Warrington Management Pty Ltd v Kingslane Property Investments Pty Ltd

[2019] WASC 2

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION:   WARRINGTON MANAGEMENT PTY LTD -v- KINGSLANE PROPERTY INVESTMENTS PTY LTD [2019] WASC 2

CORAM:   VAUGHAN J

HEARD:   7 - 11 MAY 2018

DELIVERED          :   10 JANUARY 2019

FILE NO/S:   CIV 2908 of 2013

BETWEEN:   WARRINGTON MANAGEMENT PTY LTD

Plaintiff

AND

KINGSLANE PROPERTY INVESTMENTS PTY LTD

Defendant

AND

KINGSLANE PROPERTY INVESTMENTS PTY LTD

Plaintiff by Counterclaim

AND

CHRISTOPHER WILLIAM WEAVER

First Defendant by Counterclaim

WARRINGTON MANAGEMENT PTY LTD

Second Defendant by Counterclaim

Catchwords:

Restitution - Provision of services - Whether agreement between the parties that remuneration payable for services performed

Contract law - Recovery of loan - Terms of repayment - Whether parties agreed repayment terms other than payment on demand

Equity - Breach of fiduciary duty - Whether fiduciary duties were relevantly owed - Whether actions taken constitute a breach of fiduciary duty - Whether loss and damage suffered as a result of breach - Accessorial liability - Whether party liable under first limb of Barnes v Addy as 'knowing recipient'

Corporations law - Breach of fiduciary duty - Director's liability - Whether an order should be made under s 1318 of the Corporations Act 2001 (Cth)

Legislation:

Nil

Result:

Plaintiff's claim dismissed
Counterclaim allowed in part

Category:    B

Representation:

Counsel:

Plaintiff	:	D H Solomon
Defendant	:	G D Cobby SC
Plaintiff by Counterclaim	:	G D Cobby SC
First Defendant by Counterclaim	:	D H Solomon
Second Defendant by Counterclaim	:	D H Solomon

Solicitors:

Plaintiff	:	Solomon Brothers
Defendant	:	Douglas Cheveralls Lawyers
Plaintiff by Counterclaim	:	Douglas Cheveralls Lawyers
First Defendant by Counterclaim	:	Solomon Brothers
Second Defendant by Counterclaim	:	Solomon Brothers

Case(s) referred to in decision(s):

Advance Bank Australia Ltd v FAI Insurances Ltd (1987) 9 NSWLR 464

Agricultural Land Management Ltd v Jackson (No 2) [2014] WASC 102; (2014) 48 WAR 1

Agricultural Land Management Ltd v Jackson [No 2] [2014] WASC 102 (S)

Australian Securities and Investments Commission v Adler (No 5) [2002] NSWSC 483; (2002) 42 ACSR 80

Australian Securities and Investments Commission v Edwards (No 3) [2006] NSWSC 376; (2006) 57 ACSR 209

Australian Securities and Investments Commission v Flugge (No 2) [2017] VSC 117; (2017) 342 ALR 478

Australian Securities and Investments Commission v Vines [2005] NSWSC 1349; (2005) 65 NSWLR 281

Australian Zircon NL v Austpac Resources NL [No 2] [2011] WASC 186

Barnes v Addy (1874) LR 9 Ch App 244

Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] [2008] WASC 239; (2008) 39 WAR 1

Brenner v First Artists' Management Pty Ltd [1993] 2 VR 221

Colour Control Centre Pty Ltd v Ty (Unreported, Supreme Court of New South Wales, No 1689/93, 24 July 1995)

Commissioner of Taxation (Cth) v St Helens Farm (ACT) Pty Ltd [1981] HCA 4; (1981) 146 CLR 336

Daniels v Anderson (1995) 37 NSWLR 438

Diamond Hill Mining Pty Ltd v Huang Jin Mining Pty Ltd [2011] VSC 288; (2011) 84 ACSR 616

Doneley v Doneley [1998] 1 Qd R 602

Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89

Fox v Percy [2003] HCA 22; (2003) 214 CLR 118

Griffith v Pelton [1958] Ch 205

Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296

Guiness Plc v Saunders [1990] 2 AC 663

Hall v Poolman [2007] NSWSC 1330; (2007) 215 FLR 243

John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451

Lahoud v Lahoud [2006] NSWCA 169

Lumbers v W Cook Builders Pty Ltd [2008] HCA 27; (2008) 232 CLR 635

McKay v Commissioner of Main Roads [No 7] [2011] WASC 223

National Australia Bank Ltd v Rowe [2018] WASC 330

Ogilvie v Adams [1981] VR 1041

Orrong Strategies Pty Ltd v Village Roadshow Ltd [2007] VSC 1; (2007) 207 FLR 245

Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221

Pownall v Conlan Management Pty Ltd [1995] WASC 117; (1995) 12 WAR 370

R J Baker Nominees Pty Ltd v Parsons Management Group Pty Ltd [2009] WASC 206

Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789; (2014) 101 ACSR 233

Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418

Streeter v Western Areas Exploration Pty Ltd [No 2] [2011] WASCA 17; (2011) 78 ALR 291

VL Finance Pty Ltd v Legudi [2003] VSC 57; (2003) 54 ATR 221

Watson v Foxman (1995) 49 NSWLR 315

Westpac Banking Corporation v Bell Group Ltd (in liq) [No 3] [2012] WASCA 157; (2012) 44 WAR 1

VAUGHAN J:

1. Summary of claims for determination and outcome

1. The defendant and plaintiff by counterclaim, Kingslane Property Investments Pty Ltd (KPI), was incorporated on 17 August 2010 to establish, promote and manage property investments to be acquired by various special purpose trusts and syndicates.  The incorporation followed discussions between the first defendant by counterclaim, Christopher Weaver, and John and Evan Cranston.

2. The plaintiff, Warrington Management Pty Ltd (Warrington), is a company associated with Mr Weaver.  Warrington is also the second defendant by counterclaim.

3. The litigation in these proceedings followed a breakdown in the relationship between Mr Weaver, on the one hand, and the Cranstons, on the other.  Broadly speaking, there are three aspects to the proceedings.

4. First, in the original action, Warrington seeks restitution for the provision of services which Warrington says it provided to KPI at the request of KPI.  The amount claimed is some $1.321 million inclusive of interest.  Second, by counterclaim, KPI seeks to recover a loan of $350,000 from Mr Weaver.  KPI says that the loan was repayable on demand; Mr Weaver claims that the loan was not repayable until a remuneration agreement was finalised.  Third, also by counterclaim, KPI alleges that Mr Weaver has breached fiduciary duties he owed to KPI.  KPI says that Warrington is also liable in relation to those breaches insofar as Warrington is alleged to have knowingly received money as a consequence of the alleged breaches.

5. For the reasons that follow I have concluded that Warrington has not proved the intended remuneration agreement on which it relied as the foundation of its restitution claim.  Accordingly, Warrington's claim by the original action must be dismissed.  I have also concluded that the $350,000 loan was repayable on demand.  However, as KPI has treated some $60,000 as having already been satisfied, the amount payable by Mr Weaver to KPI is only $290,000.  Judgment must be entered against Mr Weaver for that amount.

6. I have found that Mr Weaver breached an aspect of his fiduciary duty as a director of KPI.  However, KPI has failed to prove that it has suffered loss or damage as a result of the breach of fiduciary duty.  Accordingly, that part of the counterclaim must be dismissed.

7. The knowing receipt claim against Warrington will also be dismissed.  There was no relevant receipt of 'trust property' on the part of Warrington.

1. The nature of the case and the issues for determination

1. The parties' pleaded cases

1. Warrington's claim was pleaded quite simply as a claim for reasonable remuneration by way of restitution for work done - in the form of services provided - at KPI's request.

2. In its amended statement of claim dated 11 November 2015 (SOC) Warrington pleaded that during 2010 Mr Weaver, for himself and on behalf of Warrington, entered into an agreement with the Cranstons (par 3).  The agreement was said to be oral and to have been formed during various discussions in 2009 and 2010 (pars 3.A and 3.B).  Among other things, the agreement provided for the incorporation of KPI (par 4.1), who was to become the asset manager of property investments promoted by the parties (par 4.2), and for Warrington to provide certain professional services (par 4.3) and asset and project management services (par 4.4) to KPI.  Importantly, it was pleaded that Warrington would be remunerated for those services 'in accordance with a remuneration structure to be agreed at a later date in accordance with the principle of "reward for effort"' (par 4.5).

3. Accordingly, on Warrington's case, there was an agreement to agree; it was referred to by counsel for Warrington as an 'intended remuneration agreement'.[1]  But nevertheless it was contemplated that Warrington would be remunerated for the professional services and the asset and project management services (collectively 'services') it provided to KPI.

   [1] ts 53. See also Plaintiff's Submissions dated 8 May 2018 (Plaintiff's WS) par 14 (see also pars 15, 17.2, 19, 22, 29, 45 - 46).

4. These 'services' - the professional services and the asset and project management services - should be differentiated from more general property management services.  The difference between asset management and property management was explained by Mr Weaver in his evidence.[2]  Property management is more concerned with day‑to‑day leasing issues.  Asset management is concerned with dealing with investors and the underlying value of a property asset.  It was common ground that Warrington provided property management services to projects in which KPI was involved and Warrington was remunerated for those services.  No remuneration claim was made in these proceedings in respect of such property management services.

   [2] ts 336 - 337.

5. The SOC pleaded an alternative form of the alleged agreement (par 4A).  Under the alternative formulation it was agreed that Mr Weaver would personally provide the services through a company he would nominate (pars 4A.3 and 4A.4).  That company was to be remunerated for the services as provided on terms to be agreed in accordance with the same principle of 'reward for effort' (par 4A.5).  Warrington said it was the company so nominated by Mr Weaver (par 4B).

6. In its amended defence and counterclaim dated 10 August 2017 (DAC) KPI admitted that there were discussions between Mr Weaver and the Cranstons in mid to late 2009 and continuing into 2010 (par 3(a)).  It was said, however, that the discussions were premised on the parties having separate income sources and not relying on the entity to be incorporated for income (par 3(b)).  The terms of an eventual agreement were pleaded (par 3(c)).  This included the incorporation of KPI and the issue of shares equally between Mr Weaver and the Cranstons or their nominees (pars 3(c)(i), 3(c)(ii)(2), (7)).  Mr Weaver was to be managing director (par 3(c)(ii)(7)).  However, as the company would not receive income for some time, it was said to have been agreed that none of Mr Weaver or the Cranstons would be remunerated for the work done in the course of KPI's business (par 3(c)(ii)(6)).

7. Warrington, by its further re-amended reply and defence to counterclaim dated 30 January 2018 (RADC), rejected the alleged premise of the agreement as propounded by KPI, and reiterated that Mr Weaver was to be 'rewarded for effort' (pars 1 and 2.2.6).

8. The parties agreed that in due course KPI was incorporated.  There was also, in substance, agreement that KPI was appointed as a 'manager' (although the specific title varied) in relation to various property investments.  These comprised:

   (1)the 13 Modal Crescent Property Syndicate - KPI appointed as manager pursuant to an agreement dated 1 October 2010;[3]

   (2)the Kingslane 432 Murray Street Trust - KPI appointed as asset manager pursuant to a deed dated 29 March 2011;[4]

   (3)the Kingslane 22 Delhi Street Trust - KPI appointed as asset manager pursuant to a deed dated 19 November 2011;[5] and

   (4)the 10 Kings Park Road Syndicate - KPI appointed as syndicate manager pursuant to a deed dated 15 February 2012.[6]

   [3] Exhibit 1 TB1/194 - 247; Exhibit 3 pars 21, 45; Exhibit 11 pars 42, 44; Exhibit 13 par 22.

   [4] Exhibit 1 TB2/770 - 819; Exhibit 3 pars 22, 45; Exhibit 11 pars 42, 44; Exhibit 13 par 22.

   [5] Exhibit 1 TB3/1017 - 1065; Exhibit 3 pars 26, 45; Exhibit 11 pars 42, 44; Exhibit 13 par 22.

   [6] Exhibit 1 TB3/1150 - 1170; Exhibit 3 pars 17, 45; Exhibit 11 pars 42, 44; Exhibit 13 par 22.

9. For completeness, while it was not pleaded, I observe that KPI was also the asset manager of the Blackly Row Unit Trust.[7]

   [7] Exhibit 1 TB1/248 - 304; Exhibit 3 pars 39 - 45; Exhibit 11 pars 42, 44; Exhibit 13 par 22.

10. Warrington pleaded that it provided to KPI, at KPI's request, asset and project management services with respect to those investments (SOC par 6).  The services said to have been provided were particularised extensively.[8]  They were said to be have been provided between July 2009 (ie before KPI's incorporation) and December 2013.[9]  KPI's request that Warrington provide the services was said to have been oral - and plural in the sense of multiple 'requests' rather than a single 'request' as pleaded in par 6 of the SOC - made in conversations between Mr Weaver and the Cranstons over April 2009 to July 2013.[10]

    [8] Plaintiff's Answers and Objections to the Defendant's Request for Further and Better Particulars of SOC dated 16 April 2014, Answer 3(b).

    [9] Plaintiff's Answers and Objections to the Defendant's Request for Further and Better Particulars of SOC dated 16 April 2014, Answer 3(a).

    [10] Plaintiff's Answers and Objections to the Defendant's Request for Further and Better Particulars of SOC dated 16 April 2014, Answer 2.

11. KPI denied such requests and - at least in form - denied that Warrington provided the asset and project management services (DAC par 6).  KPI said that Mr Weaver (not Warrington) provided management services on behalf of KPI in his capacity as managing director of KPI and not otherwise (DAC par 6(e)).

12. Warrington said that between November 2011 and 2013 Mr Weaver attempted unsuccessfully to negotiate a remuneration structure agreement (SOC par 7).  No such remuneration agreement was concluded (SOC par 9) but mention was made of certain loans made by KPI to Mr Weaver - including a $350,000 loan made in July 2011 - which were said to only be repayable once a remuneration agreement was finalised (SOC par 7).  KPI admitted that there was no remuneration agreement (DAC par 9) other than a June 2011 agreement to pay Mr Weaver a salary of $100,000 per annum (DAC par 7(b) ‑ (d)).  In its RADC Warrington said that the $100,000 was only a base retainer and not a salary (RADC par 4.1) and reiterated that Mr Weaver had requested at various times that the Cranstons agree to formalise the remuneration arrangements so as to properly remunerate him for the executive role he had undertaken and that no agreement was reached (RADC par 4.6).

13. Warrington claimed restitution for services it provided to KPI at its request from 17 August 2010 to 6 December 2013.[11]

    [11] SOC prayer for relief par A.

14. KPI denied that Warrington was entitled to the relief claimed or any relief (DAC par 11).  KPI also alleged that there was disentitling conduct on the part of Warrington, through Mr Weaver, which precluded it from relief in equity (DAC pars 8, 10A, 22 ‑ 26).  I do not understand that plea so far as Warrington's claim - based on restitution - seeks relief at law rather than in equity.  The defence as so pleaded was never developed in the course of the trial and thus need not be further considered.  Otherwise, KPI pleaded a set‑off in relation to its claim against Warrington by counterclaim (DAC par 12).

15. There were three pleaded aspects to KPI's counterclaim.

16. First, KPI pleaded the $350,000 loan by KPI to Mr Weaver (DAC par 15).  It was common ground that the loan had been made.[12]  The parties joined issue on the repayment terms.  KPI pleaded that the loan was repayable on demand, that demand had been made on 3 December 2013 and Mr Weaver had failed to pay (DAC pars 17, 19 ‑ 20).  Mr Weaver repeated Warrington's pleading that the loan was only repayable once a remuneration agreement was finalised, which had never occurred, and denied that he had any obligation to repay the $350,000 (RADC pars 11 and 13).

    [12] SOC par 7.B(ii); RADC par 8; ts 39, 53.

17. In the alternative, the DAC alleged that the loan had been made to Warrington (DAC pars 16, 18 and 21).  At trial KPI never developed the alternative claim.  The case was opened on the basis that it was Mr Weaver, not Warrington, who was liable for the $350,000 loan.[13]  Accordingly, the alternate claim need not be considered any further.

    [13] Defendant's Submissions dated 30 April 2018 (Defendant's WS) par 1.5; ts 92.

18. Second, KPI alleged that Mr Weaver, as a director, owed it certain fiduciary duties (DAC par 14(i)).  It was pleaded that from August or September 2013 Mr Weaver took action that resulted in KPI being removed as manager of the four property investments previously mentioned - with Warrington becoming a replacement manager as to the Kingslane 432 Murray Street Trust and the Kingslane 22 Delhi Street Trust (DAC par 22).  This was said to be a breach of Mr Weaver's fiduciary duty (DAC par 23(c)) which had caused KPI to suffer loss and damage due to deprivation of the profit it would have enjoyed from the management fees it would otherwise have derived (DAC par 24).  Particulars of the alleged loss or damage were never provided despite a plea that they would be provided before trial.

19. While the counterclaim also pleaded breaches of the statutory duties under s 181 and s 182 of the Corporations Act 2001 (Cth), the case was not opened on that basis; KPI only pursued its counterclaim on the basis that there had been a breach of Mr Weaver's fiduciary duty.[14]

    [14] ts 476, 522.

20. Mr Weaver denied that he owed fiduciary duties in the terms as pleaded by KPI (RADC par 6). He admitted the removal of KPI as manager but suggested that this was due to the actions of the members in the various property investments (RADC par 15). There was a denial that Mr Weaver had breached any fiduciary duty (RADC par 15); but, against that possibility, Mr Weaver sought an order under s 1318 of the Corporations Act 2001 (Cth) relieving him from any liability for any breach - relying, in part, on legal advice he had received (RADC par 16.2). Mr Weaver also joined issue on whether KPI had suffered any loss or damage by reason of the alleged breaches (RADC pars 15 and 16.4).

21. Third, KPI alleged that Warrington was aware that the receipt of money it obtained as replacement asset manager of the Kingslane 432 Murray Street Trust and the Kingslane 22 Delhi Street Trust was as a consequence of Mr Weaver's alleged breach of fiduciary duty (DAC par 25).  It was said that Warrington had profited by the fees (DAC par 26) and accordingly that Warrington held the money on trust for KPI, was liable to account for all profits and was liable to pay KPI equitable damages (DAC par 27).

22. KPI did not make a claim against Warrington on the basis that it was a knowing participant in any breach of fiduciary duty on the part of Mr Weaver.  The prayer for relief to the DAC used language that appeared to invoke such a claim.[15]  However, when questioned about this in opening, that type of claim was expressly disavowed by counsel for KPI.[16]  It was confirmed that the claim was advanced in terms of Warrington having accessorial liability as a knowing recipient.[17]

    [15] DAC prayer for relief pars 2(b), (d).

    [16] ts 98.

    [17] Defendant's WS pars 35, 46 - 47, 49 - 50; ts 98.

23. Warrington denied the alleged breach of fiduciary duty and - at least formally - the knowledge aspect of KPI's plea (RADC par 15).  Otherwise, there was a denial that KPI had suffered any loss or damage or that Warrington had profited (RADC par 16.4).

1. Summary of issues for determination

1. As will be seen, there are a number of evidentiary and intermediate factual issues for determination.  General issues also arose as to the credibility and reliability of a number of the witnesses who gave oral evidence.  I will provide my general findings as to the witnesses, where appropriate, before providing a more detailed account of the facts.

2. It is, however, convenient to now summarise the substantive issues as they were contested at trial and as they arise for my determination. 

1. Broadly stated, the issues are:

   (1)What 'agreement' or 'agreements', if any, were there between Mr Weaver (either personally or on behalf of Warrington) and the Cranstons (either personally or on behalf of KPI) in relation to remuneration being payable for the services performed by Mr Weaver for KPI?  (The word 'performed' is intended to be neutral given the characterisation issue that follows.)

   (2)Were the services performed by Mr Weaver as managing director of KPI?  Or were they provided to KPI by Warrington through performance by Mr Weaver?

   (3)What is reasonable remuneration for the services performed by Mr Weaver?

   (4)What were the terms for repayment of the $350,000 loan by KPI to Mr Weaver?

   (5)What fiduciary duties were relevantly owed by Mr Weaver as a director of KPI?

   (6)Did the actions taken by Mr Weaver in August and September 2013 constitute a breach of the fiduciary duty he owed as a director of KPI?

   (7)Did KPI suffer loss or damage as a result of any breach of the fiduciary duty Mr Weaver owed as a director of KPI?  (This involves both a question of causation and a question of quantum.)

   (8)Is Warrington liable under the first limb of the rule in Barnes v Addy[18] as a 'knowing recipient' in relation to any breach of the fiduciary duty Mr Weaver owed as a director of KPI?

   (9)Has Warrington profited as a result of it replacing KPI as asset manager of the two Kingslane Trusts?

   (10)Ought an order be made under s 1318 of the Corporations Act 2001 (Cth) relieving Mr Weaver as a director of KPI from any liability that he would otherwise be subject to?

   [18] Barnes v Addy (1874) LR 9 Ch App 244.

2. This statement of issues is not intended to replace the parties' pleadings.  Both parties were at pains to ensure that there was no departure from the other party's pleaded case.[19]  It is intended only as a convenient summary of the issues.  It is, however, a summary that I raised with counsel for the parties before closing[20] and which neither counsel sought to add to in closing.

   [19] See eg ts 41 (for Warrington and Mr Weaver), 450 - 451 (for KPI).

   [20] ts 443 - 447.

1. The witnesses

1. Approach to evidence

1. There was a substantial contest between the parties as to what had been said and agreed between Mr Weaver and the Cranstons over the period from 2009 to 2011.

2. There were three main areas of dispute.  First, as to whether Warrington or a company nominated by Mr Weaver was to be remunerated for the services in accordance with a remuneration structure to be agreed (ie the alleged intended remuneration agreement).  Second, what was said and agreed as to the $100,000 per annum that commenced to be paid to Mr Weaver in or about June 2011.  Third, what was said and agreed as to the $350,000 loan.

3. The dealings were oral.  That alone creates difficulties.  The type of conversations referred to in the evidence involved nuance and emphasis and thus might, depending on context, bear more than one meaning.  Although stated in relation to a misleading conduct claim, the observations of McLelland CJ in Eq in Watson v Foxman are apposite:

   Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances.  In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition.  Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said.  All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed.  All this is a matter of ordinary human experience.[21]

   [21] Watson v Foxman (1995) 49 NSWLR 315, 318 - 319.

4. In determining whether there was an agreement - and, if so, its terms - the matters referred to in that passage speak equally as to the difficulties in proof that arise where, in the absence of a reliable contemporaneous record or other corroboration, a party relies on spoken words to found a claim.[22]

   [22] Lahoud v Lahoud [2006] NSWCA 169 [91] - [92].

5. Also relevant are the observations of Hammerschlag J in John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd:

   Where a party seeks to rely upon spoken words as a foundation for a cause of action, including a cause of action based on a contract, the conversation must be proved to the reasonable satisfaction of the court which means that the court must feel an actual persuasion of its occurrence or its existence.  Moreover, in the case of contract, the court must be persuaded that any consensus reached was capable of forming a binding contract and was intended by the parties to be legally binding.  In the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof.  Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved.[23]

   [23] John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 [94].

6. All of the material witnesses had difficulties in terms of specific recollection.  That is unsurprising when the central events in dispute took place seven to eight years earlier and were largely concerned with what was said in relatively informal oral exchanges.  In cross‑examination a response to the effect of 'I don't recall' was a common refrain for Mr Weaver and the Cranstons.  That observation is not intended as a criticism.  It does, however, emphasise the difficulty that arises in accepting that the various accounts of the witnesses as to what was said on the central issues were reliable.  Doubt attends the witnesses' recollection of the events given the passage of time and the common difficulty experienced by Mr Weaver and the Cranstons in recollecting matters that occurred some seven to eight years ago.

7. This is a case where, more than most, it is necessary to assess the oral testimony in the context of the contemporary materials, objectively established facts and the apparent logic of events.[24]  I am also conscious that in determining what, if anything, was agreed, it is necessary to look at the parties' language and conduct in context as a whole rather than viewing each matter in isolation.  Thus the context and surrounding circumstances are of importance.  That is all the more so as both parties rely on alleged post‑contractual conduct as either signifying or being inconsistent with the alleged mutual assent.  This will require me to address the objective factual surrounding material before turning to the specific matters in context. 

   [24] Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 [31].

8. I will first, however, make some general observations as to the witnesses.

1. The plaintiff's and defendants by counterclaim's lay witnesses

1. The plaintiff and the defendants by counterclaim adduced evidence from three lay witnesses: Mr Weaver, Mathew Fisher and Jonathan Smeulders.

Christopher Weaver

1. Christopher Weaver is a director and, for the purpose of the events in these proceedings, the directing mind and will of Warrington.  Mr Weaver was Warrington's main witness.  He was cross-examined closely for some nine hours over a number of days (with Mr Ryan's evidence having to be interposed).

2. At the time of KPI's incorporation Mr Weaver was 32.  Mr Weaver's curriculum vitae was in evidence; its contents were unchallenged.[25]  Mr Weaver is tertiary educated with a Bachelor of Commerce (Property).  He has worked as a valuer and continues to be a certified practising and licensed valuer.  Mr Weaver is also a licensed real estate agent.  Early in Mr Weaver's career he worked as a commercial and industrial sales and leasing agent.  He later became a property and asset manager.  Since 2005 Mr Weaver has largely been involved in property investment and asset management - including the establishment of syndicates and trusts for the acquisition, redevelopment and management of real property.

   [25] ts 471.

3. Mr Weaver's evidence‑in‑chief was given through three affidavits[26] and two witness statements[27] which together totalled some 97 pages.  The affidavits had been filed in related proceedings.  I appreciate that it is likely that costs savings were achieved by using the affidavit evidence.  However, it did mean that Mr Weaver's evidence‑in‑chief, as elicited though adoption of the affidavits and the witness statements, became disjointed.

   [26] Exhibits 3, 4, 5.

   [27] Exhibits 6, 7.

4. The affidavits were sworn in support of related proceedings by which Mr Weaver, through his company Morara Pty Ltd (Morara), seeks to wind up KPI on the oppression and just and equitable grounds.  For that reason a proportion of the affidavit material was of marginal relevance.

5. More critical to the quality of Mr Weaver's evidence - and the view I form as to his reliability - is the highly conclusory nature of the evidence.

6. For example, on the subject of the incorporation of KPI, Mr Weaver's evidence in his 18 February 2014 affidavit was:

   In the course of those discussions, [the Cranstons] and I agreed to incorporate the first defendant ("KPI"), which was registered on 17 August 2010.  [The Cranstons] and I agreed to the effect that the 'Kingslane Group' would, through their various entities, invest in a number of syndicates and trusts and introduce further investors to invest in those syndicates and trusts for the acquisition, ownership, management and re-development of real property, and that my company Warrington Management Pty Ltd ('Warrington') would, by me, provide management services for those syndicates and trusts.  It was agreed that KPI would mainly manage investment orientated property and another company, Kingslane Property Development Pty Ltd ('KPD'), would be incorporated to manage development orientated property.[28]

   [28] Exhibit 3 par 15.

7. There is no mention there of the alleged remuneration agreement.  But later it is said:

   In numerous meetings during early 2010 with [John Cranston], I said words to the effect that the other directors of the Kingslane Property group of companies did not appear to have the motivation or desire to grow or develop the Kingslane Property business via executive participation.  During those meetings, [John Cranston] said to me words to the effect that, as the executive director within the Kingslane Property group of companies, I would be reasonably remunerated for my executive service.  [John Cranston] regularly said to me words to the effect that the philosophy of the business was that of "reward for effort" and that eventually at some point in the future [Evan Cranston] would have an executive role in the Kingslane Property group of companies.[29]

   [29] Exhibit 3 par 46.

8. In what is the highwater mark of the evidence in examination‑in‑chief,[30] Mr Weaver states in his 22 June 2015 affidavit:

   [I]t was discussed during a number of meetings I had with the [Cranstons in] 2009 and 2010 to the effect that when funds were available, founding members would be remunerated on a "reward for effort basis".[31]

   [30] This was the portion of the evidence emphasised by counsel for Warrington in closing: ts 490.

   [31] Exhibit 4 par 14.

9. There is a marked failure to set out, to the best of Mr Weaver's recollection, what in fact was said between himself and the Cranstons as to what entity was to perform the necessary professional services for KPI and on what basis, if any, those services were to be remunerated.

10. Save in one respect, which I will come to shortly (see par 59 below), Mr Weaver's oral evidence was generally no more detailed.  In cross‑examination, in an answer that was not truly responsive to the cross‑examiner's question, Mr Weaver stated:

    Yes.  The agreement was that the company would have equal one third shares.  I would be doing the majority of the work and I would be rewarded for effort.[32]

    [32] ts 126.  But cf ts 142 - 143.

11. Later it was suggested:

    [T]he intention was that - was that either myself or a company to be nominated by me would be rewarded for effort.[33]

    [33] ts 142.

12. Similarly the affidavits, having been drafted by lawyers, show an inclination to adopt the drafter's legal characterisation of what occurred rather than Mr Weaver's own words.  For example, Mr Weaver gives evidence of undertaking 'significant' work 'through Warrington'[34] going on to refer to the work done in terms of what Warrington did - and sometimes to 'Warrington, by me' undertaking various activities.[35]  Ignoring the characterisation question, the simple fact is that it was Mr Weaver who was doing the work - a matter that Mr Weaver acknowledged.[36]  But at times the affidavit evidence borders on the ridiculous because of Mr Weaver's adoption of the lawyers' flourish.  For example, par 81 of the 18 February 2014 affidavit stated:

    On 20 December 2012, I met with [Evan Cranston] and discussed executive remuneration.  [Evan Cranston] said words to the effect that Warrington, through me, had done an excellent job to hang in there and ensure the settlement of the 22 Delhi Street property, and he wanted to convince [John Cranston] to agree to a reasonable remuneration to limit his involvement in the affairs of KPI moving forward.[37]  (emphasis added)

    [34] Exhibit 3 par 18.

    [35] Exhibit 3 pars 18 - 27, 34 - 35, 38 - 43, 45, 50, 81.

    [36] ts 139.

    [37] Exhibit 3 par 81.

13. It may be that Evan Cranston might have said that Mr Weaver had done an excellent job - more likely: 'You've done an excellent job'.  But it is simply implausible to suggest that Evan Cranston would have said words to the effect: 'Warrington, through you, has done an excellent job'.  Yet when the obvious affectation and embellishment was drawn to Mr Weaver's attention in the course of cross-examination he did not disavow the form as employed - although accepting that he did not recall the exact words used.[38]

    [38] ts 294.

14. A further example appears at par 16 of the 18 February 2014 affidavit.  There, recounting a conversation said to have occurred on 1 October 2010, Mr Weaver states that John Cranston said words to the effect that:

    [Evan Cranston] would later become an important part of the business and that in the meantime I, through Warrington, would be rewarded for the effort exerted in the growth of the business.[39]

    [39] Exhibit 3 par 16.

15. In cross‑examination Mr Weaver accepted that was not exactly what John Cranston would have said that day.[40]  It was accepted that John Cranston would not have used the words 'through Warrington'.[41]  Among other things, on Mr Weaver's evidence, he did not nominate Warrington as the entity to receive the remuneration until August 2012.[42]

    [40] ts 141.

    [41] ts 142.

    [42] ts 138, 141.

16. However, to compound the issue Mr Weaver went on, in cross‑examination, to suggest that he recalled this conversation 'very vividly'.[43]  Mr Weaver then provided a purported word‑for‑word recount of the conversation.[44]  This included attributing to John Cranston a statement that 'you will be paid for the work that you do'.[45]  None of that detail was in Mr Weaver's materials in evidence‑in‑chief, as he later confirmed.[46]  But, when it was put to Mr Weaver that there was no mention of Warrington in the conversation - and there was no such mention in the recount that had occurred only minutes earlier - he said that there 'would have been' (suggesting reconstruction) or 'was' (suggesting recollection) mention of Warrington.[47]  That was despite earlier clarifying that what appeared in par 16 of the 18 February 2014 affidavit was incorrect.[48]  Once the discrepancy was pointed out Mr Weaver said that he did not recall if John Cranston said exactly that he would be rewarded for effort through Warrington.[49]

    [43] ts 142.

    [44] ts 142 - 143.

    [45] ts 143.

    [46] ts 145.

    [47] ts 145.

    [48] ts 141.

    [49] ts 142.

17. I do not accept Mr Weaver's evidence as to what he attributes to John Cranston in the alleged 1 October 2010 conversation.  The fact that the detailed account first fell in cross-examination, but was inconsistent with earlier evidence, and was then recanted, makes the evidence highly unsatisfactory.  Moreover, the circumstance that Mr Weaver described this as one of the conversations that he recalled very vividly bespeaks a more general issue as to the reliability of Mr Weaver's evidence as to what was said in conversations between him and the Cranstons.

18. The limitations of Mr Weaver's evidence-in-chief are also illustrated by what is asserted in par 17 of his 22 June 2015 affidavit.  There Mr Weaver gives estimates of the time he spent on various activities for KPI over the period between July 2009 and December 2013.  It is said, for example, that between July 2009 and December 2009 the approximate amount of Mr Weaver's time spent dedicated to activities that generated or attempted to generate revenue for KPI was 75% (in the form of obtaining an Australian Financial Services Licence (AFSL)).  But nowhere does Mr Weaver mention that KPI was not incorporated until August 2010 - the following year - and the AFSL was obtained for an entity other than KPI.

19. Another example of the conclusory nature of Mr Weaver's evidence - one that also bespeaks a degree of reconstruction - was his evidence as to an alleged conversation with John Cranston in November 2010 as to how Mr Weaver (the affidavit uses the pronoun 'I') should be remunerated for his executive role in the establishment of the initial syndicate.[50]  It is said in the 18 February 2014 affidavit that around this time KPI advanced Mr Weaver $45,000.  In fact this conflates two loan transactions - the first of $15,000 in February 2011 and a further loan of $30,000 paid in two tranches in March 2011.[51]

    [50] Exhibit 3 par 48.

    [51] Exhibit 4 par 18; ts 150 - 154.

20. Mr Weaver was, at times, evasive in the course of cross‑examination.[52]  He could also be argumentative.  For example, as to the $350,000 loan, despite having earlier giving evidence that he needed the money to settle the purchase of the Goldsmith Road property,[53] Mr Weaver then suggested that the money was not actually needed - despite having told John Cranston at the time that it was[54] - as Mr Weaver could have borrowed more.[55]  More relevant to Mr Weaver's general reliability is that his affidavit evidence was to the effect that the $350,000 was for payment of a deposit.[56]  However, Mr Weaver accepted in cross‑examination that it was used to settle the purchase[57] (which completed on 20 June 2010).[58]  Contemporaneous documentation also established that Mr Weaver was incorrect in his recollection as to the purpose for which he sought the loan.[59]

    [52] See eg ts 283 - 284 (as to whether Mr Weaver sought new projects for Warrington Capital as opposed to Warrington), 326 - 329 (as to whether Warrington would accept appointment as replacement asset manager).

    [53] ts 175.

    [54] ts 176.

    [55] ts 175 - 176.

    [56] Exhibit 3 par 49.

    [57] ts 175, 177.

    [58] ts 175, 186.

    [59] Exhibit 1 TB3/953 - 954, TB4/1644.

21. Counsel for KPI noted various other discrepancies between Mr Weaver's oral evidence and prior statements.  For example:

    •In cross-examination Mr Weaver denied asking John Cranston for mentoring advice from time to time.[60]  That was inconsistent with a mid-2013 briefing note Mr Weaver prepared when he sought legal advice.[61]

    •In cross-examination Mr Weaver accepted on various occasions that the conversations he had referred to in his oral evidence were not set out in his affidavits and witness statements.[62]

    [60] ts 135.

    [61] Exhibit 1 TB4/1642.

    [62] ts 145 - 146, 154, 178.

1. Counsel for KPI did not seek a finding that Mr Weaver's evidence was deliberately untrue.[63]  I would not make such a finding, although I have significant reservations about whether Mr Weaver was being truthful when he said that he did not recall who was the friend with the legal background who drafted the questions he raised with his solicitors in his initial June 2013 consultation.[64]  The hesitation with which Mr Weaver approached how to answer that question was palpable.  But the identity of the friend was never a matter of consequence.  Apart from that instance I otherwise consider that Mr Weaver genuinely believed that he was telling the truth throughout his evidence.  I do, however, accept the submission that Mr Weaver's recollection as to the oral interactions between the parties is unreliable.[65]

   [63] ts 451.

   [64] ts 302.

   [65] ts 451.

2. The unreliability is inherent in the vague and conclusory nature of the evidence.  At best Mr Weaver was able to recount what, with all the imprecision that accompanies the passage of time, was his reconstructed impression of the events of 2009 to 2011.  As Mr Weaver explained it, he recalled 'thematics'.[66] 

   [66] ts 142.

3. Mr Weaver's evidence cannot be approached as if it is a substantially accurate recollection of the effect of what the parties stated in their conversations.

Mathew Fisher

1. Mathew Fisher was a property manager employed by Warrington.  He was employed by Warrington on 1 February 2011 and became a director of Warrington on 1 December 2011.  In his witness statement Mr Fisher confirmed that, while employed by Warrington, he was largely responsible for all property management work.[67]  Otherwise, the thrust of Mr Fisher's evidence went to establishing the proportion of time that Mr Weaver spent on KPI's business as opposed to Warrington's business.[68]

   [67] Exhibit 10 par 5.

   [68] Exhibit 10 pars 5 - 7.

2. Mr Fisher gave evidence that, in his observation, most of Mr Weaver's time was spent dealing with business finances, various other asset management functions and promoting the business to potential new clients.[69]  Mr Fisher also said that between February 2011 and the end of 2013 Mr Weaver spent a good deal more of his time on matters related to KPI than he did with matters relating to Warrington.[70]

   [69] Exhibit 10 par 5.

   [70] Exhibit 10 par 7.

3. Counsel for KPI accepted that Mr Fisher was an honest witness.[71]  I agree.  Mr Fisher came across as an honest and reliable witness.  I accept Mr Fisher's evidence.

Jonathan Smeulders

[71] ts 451.

1. Jonathan Smeulders' evidence was adduced by witness statement[72] and he was not required for cross‑examination.  The evidence largely consisted of Mr Smeulders' dealings with Mr Weaver in relation to one of KPI's projects - the 432 Murray Street, Perth development.  Save to establish that, as appears to be common ground, the dealings on behalf of KPI were largely conducted by Mr Weaver,[73] the evidence was of little significance.

1. KPI's lay witnesses

   [72] Exhibit 2.

   [73] Although Mr Smeulders did refer to one meeting which was attended by John Cranston: Exhibit 2 pars 16, 18.

1. KPI called two lay witnesses: Evan Cranston and John Cranston.

Evan Cranston

1. Evan Cranston is some four years younger than Mr Weaver.  He is the son of John Cranston.  Mr Cranston is tertiary educated, graduating from the University of Western Australia in 2004 with a commerce and law degree.  He was admitted to practice as a solicitor in 2006 and worked as a commercial solicitor.  Mr Cranston said that he had six years' experience as a solicitor doing corporate work.[74]

   [74] ts 365.

2. By mid‑2009 Evan Cranston was the executive director of a junior gold mining exploration company with interests in Africa.  He remained in that position until April 2012 and is now the executive chair of another mining company and a non‑executive director of other companies.

3. In cross‑examination Evan Cranston stated that there was no initial discussion of remuneration because it was a start‑up venture.[75]  This was consistent with what was said in his witness statement.  Mr Cranston said that the members were to be rewarded by equity, ie receiving profits as dividends and there was never any discussion in those early meetings regarding the payment of salary of wages.[76]  However, this exchange then occurred with the cross‑examiner:

   But it was discussed that when there was money, he would be rewarded for his efforts, wasn't it? --- Eventually that was the case.  Yes.[77]

   [75] ts 359.

   [76] Exhibit 11 pars 22 - 25.

   [77] ts 359.

4. Prima facie that acknowledgement could be understood as a contradiction of a central tenet of KPI's case and Evan Cranston's evidence by his witness statement.  But the word 'eventually' in Mr Cranston's response introduces some ambiguity.  That said, the cross‑examiner squarely put the question in terms of it having being discussed 'that when there was money' and it followed a series of questions as to what was initially discussed between the Cranstons and Mr Weaver.[78]

   [78] ts 357 - 358.

5. At the least, the evidence demonstrates a degree of imprecision in Evan Cranston's recollection and expression.  It shows the difficulty in accepting the absolute terms in which much of Mr Cranston's evidence is expressed in his witness statement.

6. Counsel for Warrington invited me to find that some of the evidence given by Evan Cranston was inherently incredible.  I accept that submission.  I do not accept Mr Cranston's evidence that:

   (1)As at 2012 he did not understand the difference between wages and consultancy fees and that to him they were exactly the same.[79]  Evan Cranston had been a corporate lawyer for some six years and was the executive director of a public company.  Mr Cranston's evidence that he did not understand the distinction between a consulting fee and wages was absurd and no more than a convenience to explain his actions in agreeing to characterisation of the $45,000 as consultancy fees.

   (2)When, in 2011, Evan Cranston purchased a strata property from Mr Weaver - a property that adjoined the second strata property owned by Mr Cranston's mother in a two strata plan - he did not appreciate that doing so enabled the Cranston family to terminate the strata plan and redevelop the whole property.[80]

   (3)He, Evan Cranston, was prepared to make major decisions about the affairs of KPI without the agreement of his father, John Cranston.[81]  It is plain on the evidence as a whole that Evan Cranston viewed his father as de facto chairman of KPI[82] (even though, in the course of cross-examination, Evan Cranston denied that John Cranston was treated as chairman; [83] an assertion incompatible with Evan Cranston's previous affidavit evidence[84] and John Cranston's later oral evidence).[85] 

   Evan Cranston referred to John Cranston as 'the powers that be'.[86]  Evan Cranston referred to the 'Kingslane' in KPI's name as being 'his company name' - referring to John Cranston.[87]  Having regard to the totality of the evidence, it is inconceivable that Evan Cranston would have made major decisions about KPI's affairs without John Cranston's imprimatur.  Indeed, only John Cranston was authorised to pay money out of KPI's banks account[88] - and Evan Cranston, despite being a director, was not involved in KPI's banking and was unable to say who controlled KPI's funds.[89]

   [79] ts 365.

   [80] ts 367 - 369.

   [81] ts 398.

   [82] See eg Exhibit 11 par 21.

   [83] ts 400.

   [84] Exhibit 12 par 17.

   [85] ts 411.

   [86] Exhibit 1 TB3/1412; ts 398.

   [87] ts 390.

   [88] ts 411.

   [89] ts 400.

7. Evan Cranston also accepted that par 18 of his Exhibit 11 witness statement was untrue,[90] as was par 38 (explained as an 'unintended error').[91]

   [90] ts 374.

   [91] ts 402.

8. Counsel for Warrington sought to suggest, in cross‑examination[92] and closing,[93] that Evan Cranston had sought to create a misleading impression by re‑arranging the content and order in which paragraphs from an earlier affidavit[94] appeared within Mr Cranston's witness statement.[95]  The suggestion was that Evan Cranston had sought to suggest that only Mr Weaver's experience as a property valuer was relevant and that other matters had been intentionally omitted.  I reject that contention.  I have considered the re-arrangement of the paragraphs, the introduction of certain words and the omission of others.  The differences between the affidavit and the witness statement are minor and explicable in terms of alteration by way of clarification and exposition of the narrative.  There was no deliberate attempt to mislead the court.

   [92] ts 351 - 354, 371 - 374.

   [93] ts 500.

   [94] Exhibit 12 pars 10 - 12, 15.

   [95] Exhibit 11 pars 12 (inclusion of the words 'as a property valuer'), 26 - 28.

9. As a witness, however, Evan Cranston was often argumentative and at times flippant.[96]  He was prepared to advance contentions to support statements made in the context of the dispute that were self‑evidently without merit.  For example, when asked about his reference to a 'non‑compete' clause, Mr Cranston tried to suggest that such an obligation might arise as an implied term to Mr Weaver's oral employment contract.[97]  It is difficult to understand how such a suggestion might be made in evidence before the court by a person who had worked for six years as a corporate lawyer.

   [96] ts 386, 403 - 404.

   [97] ts 387.

10. Viewed as a whole, Evan Cranston was generally unconvincing in cross‑examination.  His responses were often given reluctantly or resentfully.  My impression is that Evan Cranston viewed the exercise of having to give evidence as an imposition.

11. Evidence that I will come to suggests that Evan Cranston wished to reach some accommodation with Mr Weaver but that his father, John Cranston, was unwilling to do so.  I am unable to draw any connection between that and Evan Cranston's attitude as evinced in the course of his cross‑examination.  As a result of the matters I have referred to, however, I am not satisfied that I can treat Evan Cranston's evidence as being generally reliable.  Apart from the specific instances I have referred to, Evan Cranston was unable to recollect numerous matters, referring himself to things being 'seven years ago'[98] or 'a long time ago'.[99]  That is unsurprising but confirms that Evan Cranston's evidence cannot be treated as being generally reliable.  On contested matters I will not accept Evan Cranston's evidence without corroboration.

John Cranston

[98] ts 379.

[99] ts 381.

1. John Cranston is the father of Evan Cranston.  He describes himself as a company director with over 30 years' experience in property investment.  Mr Cranston explained that from at least 2007 he had been interested in forming a company to undertake large scale property investments and developments.  Mr Cranston had met Mr Weaver when Mr Weaver worked for Egan Valuers.  In 2009 Mr Cranston had the idea that Mr Weaver could be a potential partner in the property enterprise.

2. At the time of KPI's incorporation John Cranston was 58 years of age.  He was 66 at the time of trial.

3. John Cranston was an unsatisfactory witness.  In particular, on the central issue of the intended remuneration agreement Mr Cranston gave contradictory evidence.  In his witness statement, as formed his evidence‑in‑chief, Mr Cranston said:

   In the discussions I had with Chris regarding 'reward for effort', at various times that I do not now recall, I said words to the effect that by putting effort into KPI and the acquisition of properties and the management of the syndicates, we would be rewarded financially through our equity in KPI.[100]

   [100] Exhibit 13 par 41.

4. There was no suggestion in his witness statement that there was any discussion of payment of a salary or remuneration until the mid‑2011 discussions as to the $100,000 per annum.  To the contrary, John Cranston suggested that 'I was happy to work free of charge on the basis that everyone else was doing so'.[101]

   [101] Exhibit 13 par 21.

5. In cross‑examination, however, John Cranston confirmed that he told Mr Weaver that he would receive reward for effort.[102]  This exchange then occurred:

   Well, what do you say was discussed about how there would be reward for effort once and if substantial profits were made by KPI? --- Mr Weaver would make a salary.

   That's your evidence of what you say you told him? --- Yes.[103]

   [102] ts 418.

   [103] ts 418.

6. In closing counsel for KPI suggested that this passage needed to be read in the context of a wider passage.[104]  I acknowledge that Mr Cranston goes on to deny the alleged remuneration agreement.[105]  But that denial flies in the face of John Cranston's evidence of the discussion of 'salary' - plainly acceptance of remuneration other than through shareholding - in response to the cross-examiner's open question.  It also directly contradicts the evidence in Mr Cranston's witness statement.

   [104] ts 533.

   [105] ts 419.

7. John Cranston also said that 'the general theme that [Mr Weaver] would be remunerated was correct'.[106]

   [106] ts 424.

8. John Cranston's general recollection of events was more limited than that of either Mr Weaver or Evan Cranston.  For example, John Cranston was unable to recall being informed that Warrington passed on 50% of its management fees to an accountant referrer, Grant Thornton,[107] despite Evan Cranston confirming that John Cranston was in a meeting where this was discussed.[108]  Evan Cranston's recollection constituted an admission and was consistent with Mr Weaver's account; I find that this is a matter which John Cranston was aware of but could no longer recollect by the time he gave evidence before me.  There were also a series of other matters as to the formation of KPI, and the parties' respective responsibilities, in respect of which John Cranston suggested he had no recollection.[109]  Mr Cranston was unable to say what he was to do in exchange for his one third shareholding in KPI[110] and was even unable to recall that it was agreed that Mr Weaver was to undertake the day-to-day management of KPI.[111]

   [107] ts 412 - 414.

   [108] ts 352, 358.

   [109] ts 413 - 417.

   [110] ts 415.

   [111] ts 416.

9. Counsel for KPI sought to explain John Cranston's issues with recollection on the basis that he was elderly.[112]  I reject that submission.  Mr Cranston did not suggest that he had any difficulty in following matters.  To the contrary, the answers Mr Cranston gave were considered and concise.  He responded quickly, with simple answers, and generally gave more direct answers than either Mr Weaver or Evan Cranston - although often that was to profess a lack of recollection.  The simple fact of the matter is that John Cranston had a limited recollection.

   [112] ts 474.

10. It was apparent, however, that John Cranston had considerable animosity towards Mr Weaver.  For example, Mr Cranston asserted that Mr Weaver was being greedy.[113]  That had added significance insofar as Mr Cranston thought that the Cranstons had been very generous to Mr Weaver.[114]  Evan Cranston also referred to his father as having described Mr Weaver as being 'greedy'.[115]

    [113] ts 434.  See also ts 432.

    [114] ts 433.

    [115] ts 406.

11. It is not possible to accept that John Cranston's evidence was generally reliable.  To the contrary, due to the difficulties with Mr Cranston's evidence that I have summarised, I find that John Cranston's recollection was inherently unreliable and adversely affected by the dispute that had ensued with Mr Weaver.  I will not place any weight on Mr Cranston's evidence unless it has independent corroboration.  However, the acceptance that Mr Cranston told Mr Weaver he would make a salary is an admission against interest and of importance to the central issue of the alleged intended remuneration agreement.

1. Remuneration expert (Christopher Ryan)

1. Warrington also called an expert witness.  His evidence‑in‑chief was contained in two reports.[116]

   [116] Exhibits 8, 9.

2. Christopher Ryan gave evidence that he had over 20 years' experience in executive remuneration and related human resources matters as an in‑house executive and a remuneration consultant.[117]  Mr Ryan gave an opinion on the market rate that would have been payable at the time particular services, as detailed by Mr Weaver, were provided to KPI.  The opinion was given on the basis that those services were provided by a person with Mr Weaver's qualifications and experience as detailed in his evidence and curriculum vitae.[118]

   [117] Exhibit 8 pages 1 ‑ 2.

   [118] Exhibit 8 page 3.

3. Mr Ryan's evidence is described more fully when I consider the issue of what would have been reasonable remuneration for the professional, asset and project management services provided by Warrington, or alternatively Mr Weaver, to KPI.

4. Counsel for KPI accepted that Mr Ryan was an honest witness.[119]  I agree.  However, counsel also submitted that there were a number of difficulties with Mr Ryan's evidence and it should not be accepted.  I will deal with those submissions when I address Mr Ryan's evidence more fully below.

   [119] ts 451.

1. An account of the facts

1. It is convenient to now turn to a detailed account of the facts.  It will be apparent that, in so doing, I am making factual findings based on the evidence adduced at trial.  In some instances, however, I will defer making factual findings until I turn to specifically address the critical issues that arise on the parties' pleaded cases.

1. The parties

1. The main personalities in this dispute are Christopher Weaver, on one side, and John and Evan Cranston, on the other.  Mention has been made that Warrington is associated with Mr Weaver.  Mr Weaver, through another company, also has an interest in KPI.  But the Cranstons control a majority of the issued shares in KPI; in John Cranston's case he holds those shares through another entity.

2. John Cranston controls a group of companies that were referred to as the 'Kingslane group'.

3. Apart from Mr Weaver and the Cranstons, the only other person who needs to be identified at this stage is Peter Folland.

4. Mr Folland did not give evidence.  He is an accountant in a mid‑size Perth accounting firm.  In terms of the dispute between Mr Weaver and the Cranstons I find that Mr Folland supported and assisted Mr Weaver.  Mr Weaver considered Mr Folland a friend.[120]  Mr Folland also had a role with Warrington having been, at some time, its external Chief Financial Officer.[121]  Importantly, as Mr Weaver confirmed in cross‑examination, Mr Folland had been a significant referral source in identifying investors for the property syndicates which Mr Weaver had established.[122]

1. Pre‑2009 interactions between Mr Weaver and the Cranstons

   [120] ts 156.

   [121] ts 156 - 157.

   [122] ts 157.

1. It was common ground that Mr Weaver had met John Cranston in the early 2000s either when Mr Weaver worked at a real estate agency[123] or for a valuation firm.[124]  Evan Cranston was introduced to Mr Weaver at around that time through John Cranston.[125]

   [123] Exhibit 11 par 8; ts 116.

   [124] Exhibit 13 par 8.

   [125] Exhibit 11 par 8; ts 351.

2. There was a casual acquaintance between Mr Weaver and John Cranston.  Mr Weaver said that on average they spoke once a year.[126]  Mr Cranston referred to Mr Weaver seeking his advice from time to time about his professional development and business matters.[127]  In a document created in mid‑2013 for the purpose of briefing solicitors Mr Weaver suggested that he stayed in touch with Mr Cranston and occasionally sought mentoring advice.[128]

   [126] ts 116.

   [127] Exhibit 13 par 10.

   [128] Exhibit 1 TB4/1642.

3. At some stage John Cranston became aware of Mr Weaver's property syndication activities through Warrington.[129]  Warrington established two property syndicates in late 2008 and early 2009.[130]

1. The 2009/2010 dealings between Mr Weaver and the Cranstons

   [129] Exhibit 13 pars 11 - 13.

   [130] Exhibit 1 TB4/1642.

1. I have already mentioned that John Cranston harboured ambitions to form a company to undertake large scale property investment and development.  In 2009 Mr Cranston had an idea that Mr Weaver might be a potential partner in that enterprise.  Mr Cranston approached Mr Weaver about the idea in mid-2009.

1. Both in his evidence‑in‑chief[131] and in cross-examination[132] Mr Weaver suggested that the main discussions commenced in July 2009 (although mention was made of more general discussions about participation in property investments in early 2009).[133]  In the document created in mid‑2013 Mr Weaver identifies having been approached by John Cranston in May 2009.[134]  Mr Weaver also mentions moving into the Kingslane group's offices in Subiaco in July 2009.[135]  The precise timing is not a matter on which anything turns.

   [131] Exhibit 3 pars 5, 12.

   [132] ts 118.

   [133] ts 117.

   [134] Exhibit 1 TB4/1642.

   [135] Exhibit 1 TB4/1642.

2. Mr Weaver ran Warrington's business from the Kingslane group's offices after he moved there in mid‑2009.  Mr Weaver described working out of an apartment located above Kingslane's offices.[136]

   [136] ts 123.

3. Mr Weaver and the Cranstons gave considerable evidence as to what was discussed between them, and a further person, Tony Arias, over 2009 and 2010 until the incorporation of KPI.  Some of that will need to be referred to in determining whether Warrington has proved the alleged intended remuneration agreement.  In general, however, it is unnecessary to detail all the discussions.  For present purposes it is sufficient to state that there was a broad consensus as to a number of matters.

4. First, the venture would involve property investment and development, thereby necessitating the incorporation of entities with differing roles.  The investment aspect would involve the establishment of property syndicates and consequential asset management.  There was discussion of one day listing on the ASX Ltd.  Second, it would be necessary to obtain an AFSL insofar as it was sought to promote investment in property syndicates.  John Cranston already had a company, Kingslane Securities Pty Ltd (Kingslane Securities), which was considered to be an appropriate entity to hold the AFSL.  Third, the parties would have different roles and responsibilities.  Mr Weaver, in particular, would have an executive role.  He was to be the managing director of KPI.  Fourth, Warrington would have a property management role in respect of property syndicates as they were established and would thus derive income from those activities (it already having such a role as to the syndicates Mr Weaver had established).

5. One matter of significance is the discussions that occurred between Mr Weaver and the Cranstons as to the fees Warrington was sharing with the accounting firm associated with Mr Folland.

6. Mr Weaver gave evidence that insofar as Warrington was a syndicate manager, various fees for establishment, ongoing management and success were split 50:50 with Mr Folland's accounting firm.[137]  Evan Cranston confirmed that this was discussed between Mr Weaver and him.[138]  However, as already mentioned, John Cranston had no recollection of those conversations (see par 91 above).  I accept that there were such discussions (John Cranston being part of them) and that, in the course of the discussions, Evan Cranston told Mr Weaver he was paying too much and by establishing their own entity the parties could keep the majority of the fees.[139]  Mr Weaver would then obtain a larger share of the remuneration than the 50:50 split.  I accept Mr Weaver's evidence that this was something that was 'appealing' to him.[140]  I find that the ability to earn more than 50% of the asset manager fees was one of the drivers for Mr Weaver in establishing a business with the Cranstons.

   [137] Exhibit 3 pars 5 - 6.

   [138] Exhibit 11 pars 26 - 27.

   [139] Exhibit 11 pars 28 - 29.

   [140] ts 124.

7. Kingslane Securities obtained an AFSL on 27 January 2010.[141]  Mr Weaver was one of the responsible officers appointed under the AFSL.[142]

   [141] Exhibit 1 TB1/89 - 108.

   [142] Exhibit 3 par 13.

8. Mr Weaver says that it was following the obtaining of the AFSL that he had further discussions with John Cranston around the structure and establishment of additional entities.[143]  On Mr Weaver's account, as has already been seen from the passage of his evidence reproduced at par 49 above, it was these discussions that led to the incorporation of KPI.  The suggestion that these discussions occurred in 2010 is consistent with Evan Cranston's evidence‑in‑chief[144] and John Cranston's evidence‑in‑chief.[145]  It is also consistent with Mr Weaver's acceptance in cross‑examination as to the alleged intended remuneration agreement that by early 2010 there had been no agreement that his services would be provided by Warrington.[146]

   [143] Exhibit 3 par 14.

   [144] Exhibit 11 pars 26 - 29.

   [145] Exhibit 13 pars 18 - 19.

   [146] ts 149.

9. The specific trigger for the incorporation of KPI does not readily appear from the witnesses' evidence‑in‑chief.  Self-evidently there is a passage of some six months between the AFSL being obtained and the incorporation of KPI.  While it appears that there were activities undertaken, and numerous discussions between Mr Weaver and the Cranstons, over the first half of 2010, none of those activities or discussions necessitated the incorporation of KPI.

10. In August 2010, the month in which KPI was incorporated, Mr Weaver identified a property syndicate opportunity.  This was a potential acquisition at 13 Modal Crescent, Canning Vale.[147]  The available inference, one which is supported by Mr Weaver's evidence in cross‑examination,[148] is that KPI was incorporated to fulfil the role of syndicate manager of the 13 Modal Crescent Property Syndicate.  I find that the opportunity presented by the property investment at 13 Modal Crescent, Canning Vale was the immediate cause of the incorporation of KPI - although, as appears to be common ground, the eventual incorporation of such an entity had been on the cards for some time following discussions between Mr Weaver and the Cranstons commencing from the obtaining of the AFSL in late January 2010.

    [147] Exhibit 1 TB4/1643; ts 120 - 121.

    [148] ts 126.

11. I have mentioned that in cross‑examination Mr Weaver accepted that, by early 2010, there had been no agreement that his services would be provided by Warrington.[149]  In cross‑examination Mr Weaver then said:

    And as at 17 August 2010, when KPI was incorporated, there was no agreement that your services would be provided through Warrington Management then either, was there? --- No.[150]

    [149] ts 149.

    [150] ts 150.

12. Neither the cross-examiner, nor counsel for Warrington in re‑examination, sought elaboration as to Mr Weaver's implicit suggestion that there had been such an agreement after early 2010 but before KPI's incorporation.  Whether there was such an agreement must be determined when resolving Issue 1.

1. The incorporation of KPI

1. KPI was incorporated on 17 August 2010.[151]  Mr Weaver and Evan Cranston were appointed as directors of KPI on its incorporation.[152]  A total of 90 ordinary shares were issued: 30 to Evan Cranston, 30 to Morara and 30 to Kingslane Pty Ltd.[153]

   [151] Exhibit 1 TB8/3621.

   [152] Exhibit 1 TB8/3621.

   [153] Exhibit 1 TB8/3622.

2. Morara was a company associated with Mr Weaver.  It was common ground that it was a company owned and controlled by Mr Weaver.[154]  Kingslane Pty Ltd is a company associated with and controlled by John Cranston; it is the trustee of his family trust.[155]  John Cranston and his wife are the sole directors and members of the company.[156]

   [154] DAC par 14(b); RADC par 6; Exhibit 13 par 23; ts 163, 416.

   [155] Exhibit 11 par 10; Exhibit 13 par 23; ts 127, 415.

   [156] Exhibit 1 TB7/3228 - 3234.

3. Thus, looking through the shares in KPI held by other corporate entities, the shares in KPI were held one third by Mr Weaver, one third by Evan Cranston and one third by John Cranston.[157]

1. Post‑incorporation activities of KPI

   [157] ts 91, 163, 415 - 416.

1. There was no challenge to Mr Weaver's account of the activities he said were undertaken for KPI.  KPI, by counsel, accepted that the work was done and Mr Weaver was the person who did the work.[158]  The issue for determination that arises in due course is one of characterisation: was it done by Mr Weaver or was it done by Warrington through Mr Weaver?

   [158] ts 471.

2. Accordingly, little is achieved by cataloguing the litany of work Mr Weaver says was performed for KPI.[159]  That the work was done was not in issue.  I accept Mr Weaver's evidence that the work was done and will deal with the characterisation issue in addressing Issue 2.

   [159] Exhibit 3 pars 17 - 44.

3. For now it is enough to record that, primarily through Mr Weaver's efforts, KPI promoted a number of investment opportunities and became the manager or asset manager of a number of property investments in the form of syndicates and trusts.  As manager KPI became entitled to receive, and did receive, various fees.  In the course of closing addresses a summary of the fees as compiled by Warrington's solicitors[160] was accepted by KPI to be correct.[161]

   [160] Exhibit 8 attachment 2 pages 3 - 5.

   [161] ts 488 - 489.

4. The work undertaken by Mr Weaver involved:

   (1)Establishing and conducting the ongoing syndicate management of the 13 Modal Crescent Property Syndicate of which KPI became the manager (the establishment thereof primarily occurring over around August to October 2010 with the property settling on 2 November 2010).  This involved the property at 13 Modal Crescent, Canning Vale.  The approximate capital value was said to be $9 million.[162]

   (2)Establishing and conducting the ongoing syndicate management of the Kingslane 432 Murray Street Trust in relation to which KPI became the asset manager and of which a related company, Kingslane 432 Murray Pty Ltd, was the trustee (the establishment thereof primarily occurring over around March to June 2011 with the property settling on 20 June 2011).  This involved a property at 432 Murray Street, Perth.  The approximate capital value was said to be $32.3 million.[163]

   (3)Establishing and conducting the ongoing syndicate management of the Kingslane 22 Delhi Street Trust in relation to which KPI became the asset manager and of which a related company, Kingslane 22 Delhi Pty Ltd, was the trustee (the establishment thereof primarily occurring over around November 2011 to November 2012 with the property settling on 16 November 2012 - the process having been protracted by the appointment of a receiver to the vendor).  This involved a property at 22 Delhi Street, West Perth.  The approximate capital value was said to be $19.5 million.[164]

   (4)Providing syndicate and development management services with respect to the 10 Kings Park Road Syndicate.  This involved a property at 10 Kings Park Road, West Perth, in respect of which there was an existing syndicate and for which KPI took over asset management in or around October or November 2011. The approximate capital value was said to be $22 million.[165]

   (5)Establishing and conducting the ongoing syndicate management of the Blackly Row Unit Trust in relation to which KPI became the asset manager (the establishment thereof primarily occurred over September to November 2010 with the property settling in November 2010).  This involved a property at 18 Blackly Row, Cockburn Central which was acquired with equity funding of $600,000 and a debt facility of $1.14 million,[166] meaning that the capital value was less than $2 million.  This project differed from the others as the Cranstons introduced some of the investors and John Cranston was the sole director of the relevant trustee company, Blackly Row Pty Ltd.[167]

   [162] Exhibit 1 TB3/1184.

   [163] Exhibit 1 TB3/1184.

   [164] Exhibit 1 TB3/1184.

   [165] Exhibit 1 TB3/1184.

   [166] Exhibit 1 TB3/1014.

   [167]ts 206, 355, 415 - 416, 431.

5. The fees thereby received by KPI were accepted to be:

13 Modal Crescent Property Syndicate
- Establishment / Capital raising	$117,000.00
- Syndicate management	$49,621.42
- Success fee (received 2017)[168]	$275,463.00[169]
Kingslane 432 Murray Street Trust
- Establishment	$421,000.00
- Capital raising	$38,500.00
- Asset management	$169,457.00
Kingslane 22 Delhi Street Trust
- Establishment	$255,000.00
- Capital raising	$25,000.00
- Asset management	$52,916.67
10 Kings Park Road Syndicate
- Syndicate / Asset management fee	$28,953.11
- Development management fee	$94,017.00
Blackly Row Unit Trust - Deferred management fee (although not paid for some years)[170]	$176,000.00

[168] ts 337.

[169] Exhibit 1 TB8/3601 - 3610.  In oral evidence Mr Weaver referred to an amount of a little over $300,000: ts 337.  However, he later referred to documentary evidence which establishes this figure: ts 341.

[170] ts 488.

1. Accordingly, in total, the fees so derived were slightly over $1.7 million.

2. The materials adduced in evidence included significant information as to the legal structures of the various syndicates and trusts.  It is unnecessary to refer to those materials.  I note, however, that as mentioned two of the projects involved the formation of trusts and the incorporation of two trustee companies - Kingslane 432 Murray Pty Ltd and Kingslane 22 Delhi Pty Ltd.  The directors of those companies were Mr Weaver, Evan Cranston and Mr Folland.  As to the 10 Kings Park Road Syndicate, another company was incorporated, Kingslane 10 Kings Park Pty Ltd, of which Mr Weaver and Mr Folland were the directors.

1. The 2010 to early 2012 discussions and dealings between Mr Weaver and the Cranstons as to remuneration and various loan agreements

1. It is necessary to spend some time outlining what occurred between Mr Weaver and the Cranstons from August 2010 onwards.  Warrington relies on those dealings as they are said to be consistent with, so as to be probative of, the existence of an intended remuneration agreement of the kind on which it relies.

2. I will approach these dealings and discussions by topic.

The $45,000 loan

1. I have already made mention of Mr Weaver's evidence-in-chief that he was advanced $45,000 following the settlement of the 13 Modal Crescent, Canning Vale property and the establishment of the syndicate in relation to that property.[171]

   [171] See par 62 above.

2. Mr Weaver's 18 February 2014 affidavit stated:

   In November 2010, following the settlement of 13 Modal Crescent, Canning Vale, in a meeting I asked [John Cranston] how I should be remunerated for my executive role in the establishment of the first syndicate.  [John Cranston] said the most flexible and tax effective way to be paid was to take money from the company and record it on the company balance sheet as a loan account, and later determine whether the loan should be converted to a consultancy payment, a payment to my super fund, or a dividend.  I said that I agreed with this.  [Evan Cranston] was not involved in these discussions.  Around the same time KPI advanced me $45,000.[172]

   [172] Exhibit 3 par 48.

3. The evidence is inaccurate and demonstrates an imperfect recollection on the part of Mr Weaver.  First, there were in fact a number of payments that together made up $45,000.[173]  Second, the payments were made in late February and late March 2011 rather than November 2010.[174]

   [173] Exhibit 4 par 18; Exhibit 11 par 50; ts 150 - 155.

   [174] Exhibit 4 par 18; Exhibit 11 par 50; ts 153 - 154.

4. Cross-examination exposed that Mr Weaver's evidence was reconstruction rather than recollection.  That is evident from the following passage:

   So was there a discussion about the $15,000 transfer? --- There would have been, yes.

   There would have been; do you recall a discussion? --- Not a specific discussion.

   Do you recall who that discussion was with? --- John Cranston.

   When was it? --- Prior to the money being advanced.

   What did you say to him? --- I needed money.

   So it had no connection to remuneration then? --- It had connection to the fact that the – it had connection to the fact that there was – there was money within the company prior to that and – and the agreement that we had was that – was that the – the – the reward for effort could commence when there was – there was funds available within the company.

   So you didn't just say to him that you needed money; you said something else, did you? --- I don't recall exactly what I had – what I said in that conversation.

   No.  So you have a clear recollection of telling him you needed money and a loan was made to you of $15,000; is that right? --- Yes.

   And is that effectively what occurred with the $30,000 transferred across 23 and 24 March 2011? --- Yes, I believe so.[175]  (emphasis added)

   [175] ts 152.

5. John Cranston denied that there was an arrangement between Mr Weaver and him that the $45,000 was to be recorded as a loan with specifics to be sorted out later.[176] 

   [176] ts 422.

6. It is common ground that the loans amounting to $45,000 were made.  As will be seen they were eventually discharged.  But in seeking the elimination of the loans in August 2012 Mr Weaver did not make reference to the suggested agreement between himself and John Cranston as recounted in his evidence‑in‑chief.  The most that Mr Weaver said was that there was an intention that the $45,000 would be converted to a dividend.  Given the inconsistencies in Mr Weaver's evidence‑in‑chief, and his lack of specific recollection as admitted in cross‑examination, I am not satisfied that there was a conversation between Mr Weaver and John Cranston to the effect that there should be later determination as to the characterisation of the payment as asserted in Mr Weaver's affidavit and reproduced in par 133 above.

Mr Weaver's 15 April 2011 email

1. KPI placed reliance on a 15 April 2011 email that Mr Weaver sent to Evan Cranston.[177]  The email was copied to John Cranston.  In the email Mr Weaver referred to a conversation between himself and Evan Cranston and obtaining some advice from Grant Thornton as to the structure for a self-managed super fund.  He then proposed that KPI issue additional ordinary shares to the funds for a cash payment.  But it was the following part of the email that counsel pointed to:

   [177] Exhibit 1 TB3/949 - 950.

   Special Class Shares

   The advice is that we can't then have a special class share to either ourselves or our family trust and use this to siphon dividends away from the company each year.  The shareholders (the SMSF's that will own 99.7% of the company eg 30,000/30,090) must get the dividends or the company won't pass the "arms length" rules under the SMSF guidelines.

   Profit Siphon

   The profit siphon that can occur before the distributions (if we don't want all the profit distributions going to the SMSF) can be made via either "bonuses" to directors, or paid to other companies (eg Warrington) as a "management fee"[178] 

   [178] Exhibit 1 TB3/950.

2. In cross-examination Mr Weaver refused to accept that the email appeared to be referring to each of Mr Weaver, Evan Cranston and John Cranston equally.  Mr Weaver suggested that the 'profit siphon' involved money to himself - or the directors or associated companies - prior to an equal split of dividends in accordance with shareholdings.[179]  However, that explanation is at odds with the comment that the profit siphon is to occur if the parties did not want all the profits going to the self‑managed super funds; they would share equally.  In any case the email makes no reference to the intended remuneration agreement.

   [179] ts 166.

3. Counsel for Warrington also relied on the email.  Counsel suggested that the email demonstrated that the parties understood that there was a live possibility of an unequal payment with respect to remuneration.[180]  In that regard, it was established in cross‑examination that neither Evan Cranston nor John Cranston responded to the email to disabuse Mr Weaver of the possibility of inequality in treatment or the payment of a management fee to Warrington.[181]

   [180] ts 491.

   [181] ts 361 - 362, 420 - 421.

4. I do not see the email as significant evidence in support of either party's case.  It may be read, as counsel for Warrington submits, in a way that is not inconsistent with the alleged intended remuneration agreement.  But insofar as it represents little more than an idea, I ascribe no importance to the lack of a response on the part of the Cranstons.  Similarly, it may be read as supporting equality in profit taking.  It should not be overlooked that the reference to Warrington receiving a management fee is preceded by reference to other companies (which might include companies associated with the Cranstons) and bonuses to directors.

1. The $100,000 per annum monthly payments ceased with effect from July 2013.  I consider that from that time it was inevitable that Mr Weaver would discontinue his role as the working director of KPI in the absence of some commercial arrangement being reached between him and the Cranstons.  There was nothing which obliged Mr Weaver to remain in his role as the working director of KPI.  Once Mr Weaver ceased to be involved in carrying out the executive functions of KPI, for the reasons described immediately above, KPI would not have retained its roles and derived ongoing fees in relation to the 13 Modal Crescent Property Syndicate, the Kingslane 432 Murray Street Trust and the Kingslane 22 Delhi Street Trust.

2. It follows that I accept counsel for Mr Weaver's contention that the loss as claimed has not been proved to have been caused by the breach of fiduciary duty I have found Mr Weaver to have committed.  KPI has not proved that but for the breach of fiduciary duty the loss would not have occurred.

3. Assuming, however, that I am wrong in my conclusion as to causation, it remains necessary for KPI to prove actual loss.  Counsel for KPI acknowledged that the evidence of loss and damage was scant.[638]  Counsel was correct to say that there was not a large amount of evidence.[639]

   [638] ts 474 - 475, 483.

   [639] ts 476.

4. There were said to be asset management fees payable in an annual amount of $180,000 ($15,000 as to the 13 Modal Crescent Property Syndicate and $165,000 as to the two Trusts).  KPI acknowledged that there would be costs incurred in earning those fees.  It was said, however, that allowing for costs there would be a loss of some $50,000 to $60,000 per annum.[640]

   [640] ts 483.

5. The documentary evidence, in the form of the constituent documents for the various syndicates and trusts, establishes that had KPI remained as manager or asset manager it would have earned annual fees.  The documents mention annual amounts of $15,000 for the 13 Modal Crescent Property Syndicate (after allowing for $15,000 payable to Grant Thornton),[641] $100,000 for the Kingslane 432 Murray Street Trust[642] and $65,000 for the Kingslane 22 Delhi Street Trust.[643]  Those amounts were subject to an annual compounded increase.  However, counsel for KPI did not rely on that feature.  In the absence of particularisation, and having regard to the way KPI put its case in closing, I find that the lost income - on KPI's case - was $180,000 per annum.

   [641] Exhibit 1 TB1/244.

   [642] Exhibit 1 TB2/801.

   [643] Exhibit 1 TB3/1047.

6. I am not satisfied, however, that KPI has proved on the balance of probabilities that the costs to it of performing the services to earn the annual management fees would have been less than the $180,000.  KPI has failed to meet its evidentiary onus in this respect.

7. After the parties had closed their cases I outlined the substantive issues for determination as I understood them to be.  One issue was whether KPI had suffered loss and damage and, if so, what.[644]  I invited the parties to provide me with evidentiary references to pinpoint where in the evidence there were materials in support of their case.  As to evidentiary references on loss and damage I suggested that I be directed to evidence as to specific amounts.[645]

   [644] ts 444.

   [645] ts 446.

8. Counsel for KPI, most helpfully, handed up a two page document with the evidentiary references relied on by KPI.  In terms of determining whether KPI has made good its case on loss and damage I have considered the evidentiary references as to Issue 8 (loss and damage) and Issue 10 (whether Warrington has profited).  Having considered those materials I am not satisfied that KPI has established on the balance of probabilities that the costs it would have incurred in earning the annual management fees would have been less than the $180,000.

9. Apart from the relevant constituent documents, the evidentiary references directed me to:

   (1)a passage of the cross-examination of Mr Weaver where he acknowledged that on Warrington establishing its own office 30% of the costs associated with its office manager and rent were billed to KPI[646] - presumably in support of an inference that this would be the sort of costs KPI might have incurred in earning the annual management fees.  The difficulty with that is that on the evidence these payments were only for administrative functions carried out for KPI rather than its role as asset manager;

   [646] ts 114.

   (2)the various resolutions for the replacement of KPI as asset manager;[647]

   [647] Exhibit 1 TB7/2957 - 2967, 3155 - 3156, 3157 - 3158.

   (3)two paragraphs of Evan Cranston's witness statement which referred to a series of invoices rendered by Warrington to KPI;[648] and

   [648] Exhibit 11 pars 48 - 49.

   (4)certain of those invoices.[649]

   [649] Exhibit 1 TB8/3638 (for property management supervision), 3639 (for rent), 3640 (for property management supervision), 3643 (for rent), 3699 (for rent), 3719 (for administration services), 3723 (for administration services).

10. Those materials go nowhere in establishing the likely costs KPI would have incurred in earning the annual management fees associated with the 13 Modal Crescent Property Syndicate, the Kingslane 432 Murray Street Trust and for the Kingslane 22 Delhi Street Trust.  I cannot be satisfied, simply by considering those materials, that the same or similar costs would have been incurred had KPI had to provide the services itself.  Indeed, the materials do not really allow a conclusion to be drawn as to the pre-replacement costs.  There is simply a gap or deficiency in the evidence as to what KPI's likely costs would have been.

11. KPI has not established on the balance of probabilities that it suffered any loss or damage by reason of any breach of fiduciary duty on the part of Mr Weaver.  That alone is sufficient to dismiss this aspect of the counterclaim against Mr Weaver.

1. Is Warrington liable as a knowing recipient?

1. A claim was advanced in terms of Warrington having accessorial liability as a knowing recipient.[650]  The claim was made as to 'any receipt of money' from Warrington's roles of asset manager for the Kingslane 432 Murray Street Trust or the Kingslane 22 Delhi Street Trust.[651]

   [650] Defendant's WS pars 35, 46 - 50; ts 98.

   [651] DAC pars 25, 27(a).

2. Accordingly, the question arises whether Warrington received any money as replacement asset manager for the Kingslane 432 Murray Street Trust or the Kingslane 22 Delhi Street Trust 'aware' that it did so as a consequence of a breach of fiduciary duty on the part of Mr Weaver owed as a director of KPI.  I am satisfied as to the knowledge component of the case insofar as Mr Weaver was the directing mind and will of Warrington.  There was, however, a legal submission advanced on the part of Warrington as to whether the 'any receipt of money' constituted receipt of property of KPI sufficient to invoke the first limb of Barnes v Addy.[652]

   [652] DAC par 25; RADC par 15; Plaintiff's Additional Notes for Opening Submissions dated 3 May 2018 par 34; ts 41 - 42, 81, 83, 88, 526 - 530.

3. Before turning to the legal question, there is an additional factual question; namely, whether in fact Warrington received any funds as a replacement manager.

4. This question was included as one of the issues on which I sought evidentiary references from the parties.[653]  KPI referred me only to the resolutions by which Warrington replaced KPI as manager or asset manager.[654]  That does not confirm that money was in fact received as replacement manager or asset manager; it confirms only that Warrington was appointed and ought therefore to have enjoyed the rights and entitlements as manager or asset manager.  On reviewing the transcript, however, it is evident that in the course of cross‑examination Mr Weaver confirmed that Warrington has received fees as replacement manager or asset manager in relation to the 13 Modal Crescent Property Syndicate and the Kingslane 432 Murray Street Trust.[655]

   [653] ts 444.

   [654] Exhibit 1 TB7/3155 - 3156, 3157 - 3158, 3225 - 3227.  The last reference appears to be an error; it directed me to an ASIC search in relation to KPI. 

   [655] ts 334 - 335.

5. Any money received in respect of the 13 Modal Crescent Property Syndicate is outside KPI's pleaded case; the pleading only raises the receipt of money as asset manager for the Kingslane 432 Murray Street Trust and the Kingslane 22 Delhi Street Trust.[656] 

   [656] DAC pars 22(b), 22(c), 25 - 26, 27(b).

6. There does not appear to be direct evidence that Warrington in fact received money as replacement asset manager in relation to the Kingslane 22 Delhi Street Trust.  Certainly there are no applicable evidentiary references in the evidentiary table as provided by KPI.  But the additional factual allegation is made good in relation to the Kingslane 432 Murray Street Trust; Mr Weaver has confirmed that Warrington continues to receive such fees.  And, as I note below, I am prepared to infer that fees were received as replacement asset manager of the Kingslane 22 Delhi Street Trust.  Accordingly, it is necessary to consider the legal contention advanced on behalf of Warrington.

7. Counsel for Warrington submitted that there was no disposition of any relevant property of KPI.  Thus it was said to be impossible to find that there was any receipt of property giving rise to liability under the first limb of Barnes v Addy.[657]  Counsel emphasised that such rights as were enjoyed by KPI as manager or asset manager were terminable by the investors and were in fact terminated.[658]

   [657] ts 41 - 42.  See also ts 527 - 528.

   [658] ts 41 - 42, 529.

8. In written submissions, counsel for Warrington also contended that what was allegedly received by Warrington was not pleaded as being property of KPI.[659]  That is undoubtedly correct.  The plea was as to money received from Warrington's role as replacement asset manager.[660]  It was never contended that such money was ever the property of KPI.

   [659] Plaintiff's Additional Notes for Opening Submissions dated 3 May 2018 par 34.

   [660] DAC pars 25, 27(a).

9. Counsel for KPI claimed that the choses in action, being the right to remuneration and fees under the various constituent agreements giving rise to the syndicates and trusts, constituted trust property disposed of for the purposes of the rule in Barnes v Addy.[661]  The relevant disposition was said to subsist in the 'cessation of the chose in action in the hands of' KPI that was subsequently taken up by Warrington.[662]

   [661] ts 97, 532.  Defendant's WS par 35.

   [662] ts 97 - 98.

10. Based on KPI's pleaded case the question need only be addressed in the context of the Kingslane 432 Murray Street Trust and the Kingslane 22 Delhi Street Trust. 

11. It will be recalled that KPI was replaced as asset manager in relation to the Kingslane 432 Murray Street Trust.  The Trust was established by a trust deed dated 29 March 2011 entitled 'Kingslane 432 Murray Street Trust - Trust Deed'.[663]  Within the trust deed provision was made for payment of an annual asset management fee to the asset manager (cl 17.3).[664]  Originally there was no provision for replacement of the asset manager.  However, in the circumstances I have recounted,[665] on 6 November 2013 members amended the trust deed to provide for a mechanism for removal of an appointee as asset manager: the then asset manager could be replaced by the members.[666]  On 6 December 2013 the members resolved that KPI be removed as asset manager and that Warrington be appointed as asset manager with immediate effect.[667]

    [663] Exhibit 1 TB2/770 - 819.

    [664] Exhibit 1 TB2/801.

    [665] See pars 246, 250, 254 - 256 above.

    [666] Exhibit 1 TB7/3073.

    [667] Exhibit 1 TB7/3157.

12. The factual position in relation to the Kingslane 22 Delhi Street Trust is essentially the same.[668]

    [668] See pars 246, 250, 254 - 256, 263 - 264, 474 above and par 508 below.

13. The rule in Barnes v Addy provides that a third party will be liable in relation to a trustee's breach of trust: (1) where the third party receives and becomes chargeable with some part of the trust property; or (2) where a third party assists with knowledge in a dishonest and fraudulent design on the part of the trustee.[669]

    [669] Barnes v Addy (251 - 252).

14. The first limb of the rule in Barnes v Addy is commonly described as involving 'knowing receipt': persons who receive trust property become chargeable if it is established they received the property with notice of the trust.[670]

    [670] Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 [112].

15. The term 'trust property' in modern jurisprudence on Barnes v Addy has a broader meaning than trust property in the strict sense.[671]  The term 'trust property' for the purposes of Barnes v Addy extends to property to which a fiduciary duty attaches and therefore to company property.[672]  Although a company is the absolute owner, and not the trustee, of its own funds, company funds are 'property' in the sense that word is used in Barnes v Addy because of the fiduciary character of the duties of the directors who control those funds.[673]

    [671] Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] [2008] WASC 239; (2008) 39 WAR 1 [4754]; Farah Constructions Pty Ltd v Say-Dee Pty Ltd [116] - [120].

    [672] Bell Group Ltd (in liq) v Westpac Banking Corporations [No 9] [4711].

    [673] Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296 [275].

16. A question thus arises as to whether the asset manager's entitlement to remuneration under the trust deed constituting the Kingslane 432 Murray Street Trust constitutes company property for the purposes of the first limb of the rule in Barnes v Addy.

17. In Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] Owen J said that where the relevant misfeasance by a director in dealing with company property was no more than a breach of fiduciary duty the conceptual basis under which that property comes to be regarded as trust property for the purposes of Barnes v Addy was difficult to discern.[674]

    [674] Bell Group Ltd (in liq) v Westpac Banking Corp [No 9] [4801].

18. In Farah Constructions Pty Ltd v Say-Dee Pty Ltd the High Court held that information is not property for the purposes of the first limb of Barnes v Addy.[675]  The relevant information in Farah Constructions Pty Ltd v Say‑Dee Pty Ltd was not confidential, but the court held that even confidential information is not property for the purposes of Barnes v Addy (although trade secrets might be).[676]  The High Court went on to reject a reformulation of the first limb of the rule in Barnes v Addy that would do away with the requirement for receipt of property in favour of receipt of a financial benefit.[677]  It thus remains the case that only proprietary benefits can constitute trust property for the purposes of the first limb in Barnes v Addy.[678]

    [675] Farah Constructions Pty Ltd v Say-Dee Pty Ltd [117].

    [676] Farah Constructions Pty Ltd v Say-Dee Pty Ltd [118].

    [677] Farah Constructions Pty Ltd v Say-Dee Pty Ltd [121].

    [678] Westpac Banking Corporation v Bell Group Ltd (in liq) [No 3] [2012] WASCA 157; (2012) 44 WAR 1 [2152].

19. In Grimaldi v Chameleon Mining NL (No 2) the court noted that '[i]t seems to be conceded that, even if an application for an exploration lease was not property and was not itself capable of being the subject matter of a constructive trust this would not preclude the imposition of a constructive trust on such a licence once granted' pursuant to the rule in Barnes v Addy.[679]  A mining licence held by a company has been characterised as property for the purposes of the first limb in Barnes v Addy,[680] as has the receipt of security interests in property.[681] 

    [679] Grimaldi v Chameleon Mining NL (No 2) [499].

    [680] Diamond Hill Mining Pty Ltd v Huang Jin Mining Pty Ltd [2011] VSC 288; (2011) 84 ACSR 616 [93] - [98].

    [681] Doneley v Doneley [1998] 1 Qd R 602, 611.

20. This suggests that a chose in action may constitute property for the purposes of Barnes v Addy.  A benefit conferred by a contract, such as the contractual right to fees and remuneration under the agreements to manage the various trusts and syndicates, can be characterised as a chose in action.[682]  As stated by Drummond AJA in Westpac Banking Corporation v Bell Group Ltd (in liq) [No 3], the meaning of the expression 'chose in action' has expanded and is used to describe all personal rights of property which can only be claimed or enforced by action and not by taking physical possession.[683]

    [682] Griffith v Pelton [1958] Ch 205, 225; Commissioner of Taxation (Cth) v St Helens Farm (ACT) Pty Ltd [1981] HCA 4; (1981) 146 CLR 336, 372 - 373, 434, 443 - 444; Australian Zircon NL v Austpac Resources NL [No 2] [2011] WASC 186 [132].

    [683] Westpac Banking Corporation v Bell Group Ltd (in liq) [No 3] [2157].

21. In Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] Owen J said that 'trust property' encompassed 'the basket or aggregation of rights' included within various contractual instruments.[684]  That position was upheld in Westpac Banking Corporation v Bell Group Ltd (in liq) [No 3] where Drummond AJA said that the rights created and conferred on the claimants by execution of various contractual instruments constituted choses in action that comprised property for the purposes of the first limb in Barnes v Addy upon their execution.[685]  His Honour considered that there is no justification for confining 'trust property' for the purposes of Barnes v Addy to tangible things.  'Trust property' can incorporate choses in action comprising incorporeal property not reducible into physical possession such as rights arising under a contract which are enforceable by action.[686]

    [684] Bell Group Ltd (in liq) v Westpac Banking Corp [No 9] [8750].

    [685] Westpac Banking Corporation v Bell Group Ltd (in liq) [No 3] [2158].

    [686] Westpac Banking Corporation v Bell Group Ltd (in liq) [No 3] [2156].

22. The term 'trust property' for the purposes of the first limb of Barnes v Addy will therefore encompass rights constituting a chose in action.

23. I thus accept KPI's contention that a chose in action may constitute trust property that may be disposed of and received for the purposes of the first limb of Barnes v Addy.  But that begs the question of whether there was such a disposal and receipt in the present case.  It is here that KPI's contention breaks down.  In the present case there was no transfer or assignment - or other disposal - of a chose in action from KPI to Warrington.  KPI's right to receive the annual asset management fee as asset manager under the trust deed was brought to an end by its removal as asset manager.  The right was terminated.  Warrington was appointed in place of KPI.  On appointment Warrington commenced to enjoy like rights to earn the annual management fee as was earlier enjoyed by KPI.  But there was no subsisting right of KPI to which Warrington succeeded: KPI's right under the trust deed had concluded.  Accordingly, in my opinion, there was no relevant disposition of property on the part of KPI and no correlative receipt of property on the part of Warrington.  Warrington did not receive property of KPI.

24. KPI's counterclaim alleging that Warrington has accessorial liability as a knowing recipient must fail.

25. To the extent that, as pleaded, the case was put in terms that Warrington received money from its role as asset manager with knowledge that it did so as a result of the breach of fiduciary duty, such money was self-evidently never 'trust property' of KPI which Warrington could receive and become chargeable within the first limb of the rule in Barnes v Addy.  On the wider case as run at trial I am not satisfied that there was any relevant disposition and receipt of a right to be paid an annual asset management fee as asset manager under the trust deed that governed the Kingslane 432 Murray Street Trust and the Kingslane 22 Delhi Street Trust.

1. Has Warrington profited?

1. The parties joined issue on whether Warrington had profited by reason of it replacing KPI as asset manager for the Kingslane 432 Murray Street Trust and the Kingslane 22 Delhi Street Trust.[687]

   [687] DAC par 26; RADC pars 15, 16.4.

1. The issue is redundant given my earlier conclusion that KPI's counterclaim against Warrington must fail.  The question was, however, the subject of closing submissions.  Accordingly, I will address the issue.  It should be appreciated, however, that the issue arose in the context of KPI's knowing receipt claim against Warrington.  KPI pleaded that Warrington was liable to account for all profits made from the receipt of the money it received from its role as asset manager for the Kingslane 432 Murray Street Trust and the Kingslane 22 Delhi Street Trust.[688]

   [688] DAC par 27(b).  See also DAC pars 26, 22(b) - (c).

2. I accept that Warrington received money as replacement asset manager of the Kingslane 432 Murray Street Trust.[689]  While it was not the subject of any admissions in cross‑examination I also infer that Warrington received money as replacement asset manager of the Kingslane 22 Delhi Street Trust.  The relevant trust deed provided for payment of an annual asset management fee.[690]

   [689] See pars 484, 486 above.

   [690] Exhibit 1 TB3/1047 (cl 17.3).

3. Counsel for Warrington submitted that KPI had not adduced evidence from which I could be satisfied that Warrington had made some profit as replacement asset manager.  Counsel referred to Agricultural Land Management Ltd v Jackson [No 2] (S).[691]  There, Edelman J declined to order an account of profits in circumstances where the plaintiff in that case had failed to prove loss and corresponding profits.  It was accepted by Edelman J that a plaintiff must plead that a profit has been made and that it followed that an account of profits should not be ordered where a plaintiff had pleaded, but failed to prove, that any profit was made.[692]

   [691] Agricultural Land Management Ltd v Jackson [No 2] [2014] WASC 102 (S).

   [692] Agricultural Land Management Ltd v Jackson [No 2] (S) [14].

4. I accept that there must be proof of some profit - albeit that the amount itself is uncertain or unquantified - if the court is to make an order for the taking of an account of profits.[693]

   [693] National Australia Bank Ltd v Rowe [2018] WASC 330 [72] - [73]. See generally at [59] - [69].

5. In closing counsel for KPI acknowledged that the court would need to be satisfied that there was 'some prospect' of profit.[694]  Earlier, counsel had referred to the evidence, while scant, as demonstrating 'at least the possibility of a profit.'[695]  I consider that this understates the relevant hurdle.  The applicant for an order for an account of profits must demonstrate that he, she or it is entitled to some amount from the accounting party, although the applicant is uncertain as to the quantum.  As is put in a leading text, the plaintiff 'must do more than demonstrate that the plaintiff might be owed some money, or that the plaintiff wants, as it were, to have a kind of general discovery' (emphasis added).[696]

   [694] ts 483.

   [695] ts 483.

   [696] J Heydon, M Leeming and P Turner, Meagher, Gummow & Lehane's Equity Doctrines & Remedies (5^th ed, 2015) [26.085].

6. In seeking to meet its evidentiary onus, counsel for KPI referred me to the materials that I have already addressed in considering KPI's case on loss and damage.[697]

   [697] ts 482 - 484.  See pars 476 - 479 above.

7. On the balance of probabilities I accept that Warrington would have received income from the two trusts of in the order of $165,000 per annum.[698]  I am, however, not satisfied that KPI has established on the balance of probabilities that the costs to Warrington of deriving that income would be less than $165,000 per annum (meaning that there would be some profit).  There is simply a deficiency in the evidence that means I cannot be satisfied that, having pleaded that Warrington has profited and will continue to profit by reason of the fees it has and will earn, KPI has proven that allegation.

   [698] See par 474 above.

8. At most, the evidence establishes that Warrington might have profited or - as counsel for KPI put it - there was a possibility of profit.  But that is insufficient to justify the remedy sought.

9. The issue might have been, but was not, explored in the course of Mr Weaver's cross‑examination.  For example, when there was questioning of Mr Weaver as to a proposal that Warrington take over the asset management role from KPI for 50% of the fees Mr Weaver volunteered that would have been 'loss making' for Warrington.[699]  In cross‑examination counsel for KPI also spent some time in pursuing a line of cross‑examination to the effect that as at March 2012 KPI had an operating shortfall when establishment fees and success fees were removed from expected revenues.[700]  I understood that this was pursued to counter Warrington's remuneration claim.  While this might explain, forensically, the choice not to conduct cross-examination designed to elicit whether Warrington had in fact profited, it is apparent that KPI could have but did not examine Mr Weaver with a view to making out its pleaded case on this question.

   [699] ts 316.

   [700] ts 204 - 209.  See also ts 94.

10. KPI has not satisfied me that Warrington has made some profit by reason of it replacing KPI as asset manager for the Kingslane 432 Murray Street Trust and the Kingslane 22 Delhi Street Trust.  Accordingly, even had the knowing receipt case been established, I would not have ordered the taking of an account of profits.

1. Ought Mr Weaver be relieved from liability for breach of fiduciary duty?

1. As a final line of defence, Mr Weaver invoked s 1318 of the Corporations Act 2001 (Cth). He argued that if there was a breach of any fiduciary duty that he owed as a director of KPI, he ought nevertheless be relieved from any liability to which he would otherwise be subject.[701]

   [701] RADC par 16.2.

2. I have found that Mr Weaver did breach his fiduciary duty to KPI. However, KPI has failed to establish its case on loss or damage. It is thus unnecessary to make any order under s 1318. Mr Weaver has no relevant liability. If, however, the question had arisen for determination, I would not have relieved Mr Weaver from liability by exercising the power under s 1318. I will briefly explain why that is the case.

3. Section 1318(1) of the Corporations Act 2001 (Cth) provides:

   If, in any civil proceeding against a person to whom this section applies for negligence, default, breach of trust or breach of duty in a capacity as such a person, it appears to the court before which the proceedings are taken that the person is or may be liable in respect of the negligence, default or breach but that the person acted honestly and that, having regard to all the circumstances of the case, including those connected with the person's appointment, the person ought fairly to be excused for the negligence, default or breach, the court may relieve the person either wholly or partly from liability on such terms as the court thinks fit. (emphasis added)

4. Case law considering s 1318 establishes the following general principles:

   (1)The purpose of the section is to excuse company officers from liability where it would be unjust and oppressive not to do so, recognising that company officers are business people whose roles involve risk in commercial decision-making.[702]

   [702] Daniels v Anderson (1995) 37 NSWLR 438, 525.

   (2)The court has a very wide discretion as to whether to grant relief under s 1318.[703]  However, the court should not lightly set aside the requirements of the Corporations Act 2001 (Cth) where they have not been observed.[704]

   [703] Daniels v Anderson (525).

   [704] Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418 [29].

   (3)When making a determination of whether to grant relief under s 1318 the court's focus is on the conduct of the officer, not on the outcome for the company.[705]

   [705] Orrong Strategies Pty Ltd v Village Roadshow Ltd [2007] VSC 1; (2007) 207 FLR 245 [790].

   (4)A person need not have obtained competent advice to be found to have acted honestly. However, obtaining such advice is a relevant consideration to whether a person ought to be excused under s 1318.[706]

   [706] Australian Securities and Investments Commission v Vines [2005] NSWSC 1349; (2005) 65 NSWLR 281 [43], [57].

5. KPI did not contend that Mr Weaver had acted dishonestly but said it remained necessary for Mr Weaver to prove that he had acted honestly.[707]  I accept that submission.  The section requires a positive finding that the defendant acted honestly.[708]  There ought to be consideration of:

   [707] ts 476.

   [708] Australian Securities and Investments Commission v Adler (No 5) [2002] NSWSC 483; (2002) 42 ACSR 80 [168].

   …whether the person has acted honestly in the ordinary meaning of that term, i.e., whether the person has acted without deceit or conscious impropriety, without intent to gain improper benefit or advantage for himself, herself or for another, and without carelessness or imprudence to such a degree as to demonstrate that no genuine attempt at all has been to carry out the duties and obligations of his or her office imposed by the Corporations Act or the general law.[709]

   [709] Hall v Poolman [2007] NSWSC 1330; (2007) 215 FLR 243 [325].

6. I accept that Mr Weaver obtained and acted on advice from Solomon Brothers.  But that alone is insufficient to establish honesty.  I have found that Mr Weaver's ultimate strategy was to bring about KPI's removal as manager or asset manager of the various syndicates and trusts (with the exception of the Blackly Row Unit Trust) with an accompanying intention that Warrington would become the replacement manager or asset manager.  For the reasons I have given Mr Weaver was acting to promote his and Warrington's interests.  I accept, as counsel for KPI submitted, that Mr Weaver was motivated by self-interest.[710]

   [710] Defendant's WS par 58.

7. Accordingly, I am not satisfied that Mr Weaver acted honestly for the purpose and within the meaning of s 1318. Rather, he had an intent to gain an improper advantage for himself and Warrington.

8. Even if, contrary to my view, it was found that Mr Weaver had acted honestly, consideration would have to be given to whether he 'ought fairly' to be excused for the breach.  This is said to involve a value judgment rather than the exercise of a discretion.[711]  The question is addressed by asking whether Mr Weaver has acted honourably, fairly, in good faith and in a common sense manner as judged by the standards of others of a similar professional background.[712]  The manner of the contravention is also considered.[713]  A broad range of matters and factors are relevant.[714]

   [711] Australian Securities and Investments Commission v Flugge (No 2) [2017] VSC 117; (2017) 342 ALR 478 [62].

   [712] Australian Securities and Investments Commission v Edwards (No 3) [2006] NSWSC 376; (2006) 57 ACSR 209 [10].

   [713] Advance Bank Australia Ltd v FAI Insurances Ltd (1987) 9 NSWLR 464, 491.

   [714] Australian Securities and Investments Commission v Flugge (No 2) [62] - [63] (the authorities cited in those paragraphs describe the relevant matters and factors).

9. It was always open to Mr Weaver to apply to wind up KPI on the basis of the breakdown in the relationship between him and the Cranstons.  Indeed, Solomon Brothers specifically advised Mr Weaver that this was an option - and a safer although more complicated and expensive way forward.[715]  While that advice was specific to KPI in relation to the 13 Modal Crescent Property Syndicate it was self‑evidently advice that was applicable across the board.  There was no satisfactory explanation as to why this course was not followed.  If Mr Weaver thought that - due to KPI's affairs being dysfunctional - the investors' interests were imperilled, this is a step that could have been taken without breach of duty.

   [715] Exhibit 1 TB5/2329.

10. I am not satisfied, in the circumstances I have recounted, that Mr Weaver should be excused for his breach of fiduciary duty.  While Mr Weaver obtained and acted on legal advice, the steps taken in breach of fiduciary duty were deliberate and undertaken to promote Mr Weaver's and Warrington's interests.  This cannot be characterised as a minor or inadvertent breach.  Mr Weaver knew that his proposed course of action involved a risk that the court may find him to be in breach of his duties as a director.  That is evident in the email of 13 November 2013.[716]  Mr Weaver was prepared to take that risk; and in so doing Mr Weaver was prepared to indulge in an artifice.[717]  Mr Weaver also knew that there were formal steps he could take in relation to the affairs of KPI which would avoid the risk of harm to harm to investors.  Instead of taking that course Mr Weaver elected to bring about what he had described in July 2013 as the 'ultimate strategy' - to remove KPI as manager and asset manager in circumstances where Warrington and he would benefit from that removal.

    [716] See par 266 above.

    [717] See par 267 above.

11. Mr Weaver's actions in bringing about the removal and replacement of KPI as manager and asset manager were motivated by self‑interest. Mr Weaver has, as I have found, sought to cloak the basis for his actions so as to better provide a legal justification for them.  In those circumstances it cannot be said that he acted honourably, fairly, in good faith and in a common sense manner.  Directors should not apprehend that actions of this type will be sanctioned by the court.  The present case is not one in which Mr Weaver's breach of fiduciary duty ought fairly be excused.

1. Conclusion

1. Warrington's action will be dismissed.  KPI's counterclaim against Mr Weaver in relation to the $350,000 loan succeeds to the extent of $290,000.  Otherwise KPI's counterclaim fails.

2. Subject to hearing from counsel as to the precise terms, I will order that judgment be entered as follows:

   (1)The plaintiff's action is dismissed.

   (2)The first defendant by counterclaim, Christopher Weaver, pay the plaintiff by counterclaim, Kingslane Property Investments Pty Ltd, the amount of $290,000 together with interest thereon calculated at the rate of 6% per annum from 17 December 2013 to the date of judgment.

   (3)The counterclaim is otherwise dismissed.

3. I will hear from counsel as to costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

AD
Associate to the Honourable Justice Vaughan

10 JANUARY 2019