memorandum). A copy of the Memorandum was sent to Fripp under cover of a letter dated 13 July 1998 from the Treasurer of New South Wales, Mr M Egan. The terms of that letter included the following:

Please find enclosed an Information Memorandum and Bidding Form for the sale of 2,300 poker machine permits.

The Government will not sell, or otherwise make available, any more poker machine permits for three years from the date the sale is finalised.

Under the sale process, each hotel licensee will be able to submit bids for up to 15 permits.

Bids on the enclosed Bidding Form must be received by 5 pm on Friday, 7 August 1998.

Each permit will allow a hotel licensee to operate one poker machine more than the limit of 15 poker machines per venue, up to a maximum of 30 machines a venue. No venue will be allowed more than 30 machines.

Permits will be transferable between hotel licensees.

16 The hotel licensee was required to use the “personalised” application form attached to the Memorandum to bid for the permits. Licensees were able to bid for up to 15 poker machine permits and a $2,000 deposit payment was required with each bid. A second deposit was payable by successful bidders to whom permits were allocated based on a formula which was the number of permits allocated, multiplied by the final selling price, multiplied by 10 percent, less $2,000, multiplied by the number of permits for which there was a bid.

17 There was a deal of uncertainty as to the price of the permits by reason of the following provisions of the Memorandum:

4.8 Determination of Final Selling Price

Successful licensees will pay the Final Selling Price for their permits.

All permits sold in this sale process will be sold at one price, the Final Selling Price. A book building process will arrange the individual bids from the highest to the lowest bid. The price for the 2,300th highest individual permit bid will be the Final Selling Price for the permits sold subject to the price not being less than a pre-determined Reserve Price. If the price for the 2,300th highest individual permit bid is less than the Reserve Price, the Final Selling Price will be the Reserve Price.

The poker machine permits will be allocated to licensees who submit bids equal to or greater than the Final Selling Price. If the Final Selling Price exceeds the Reserve Price and competing bids are received at prices identical to the Final Selling Price, permits will be allocated to those bids in accordance with the allocation policy set out in section 4.10.

4.9 Reserve Price

A Reserve Price will be set, below which no poker machine permits will be sold during the initial sale process. The Reserve Price will not be publicly disclosed. The Reserve Price will be determined prior to the opening of the offer period and will be lodged with the Probity Auditor.

If the NSW Government does not receive bids for at least 2,300 permits at or above the Reserve Price the Government will allocate permits in respect of those bids which were validly received at or above the Reserve Price. The next highest bidders may be offered the opportunity to increase their bids to the Reserve Price and receive a permit allocation. See section 4.12 for details. The NSW Government will not sell any permits as part of this sale process at less than the Reserve Price.

4.10 Allocation Policy

Poker machine permits will be allocated to the 2,300 highest individual bids, assuming such bids exceed the Reserve Price. Bids at the same price will be ranked by the time of lodgement of the bid. Accordingly, if a licensee submits bids for permits at different prices for permits, they may be successful in being allocated only a certain number of permits based on the bids which were above the final selling price.

4.12 Undersubscription

If less than 2,300 bids for permits exceed the Reserve Price, the price at which permits will be sold will be the Reserve Price.

In this situation, all bids for permits above the Reserve Price will be allocated at the Reserve Price. Bidders who submitted bids for less than the Reserve Price will be ranked by the amount of their bids. Based on that ranking, the Government may make offers to sell the balance of the 2,300 permits at the Reserve Price. These bidders will be notified by fax or mail of their option to purchase to a poker machine permit(s) at the Reserve Price. These bidders will not be obligated to take up the offer to purchase permits as their bids were below the Reserve Price. If a bidder, who bid below the Reserve Price is offered a permit at the Reserve Price, but decides not to take up the offer, he/she will receive a refund of any deposit paid on bids for permits below the Reserve Price.

Remaining permits will be retained by the NSW Government, which reserves the right to sell such permits in the secondary market after 1 July 1999 on terms and conditions it considers appropriate.

18 A number of questions were raised with the Government about the transferability of the permits. This prompted the following further explanation from the Treasurer:

· Only hotel licensees can buy permits. The Liquor Administration Board will be responsible for monitoring the transfer of permits after their initial sale.

· Permits are separate assets to hotel licences and can be sold in the secondary market regardless of the status of the associated hotel licence.

· Hotel licensees can sell, surrender or otherwise dispose of or lose their hotel licences and still retain ownership of permits.

· But in that case, the permit would not enable poker machines to be installed or operated until they are associated once more with a valid hotel licence.

19 It is what happened in the process of bidding for and allocation of permits which is the basis of the plaintiff’s claim. By reason of an imprecise admission that was ultimately made by Cole and Manning it is necessary to set out some of the pleadings. The plaintiff’s claim relevant to this outstanding matter is pleaded as follows:

25 At all material times Little Caesars, as the owner of the White Bay Hotel, owned a hotel licence (the White Bay Hotel licence), under the supervision of the New South Wales Liquor Administration Board (LAB), a licence which comprised part of the trust property of the White Bay Hotel at all material times.

26 At all material times Manning, as part of Manning’s duties, arranged for the White Bay Hotel licence to be held by Fripp, who was at all material times an acquaintance of Manning.

27 In early 1998 Manning came to learn that the New South Wales Government was about to enable each hotel licensee in New South Wales to bid for newly-issued poker machine permits (poker machine permits), that the White Bay Hotel licence had an entitlement to apply for 15 poker machine permits and that it was required to pay a deposit on each poker machine permit applied for of $25,000, although he was unaware of the likely cost or issue price for each permit at that time.

28 In early 1998, at an informal meeting of directors of Little Caesars, the directors discussed the possibility of having Little Caesars apply for the grant of poker machine licences in light of its status as the owner of the hotel that the hotel licence was attached to (the poker machine permit meeting).

29 The poker machine permit meeting concluded on the basis that Manning was authorised by the directors to make further enquiries of the Family Inn at Rydalmere and revert to the Board.

30 Contrary to that authority, Manning never thereafter raised the issue of poker machine permits either at a Board meeting (formal or informal) of Little Caesars or with Miles.

31 In early 1999, Miles was telephoned by a legal officer at the LAB seeking to make contact with Fripp, the holder of the White Bay Hotel licence. During that conversation and several subsequent conversations Miles learnt that the following events had occurred without his knowledge since the poker machine permit was held:

(i) Fripp successfully applied for and had been granted 8 poker machine permits on behalf of the White Bay Hotel at a cost of $50,000;

(ii) Each of Cole’s and Manning’s superannuation funds had funded the issue price for each permit paid to the NSW Treasury;

(iii) Fripp applied for and obtained each poker machine permit in Little Caesars’ name by representing himself as acting on behalf of Little Caesars at the direction of Cole and Manning;

(iv) Cole and Manning on-sold each of the poker machine permits, as if each permit was his own property, at a price of $75,000 which was less than their actual value in the open market at that time;

(v) Cole and Manning on-sold the poker machine permits to the following parties:

(a) they on-sold three poker machine permits on 6 May 1998 to Elswick Pty Ltd, the company which owns the Elswick Hotel in Sydney, being a company associated with Cole and Manning;

(b) they on-sold two poker machine permits on 6 May 1999 to an undisclosed third party who Miles believes conducts the Royal Exhibition Hotel in Surry Hills; and

32 Each of Cole and Manning or their family trusts or family companies, particulars of which are not known to Miles, profited from the poker machine permit conduct in two ways:

(i) they each retained a one-half share of $25,000 profit made on the re-sale of each permit to the three hotel interests pleaded above; and

33 On learning of the Poker Machine Permit Conduct, Miles insisted on three occasions that Cole and Manning account to Little Caesars, in its capacity as trustee of the White Bay Trust, for the poker machine permit profits, namely:

(i) at a Little Caesars’ Board Meeting held in about March 1999;

(ii) in a letter written by Miles to the Secretary of Little Caesars dated 7 April 1999; and

(iii) in a letter written by Miles to the Secretary of Little Caesars dated 6 June 1999.

But neither Cole or Manning have to date accounted to Little Caesars for the Poker Machine Permits Profit.

34 The Poker Machine Permit Conduct constitutes:

(i) a breach of the fiduciary duty that each of Cole and Manning owed at all material times to Little Caesars in his capacity as a director of Little Caesars;

(ii) a breach of the fiduciary duty that Little Caesars owed to beneficiary/unit holders of the White Bay Hotel, and in particular, Kablow, Cole Investments and Pevule, in respect of the trust property and trust income of the White Bay Trust.

In the premises:

(i) Little Caesars is obligated to account from its own resources to the unit holders of the White Bay Trust in respect of, and to make good, the loss of opportunities suffered by the White Bay Trust, being the Poker Machine Permit Profit, arising from the breaches of fiduciary duty and trust being the Poker Machine Permits Conduct; and

(ii) each of Cole and Manning is obligated to account to Little Caesars in respect of, and to make good, the loss of opportunity suffered by Little Caesars, and in turn, by the White Bay Unit Trust, being the Poker Machine Permit Profit, arising from the breaches of his fiduciary duty being the Poker Machine Permits Conduct.

20 In their defence Cole and Manning admitted that their superannuation funds had paid the issue price for each of the permits, that Fripp had applied and obtained the poker machine permits and that their superannuation funds had on-sold the permits at $75,000 in May 1999.

21 In response to paragraph 32 the Defence pleaded:

In relation to 32 - they say that Cole Kablow Superannuation Pty Ltd and Manning Superannuation Fund Pty Ltd as trustees, respectively, of superannuation funds of which Cole and Manning were members, were the beneficial owners of the Permits issued to Fripp and that the profit that was made on the eight Permits was made by Cole Kablow Superannuation Pty Ltd and Manning Superannuation Fund Pty Ltd as trustees, respectively, of the said superannuation funds; and they deny the balance of the allegations in paragraph 32.

22 Neither Cole Kablow Superannuation Pty Ltd nor Manning Superannuation Fund Pty Ltd has been joined in these proceedings.

23 Cole and Manning denied they had breached their fiduciary duties and pleaded that “Little Caesars and the beneficiaries of the White Bay Unit Trust consented to the alleged breach of fiduciary duty by each of Cole and Manning in relation to the poker machine permits” (par. 34A of the Defence). They claimed that consent had been given in conversations at a meeting between Miles, Cole and Manning in mid July 1998 and in two telephone conversations between Manning and Miles on 28 July 1998 and 28 August 1998.

24 The case proceeded upon this basis with evidence and cross examination of each of Miles, Cole and Manning until final submissions on 7 November 2000 when Mr Carnovale made the following statement in relation to the orders sought by the plaintiff. A Short Minute of Order had been prepared which included the order for equitable compensation. It was numbered 6. Mr Carnovale said:

25 Mr Carnovale submitted that because the breach of duty had been admitted it would not be necessary for me to make any “judgment” about the conduct of Cole and Manning because such would not impinge on what I have to decide.

26 The defendants submit that the breach of fiduciary duty was that Cole and Manning caused Fripp to apply for the permits. Mr Carnovale submitted that the plaintiff’s case is not one involving any claim that there was a non-disclosure of material facts and that it was based solely on lack of consent. It seems to me that this submission does not accurately reflect what has happened in this case.

27 The plaintiff certainly pleaded the “Poker Machine Permit Conduct” in paragraph 31 of the Amended Statement of Claim set out above. That paragraph sets out a series of acts, none of which were disclosed to the plaintiff and were, it seems to me, matters of materiality. The parties’ focus during the trial was upon “consent” by reason of the defendants’ claim that any alleged breach had been the subject of consent. However that defence has been abandoned.

28 Notwithstanding Mr Carnovale’s submission that I would not need to make any judgment about the conduct of Cole and Manning, I am of the view that it is necessary to make findings of fact for the purpose of characterising the breach and deciding whether equitable compensation should be ordered.

29 In making these findings of fact I intend to take the defendants’ admission that there was no consent to the breach of fiduciary duty into account. For instance, the versions of the conversation in mid July 1998 referring to the Poker Machine Permit Meeting are obviously different. The fact that Cole and Manning no longer claim there was consent affects the versions that I will prefer.

30 Manning made some fairly significant admissions during the trial. They included the following:

· that the statements made to Miles and Cole about Fripp’s financial capacity to meet arrears of rent were utterly false and that such conduct was unacceptable;

· that he knew at the time that he was dealing with the arrears of rental issue that he was, as a director of Little Caesars, acting disgracefully;

· that he obliterated relevant entries in his diary purporting to record the fact of an important and material conversation with Miles when he learnt that Miles was on a plane returning from South Africa at the time of the diary entry; and

· that he made additional entries in his 1998 diary whilst preparing his affidavits in these proceedings, probably in late 1999 or early 2000.

31 These admissions together with the withdrawal of the case on consent cause me to prefer the evidence of Miles where it conflicts with the evidence of Manning.

Facts

32 In mid July 1998 Manning gave Miles and Cole a copy of the Memorandum at an informal meeting of Directors of Little Caesars. I am satisfied that in conversation, Miles expressed the view that he did not think that Little Caesars had enough money to make bids for the permits and asked Cole and Manning for their opinions. Cole admits that he said:

I agree. It is a lot of money. Kablow can’t afford it. We have other commitments. I don’t think we should bid.

33 Manning did not give any evidence about whether he said that Little Caesars could afford it or not. Miles gave evidence, which I accept, that the following conversation occurred:

Manning: If Little Caesars put in successful bids it could help out the Family Inn, as it may not be successful in all of its bids.

Miles: All right, Steve. Why don’t you have a look at it and get back to Bill and me about it.

Manning: Okay, I’ll come back to you.

34 At the end of the meeting Miles understood that Cole was of the view that Little Caesars could not afford to bid, but was awaiting a further response from Manning about whether bids might be made by Little Caesars “to assist the Family Inn”.

35 The evidence does not go any further by way of explanation as to what that might mean. However, one view is that Little Caesars could obtain permits which could be, either paid for by the Family Inn or alternatively on-sold to the Family Inn.

36 Manning gave evidence that he had a further conversation with Miles on 27 July 1998 on the telephone. His evidence in this regard depended upon the existence of a diary note. The integrity of that diary has been effectively demolished in cross examination. I could not have any confidence in finding that the content of the entries is accurate. I accept Miles’ evidence in preference to Manning’s evidence in this regard and I am satisfied that Miles did not have any further discussions with Manning about the permits until early 2000 when Miles found out from the LAB that Fripp had bid successfully for the permits.

37 Manning gave evidence of further conversations that he alleged occurred between himself and Miles. The first was alleged to have occurred on 28 August 1999. This could not have happened because Miles was in the air flying home from South Africa. The second conversation was alleged to have occurred at the Drummoyne Rugby Club in which, quite late in the trial, it was alleged that Miles’ brother was present. I accept Miles and his brother’s evidence that no such conversation occurred.

The Bids for and allocation of the Permits

38 On 28 August 1998 Fripp lodged a poker machine permit application for 15 permits. The deposit of $30,000 was paid by Manning’s company Keenhost Pty Ltd.

39 On 2 September 1998 Fripp was notified as the licensee of the White Bay Hotel at an address C/- Family Inn at Rydalmere, of successful bids of eight poker machine permits to him at a final selling price of $50,000, a total of $400,000.

40 Fripp was also informed that the balance of $370,000 was to be paid by instalments of $10,000 by 23 September 1998 and $360,000 by 19 October 1998.

41 Although it is not certain on the evidence, the $10,000 to be paid by 23 September 1998 was probably also paid by Keenhost Pty Ltd. This left a balance of $360,000 owing to the LAB. Cole’s superannuation fund paid $200,000 and Manning’s superannuation fund paid the balance of $160,000.

42 Although it is clear that Manning had arranged a loan of $200,000 in early July 1998 prior to the conversation with Miles and Cole, I am satisfied that, on balance, the funds drawn down on that loan were utilised for an unrelated transaction.

43 On 21 October 1998 the Liquor Administration Board pursuant to s 182C of the Liquor Act 1982 issued permits numbered PN1979 to PN1986 inclusive. The Permits Document stated:

Permits to keep, use and operate poker machines in a hotel

Hoteliers are required to hold a permit for each poker machine which they keep, use and operate in the hotel where the number of poker machines exceeds fifteen.

In accordance with the Liquor Act , 1982, this permit document forms part of your hotelier’s licence and records those permits which are attached to your licence.

44 On 26 March 1999 the Secretary of the LAB wrote to Mr D McDougall, a lawyer who was apparently instructed by Manning in respect of a proposed lease of poker machine permits as follows:

Transfer of Poker Machine Permits-Fripp to Manning:

I refer to our meeting on 24 March 1999.

One issue raised at the meeting was ownership of the licence, business and freehold of the White Bay Hotel, Rozelle.

A review of the Board’s records taken from the affidavit lodged by Mr Fripp when the licence for the White Bay Hotel was transferred into his name on 28 April 1995, indicated that Mr Fripp is the owner of the licence and Little Caesars Casino Pty Ltd is the owner of the business and freehold.

If the above ownership has changed in any way you should notify the Licensing Court in a sworn affidavit, so that the correct information is recorded against the hotel’s records.

I would appreciate it if you would confirm with me the current status of ownership of the hotel to ensure the Board’s records are correct.

45 On 21 April 1999 Cole swore an affidavit in support of an application for the adjustment of the records of the LAB in relation to the current liquor licence for the Hotel. In that affidavit Cole gave the following evidence:

1. I am one of three Directors of the company known as Little Caesars Casino Pty Ltd.

2. The company now known as Little Caesars Casino Pty Ltd previously operated under the name of G & K Robbins Holdings Pty Ltd which company purchased the freehold and liquor licence of the premises known as the White Bay Hotel situated at 27 Victoria Road Rozelle.

3. Since purchasing the freehold premises and the liquor licence of the White Bay Hotel various individuals have been nominated as the licensees of the premises pursuant to managerial agreements signed by such individuals originally with G & K Robbins Holdings Pty Ltd and subsequently with Little Caesars Casino Pty Ltd. The current licensee pursuant to this managerial agreement is Mr Ian Fripp.

4. A recent check by myself and the other Directors of Little Caesars Casino Pty Ltd at the office of the Liquor Administration Board indicated that perhaps there is some error in relation to the actual ownership of the Liquor Licence in respect of the White Bay Hotel premises. It appears that Mr Ian Fripp may have now been incorrectly recorded in the LAB’s records as being the owner of the liquor licence when in fact he simply operates as licensee of the White Bay Hotel premises pursuant to a managerial agreement signed between himself and the company of which I am a director.

5. I make this application to have the LAB’s records formally amended to confirm that the owner of the freehold of the premises known as the White Bay Hotel is also the owner of the liquor licence and that Mr Fripp is a person who has been nominated as the licensee pursuant to a managerial agreement between the owner of the premises and the liquor licence and Mr Fripp.

6. I say that I have the specific consent of the other two directors of Little Caesars Casino Pty Ltd, those persons being Stephen Edward Manning and Warren Aubrey Miles in making this application.

46 It was at about this time that Miles became aware of the purchase of the permits and a heated discussion occurred in early April in which Cole said to Miles “if you want the profits so badly I will give you my share”.

47 On 7 April 2000 Miles wrote to Cole and Manning in the following terms:

White Bay Hotel

It has come to my notice that Little Caesars Pty Ltd has acquired some eight (8) poker machine licences flowing from the White Bay Hotel liquor licence held by the company as trustee.

I record as a director of Little Caesars Pty Ltd I was not consulted about the said acquisition, nor about the provision of funds to enable the acquisition to take place.

It would appear to me to be one or both of a breach of duty by the other directors of Little Caesars Pty Ltd and a breach of trust by that company if persons other than Little Caesars Pty Ltd claim to be owners of the said poker machine licences.

Accordingly, I require an understanding that the said licences were acquired by Little Caesars Pty Ltd as trustee for the benefit of the trust owning the White Bay Hotel.

I also require an explanation how Little Caesars Pty Ltd acquired the necessary funds to permit the acquisition of the said licences and the terms of such funding.

48 Manning, as Secretary of Little Caesars, responded to Miles’ letter on Little Caesars’ letterhead in the following terms:

I am receipt of your letter of 7th April 1999 concerning the White Bay Hotel.

I am giving all shareholders and directors of Little Caesars Casino Pty Ltd in its capacity as trustee of the White Bay Unit Trust notice of a General Meeting to table and discuss your letter.

The meeting is to take place at the 1st Floor, 378 Victoria Road Rydalmere (being the principal place of business) on Monday 3rd May 1999 at 4.30 pm.

The agenda for the meeting will be:

Please confirm if you will be attending.

49 Miles gave his proxy to Mr JD McAuley, accountant, to attend on his behalf at the meeting. Manning stated Little Caesars did not acquire any permits and that it was Cole’s and Manning’s respective superannuation funds which acquired the permits and claimed that such acquisition had been consented to by Miles. That claim has now been abandoned.

Sale of the Permits

50 On 6 May 1999 in an Agreement for Sale of Poker Machine Permits, which identified Fripp as “vendor’s current licensee”, permits PN1982, 1983 and 1984 were sold to Elswick Pty Ltd, as the proprietor of the THH for $225,000. These, together with two other unrelated permits, were subsequently sold to Duggan Family Hotels, as proprietor of the Avondale Hotel at Burwood, on 27 September 1999 for a total of $700,000, or $140,000 each.

51 Also on 6 May 1999 permits PN 1985 and 1986 were sold to John William Buckley of the Royal Exhibition Hotel for $150,000. Once again the LAB agreement noted that the vendor’s current licensee was Fripp.

52 On 14 May 1999 permits numbered PN 1979, 1980 and 1981 were sold to the Duggan Family Hotels for $225,000.

53 It is apparent that the profit of $25,000 ($12,500 each) on each of the eight permits, a total of $200,000 ($100,000 each), was paid into the Cole and Manning superannuation funds.

The Nature of the fiduciary relationship and the breaches

54 The High Court has stressed the importance of a careful analysis of the fiduciary relationship for the purposes of identifying the particular obligations owed by the defendants to Little Caesars and the nature of the alleged breach or breaches: Maguire v Makaronis (1997) 188 CLR 449.

55 Although the defendants admitted a breach of fiduciary duty on the second last day of the trial the nature of a breach requires analysis to enable a determination of the causal question: Barns v Hay (1988) 12 NSWLR 337 at 353F cited with approval in O’Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 per Spigelman CJ at 272 with whom Priestley and Meagher JJA agreed.

56 Cole and Manning, and Miles, were Directors of Little Caesars which is a trustee company of the White Bay Unit Trust. As Directors of a trustee company each owed to it a fiduciary duty and obligation to protect Little Caesars’ interests. Their obligations or duties were to prefer the interests of the beneficiaries of the White Bay Trust over their own interests.

57 Cole and Manning through membership of the corporations which held the units in the trust and as beneficiaries (with others) of the trusts of which those corporations were trustees had an interest in the trust. In the case of Cole it was the M Cole Family Trust, the trustee of which is M Cole Investment Pty Ltd, and in the case of Manning, the Spencer Trust the trustee of which is Pevule Pty Ltd. The third beneficiary of the trust which was the Camvic Trust, the trustee of which was Kablow Holdings Pty Ltd, is the Miles family trust.

58 Any profit from the White Bay Trust was distributable in equal shares to the three unit holders, that is, each of the family trusts of Miles, Cole and Manning. For any one of Miles, Cole or Manning to utilise the assets of Little Caesars for personal gain or benefit, including for their family, without the consent of Little Caesars, would be to prefer their own interests over the interests of the White Bay Trust and its beneficiaries. This is what Cole and Manning did and such was in breach of their fiduciary duties.

59 As can be seen from the “admission” made by Mr Carnovale extracted earlier in this judgment, all that was said was that the defendants “would not be arguing consent”. The effect of that admission is that the defendants withdrew their defence as pleaded in paragraph 34A of their Defence. Paragraph 34A is a pleading in response to paragraph 34(i) of the plaintiff’s Amended Statement of Claim which is:

The Poker Machine Permit Conduct constitutes:

(i) a breach of the fiduciary duty that each of Cole and Manning owed at all material times to Little Caesars in his capacity as a director of Little Caesars.

60 The Poker Machine Permit Conduct was set out in detail in paragraph 31 as extracted above in the Amended Statement of Claim. A comparison of the two pleadings indicates the following:

· Cole and Manning admitted that Fripp applied for fifteen poker machine permits and was granted eight poker machine permits and that the cost of each permit was $50,000. They denied that Fripp had successfully applied for the poker machine permits “on behalf of the White Bay Hotel”.

· They admitted that the companies which were the trustees of their superannuation funds, of which they were and are members, paid the issue price of each of the permits to the New South Wales Treasury.

· They admitted that Fripp applied for and obtained the permit in his name at their direction. They denied that he obtained the permits in Little Caesars name by representing himself as acting on behalf of Little Caesars.

· They admitted that the trustee companies of their superannuation funds on-sold the permits for $75,000 on the dates pleaded. They claimed that $75,000 was a fair market value for the permits.

61 Fripp, as licensee, was but Little Caesars agent, with obligations to Little Caesars pursuant to the “managerial agreement” referred to in Cole’s affidavit filed with the LAB in April 2000. The bidding rights or entitlements were Little Caesars’. Fripp did not possess any right or entitlement to bid for the permits independently of Little Caesars.

62 Mr Carnovale submitted that this is a case in which I should consider what would have happened if Cole and Manning had not committed the breach in light of what the Court said in Beach Petroleum NL v Kennedy & Ors (1999) 48 NSWLR 1 at 93:

Brickenden

Target Holdings

63 He submitted that, in any event, if Cole and Manning had performed their duty, that is, not caused Fripp to apply for the permits without Little Caesars’ consent, Little Caesars would not have caused Fripp to make any bids. He submitted that Little Caesars did not suffer any loss.

64 Mr Carnovale sought to restrict the nature of the breach of fiduciary duty to the single act on 28 August 1998 of causing Fripp to apply for the permits. If I were to accept the characterisation of the breach in this way Mr Carnovale further submitted that I should assess two matters, (a) Little Caesars’ financial capacity to make the bids, and (b) the likelihood that Little Caesars would have made the bids.

65 This is an approach similar to that adopted by Boardman in Phipps v Boardman (1967) 2 AC 46. In that case Boardman argued that (a) the trustees could not have made any offer for the shares in question without the sanction of the Court, because they were not an authorised investment under the testator’s will, and (b) evidence was given by one of the trustees, Mr Fox, that he would not consider the trustees buying the shares under any circumstances. Lord Hodson, in distinguishing the case from Regal (Hastings) Ltd v Gulliver (1967) 2 AC 134 said at 109:

Keech v Sandford

Regal (Hastings) Ltd v Gulliver

66 In the present case nothing short of fully informed consent of Little Caesars could enable Cole and Manning to make a profit for themselves.

67 In any event I am not satisfied that the breach of fiduciary duty can be restricted in the way Mr Carnovale submitted. There is no doubt that Cole and Manning caused Fripp to apply for the permits. But the Court cannot close its eyes to what occurred thereafter in assessing the nature of the breach with regard to the obligations of these fiduciaries.

68 The act of causing Fripp to apply for the permits in breach of their duty actually dealt a favour to Little Caesars. Fripp, Cole and Manning held the permits on trust for Little Caesars. It thus obtained a valuable asset. When Little Caesars became aware of the purchase of the permits it demanded Cole and Manning to account to it and to provide details of the arrangements that had been made. Cole and Manning did not do so.

69 Once again without Little Caesars’ consent, Cole and Manning caused Fripp to sell the permits, some at arms length, but others to their associated entity, Elswick Pty Ltd as proprietor of the THH in which both Cole and Manning had an interest. Elswick Pty Ltd obtained the permits PN 1982, 1983 and 1984 for $75,000 each in May 1999 and sold them in September 1999 for $140,000 each.

70 The relevant causal question is therefore not merely to be addressed to Fripp applying for the permits. That would not be a commonsense approach or realistic in this case. The question must also address the sale of the permits by which Cole and Manning obtained their personal benefits. The question is therefore what would have happened if Cole and Manning had not committed the breach of selling the permits. The answer is that the asset would have remained that of Little Caesars held on trust by Fripp, Cole and Manning. By their breaches they have caused loss.

71 By their wrongful conduct Cole and Manning obtained for Little Caesars a valuable asset of which they personally took the benefit. Equity will see to it that the value of that asset is restored: O’Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 per Meagher JA at 281.

72 Even if I were of the view that I should assess whether Little Caesars would have made the bids for the permits, I am satisfied that on the balance of probabilities it would have made the bids. This is so in circumstances where two of its directors and interested members of the trust were very keen to make bids, so keen that they obtained funding very soon after the first meeting in July 1998. Such an approach demonstrates a confidence in the capacity to trade or transfer the permits at a profit. Such confidence in two of the three directors and beneficiaries of the trust, if properly disclosed, in my view would have persuaded Little Caesars to make the bids for the permits. I am of the view that this is what would have happened had Cole and Manning performed their duty.

73 I am satisfied that Cole and Manning did cause a loss by their breaches of fiduciary duty for which they are obliged to compensate Little Caesars.

Loss Suffered

74 Cole’s and Manning’s breaches of fiduciary duties deprived Little Caesars of the chance or opportunity to make a profit on the sale of the permits.

75 Mr Carnovale submitted that the only appropriate approach to take in the assessment of the loss suffered by Little Caesars is that taken by Ipp J in Biala Pty Ltd & Anor v Mallina Holdings Ltd & Ors (1993) 11 ACSR 785 which Rowland J in the Full Court was “unable to say” was wrong: Dempster & Anor v Mallina Holdings Ltd & Anor (1995) 15 ACSR 1 at 57.

76 Biala Pty Ltd v Mallina Holdings Ltd was quite a different case to this. Ipp J was placing a value on a number of features to the relationship between the parties and the consequences of a change in the relationship. For instance, his Honour was assessing the likelihood that a joint venture with different joint venturers would have been able to secure the success that the then constituted joint venture achieved. However his Honour did give consideration to factors similar to those present in this case, for instance, the capacity to raise money for the purchase of the share in the joint venture.

77 His Honour took many other factors into account, both positive and negative, and concluded that the victim of the fiduciary breach had a 60% chance of making a profit of $38.075 million. In valuing the lost chance to make the profit his Honour multiplied $38.075 million by .6 to reach a loss of $22.845 million.

78 The Full Court drew attention to Poseidon Ltd v Adelaide Petroleum NL (1994) 120 ALR 16; 68 ALJR 313 in particular to the following portion of the judgment of Mason CJ, Dawson, Toohey and Gaudron JJ, at ALJR 322:

Hotson v East Berkshire Area Heath Authority

79 Rowland J in Dempster v Mallina Holdings at 57 referred to the appellant’s counsel querying the “speculative selection of 60% as the loss of chance” and continued:

His Honour has made a value judgment that the chance was better than an even chance and he has assessed that at 60%. I am unable to say that he is wrong. He has heard all the evidence. It is a value judgment and, apart from the suggestion that it is speculative, which to an extent it must be, there is no direct challenge to it.

80 Rowland J continued as follows:

There is, in my view, a much simpler exercise which would enable a court to arrive at an appropriate remedy. On the learned trial judge’s findings, it is clear that equity will not allow Dempster to take advantage of his misrepresentation which led to Mallina’s departure from this venture. Dempster is a fiduciary and he is not permitted, in the circumstances which occurred, to place his private interests before the interests that he owed the partnership. Given the duty and given the breach, the fiduciary must account to the beneficiary. The account may take one of several forms.

81 His Honour then referred to authorities dealing with constructive trusts, account of profits and restitution and said at 59:

Whichever method is adopted will depend upon the nature of the duty, the nature of the breach and the events which occurred subsequent to breach…whichever approach is adopted, the approach in equity is strict.

82 I am not persuaded that the appropriate way for me to approach the assessment of the loss in this case is to fix a percentage as a multiplier to the profit made.

83 Mr Stewart Mitchell Orr, an Hotel Broker with five years experience, gave evidence that during that period he had contact with various clients who gave him information in respect of poker machine permits. He did not put himself forward as a valuer but expressed the opinion on the basis of his experience in hotel broking and what he knew the permits brought on the open market.

84 Mr Orr was of the opinion that the value of hotel poker machine permits was between $180,000 and $190,000. This figure compares relevantly to the sale to the Duggan Family in September 1999 of the five permits for $700,000. If one assumes equality of value in that transaction the individual values were $140,000. This was some twelve months prior to the trial.

85 There is the further issue as to whether Little Caesars would have retained the permits rather than transferring them to other licensees. I am not satisfied that Little Caesars would more probably than not have retained them. These permits were of no use to Little Caesars, other than as an investment to sell at a profit.

86 It is also to be remembered that the purchase was fully financed and would also have been fully financed in Little Caesars’ purchase. The parties could really only guess at what the government might do in relation to any extension of the freeze period. The actions of Cole and Manning, who were experienced hoteliers, in selling the permits in 1999, is evidence that persuades me that it is more probable than not that they would have advised and persuaded Little Caesars to sell the permits in 1999.

87 I am of the view that it is appropriate to assess the value at $140,000.

88 Accordingly the loss incurred by Little Caesars by Cole’s and Manning’s breaches of fiduciary duty is:

89 I order that Cole and Manning are to pay equitable compensation of $692,863 to Little Caesars. I will hear argument, if necessary, in relation to any claim for interest having regard to par 215 of the plaintiff’s submissions.

90 On 9 November 2000 I made orders by consent in these proceedings. Those orders were entered on 10 November 2000. I note that oder 14 was in the following terms:

Mr Cole and Mr Manning pay the plaintiff's costs of these proceedings on an indemnity basis, of which $125,000 is to be paid pending agreement or an assessment of the total amount of such costs, in accordance with the next succeeding order.

91 Order 15 provided, inter alia, for payment of $125,000 of the plaintiff's costs forthwith.

92 In accordance with the orders I made on 9 November 2000, the fifth and sixth defendants, Cole and Manning, are to pay the plaintiff's costs of the proceedings on an indemnity basis.

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Last Modified: 02/26/2001

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Citations

Warren Aubrey Miles v Little Caesars Casino Pty Ltd [2001] NSWSC 33

Cases Citing This Decision

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Cases Cited

7

Statutory Material Cited

0

Chan v Zacharia [1984] HCA 36

Maguire v Makaronis [1997] HCA 23

Henville v Walker [2001] HCA 52

CITATION:	Warren Aubrey Miles v Little Caesars Casino Pty Ltd & Ors [2001] NSWSC 33 revised - 23/02/2001
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	SC 4851 of 1999
HEARING DATE(S):	14, 15, 16, 17, 18, 21, 22, 23, 24 August, 2, 3, 7 and 8 November 2000
JUDGMENT DATE:	8 February 2001
PARTIES :	Warren Aubrey Miles (Plaintiff) Little Caesars Casino Pty Limited as trustee of the White Bay Unit Trust (First Defendant) Kablow Holdings Pty Limited as trustee of the Camvic Trust (Second Defendant) M Cole Investments Pty Ltd as trustee of the M Cole Family Trust (Third Defendant) Pevule Pty Limited as trustee of the Spencer Trust (Fourth Defendant) William Edward Cole (Fifth Defendant) Stephen Edward Manning (Sixth Defendant) Kablow Holdings Pty Limited as trustee of the Miles Settlement (Seventh Defendant) The Outdoor Company Pty Limited as trustee of the Outdoor Company No 1 Trust (Eighth Defendant)
JUDGMENT OF:	Bergin J

COUNSEL :	PM Biscoe QC/C Bevan/M Henry (Plaintiff) FP Carnovale (Third, Fourth Fifth and Sixth Defendants)
SOLICITORS:	Steingold Abel (Plaintiff) Gillis Delaney Brown (Third, Fourth, Fifth and Sixth Defendants)
CATCHWORDS:	FIDUCIARY OBLIGATIONS - Nature of fiduciary relationship and nature of breaches of fiduciary duties - Admission during trial that consent would not be argued - Effect of admission. ASSESSMENT OF LOSS - Relevant causal questions - Whether loss suffered.
CASES CITED:	Barns v Hay (1988) 12 NSWLR 337 Beach Petroleum NL v Kennedy & Ors (1999) 48 NSWLR 1 Biala Pty Ltd & Anor v Mallina Holdings Ltd & Ors (1993) 11 ACSR 785 Dempster & Anor v Mallina Holdings Ltd & Anor (1995) 15 ACSR 1 Maguire v Makaronis (1997) 188 CLR 449 O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 Phipps v Boardman (1967) 2 AC 46 Poseidon Ltd v Adelaide Petroleum NL (1994) 120 ALR 16; 68 ALJR 313 Regal (Hastings) Ltd v Gulliver (1967) 2 AC 134
DECISION:	Equitable compensation ordered.