Western Areas Exploration Pty Ltd v Streeter [No 3]

[2009] WASC 213

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION:   WESTERN AREAS EXPLORATION PTY LTD -v- STREETER [No 3] [2009] WASC 213

CORAM:   EM HEENAN J

HEARD:   23-27 MARCH, 30-31 MARCH, 1-3, 6-9, 14‑16 APRIL 2009

DELIVERED          :   31 JULY 2009

FILE NO/S:   CIV 2126 of 2006

BETWEEN:   WESTERN AREAS EXPLORATION PTY LTD (ACN 076 025 066)

Plaintiff

AND

TERRENCE ERNEST JAMES STREETER
First Defendant

DAVID CHARLES COOPER
Second Defendant

JUNGLE CREEK GOLD MINES PTY LTD (ACN 008 795 033)
Third Defendant

Catchwords:

Corporations - Directors - Fiduciary duties - Breach - Diversion of corporate opportunities - Directors of plaintiff also directors of another corporation - Other corporation obtaining via the plaintiff and promoting a development for flotation of a mining company for nickel exploration - Remedies - Constructive trust - Scope for directors of competing company to promote their own interests or that of the other company - Mining tenements of plaintiff company sold by directors to the new company in return for allotment of shares to plaintiff and to a company associated with one of the directors - Opportunity to acquire balance of interest in joint venture by the plaintiff in certain mining tenements diverted by director to his private company - Measure of relief - Claims for apportionment of profits and/or just allowances for efforts of errant fiduciaries in successfully promoting new company - Shares and options taken by directors personally or in a private company - Interest or other allowances for money paid on subscriptions for shares taken and options exercised - Value of shares in new company substantially enhanced by subsequent acquisition of very successful nickel mine - Joint and several liability of defaulting fiduciaries

Legislation:

Nil

Result:

A.     If the plaintiff so elects:

1.      Declaration that the third defendant holds 10,675,000 shares in WANL upon constructive trust for the plaintiff subject to a charge upon those shares to secure payment to the third defendant by the plaintiff of $1,590,000 plus interest thereon for the capital advanced by the first and third defendants for the acquisition of those shares.

2.      Order that upon satisfaction by the plaintiff by payment of the amount charged upon those shares the third defendant take all necessary steps to transfer 10,675,000 shares in WANL to the plaintiff.

3.      Declaration that the second defendant is bound to deliver 400,000 shares in WANL to the plaintiff subject to payment to the second defendant by the plaintiff of $160,000 plus interest thereon for the capital advanced by the second defendant for the acquisition of those shares.

4.      Order that upon satisfaction by the plaintiff by payment of $160,000 plus interest the second defendant take all necessary steps to transfer 400,000 shares in WANL to the plaintiff.

5.      There be liberty to all parties to apply to determine the amounts of interest payable under pars 1 and 3. 

B.     Alternatively to 1 to 5 (inclusive) above, but only if the plaintiff so elects:

6.      The first, second and third defendants do pay to the plaintiff compensation in an amount equal to the market value on the ASX of 11,075,000 shares in WANL at the date of judgment less the sum of $1,750,000 plus interest thereon for the capital advanced by the defendants for the acquisition of the 11,075,000 shares in WANL which they acquired.

7.      There be liberty to all parties to apply to determine the amount of interest payable on the sum of $1,750,000.

8.      There be liberty to the defendants to apply to determine in what proportions as between themselves each should contribute to their joint and several liability to the plaintiff.

Category:    A

Representation:

Counsel:

Plaintiff:     Mr M L Bennett & Mr M A MacLennan

First Defendant              :     Mr C L Zelestis QC & Mr M D Howard

Second Defendant         :     Mr C L Zelestis QC & Mr M D Howard

Third Defendant            :     Mr C L Zelestis QC & Mr M D Howard

Solicitors:

Plaintiff:     Lavan Legal

First Defendant              :     Maxim Litigation Consultants

Second Defendant         :     Maxim Litigation Consultants

Third Defendant            :     Maxim Litigation Consultants

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

Aas v Benham [1891] 2 Ch 244

ASIC v Rich [2003] NSWSC 85; (2003) 44 ASCR 341

ASIC v Vines [2003] NSWSC 1116; (2003) 48 ACSR 322

Attorney‑General (Hong Kong) v Reid [1994] 1 AC 324

AWA Ltd v Daniels t/as Deloitte Haskins & Sells (1992) 7 ACSR 759

Bell v Lever Brothers Ltd [1932] 1 AC 161

Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66

Boardman v Phipps [1967] 2 AC 46

Breen v Williams (Medical Records Access Case) (1996) 186 CLR 71

Canadian Aero Service Ltd v O'Malley [1974] SCR 592; (1973) 30 DLR (3d) 371

Chillingworth v Chambers [1896] 1 Ch 685

Clambake Pty Ltd v Tipperary Projects Pty Ltd (No 3) [2009] WASC 52

Clegg v Edmondson (1857) 8 De GM & G 747

Commonwealth Oil and Gas Co Ltd v Baxter [2007] Scott CS CHOH 1

Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373

Cook v Deeks [1916] AC 554

Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (1995) 37 NSWLR 438

David Securities Pty Ltd v Commonwealth Bank of Australia (Swiss Franc Case) (1992) 175 CLR 353

Dunn v CTK Engineering Pty Ltd [2002] NSWSC 365

Dwyer v Backpackers R Us Co Pty Ltd (2004) 50 ACSR 333

Eastland Technology Australia Pty Ltd v Whisson [2005] WASCA 144

Erlanger v The New Sombrero Phosphate Company (1878) 3 App Cas 1218

Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 2) [2001] NSWCA 115

Foley v Farrell (1933) 36 WALR 46

Foster Bryant Surveying Ltd v Bryant [2007] EWCA Civ 200

Green & Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1

Harris v Digital Pulse Pty Ltd [2003] NSWCA 10; (2003) 56 NSWLR 298

Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41

In Plus Group Ltd v Pyke [2002] EWCA Civ 370

Industrial Development Consultants Ltd v Cooley [1972] 2 All ER 162

Jones v Dunkel [1959] 101 CLR 298

Keech v Sandford (1726) Cas temp King 61; (1726) Eq Cas Abr 741; [1558 ‑ 1774] All ER Rep 230; (1726) 25 ER 223

Liggett v Kensington [1993] 1 NZLR 257

Lingard v Bromley (1812) 1 V&B 114; 35 ER 45

Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548

London & Mashonaland Exploration Co v New Mashonaland Exploration Co [1891] WN 165

Mark Moncrief Stevens v Premium Real Estate Ltd [2009] NZSC 15

Mayfair Trading Co Pty Ltd v Dreyer (1958) 101 CLR 428

Mordecai v Mordecai (1988) 12 NSWLR 58

New Zealand Netherlands Society 'Oranje' Inc v Kuys [1973] 2 All ER 1222

Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1

On The Street Pty Ltd v Cott (1990) 101 FLR 234; (1990) 3 ACSR 54

Orr v Ford (1989) 167 CLR 316

Peso Silver Mines Ltd v Cropper (1966) 58 DLR (2d) 1

Phipps v Boardman [1964] 1 WLR 993

Queensland Mines Ltd v Hudson (1978) 18 ALR 1

Rainskill v Edwards (1885) 31 Ch D 100

Re Broadcasting Station 2GB [1964 ‑ 5] NSWR 1648

Re City Equitable Fire Insurance Co Ltd [1925] Ch 407

Re Jarvis (Dec'd) [1958] 2 All ER 336

Rosetex Co Pty Ltd v Licata (1994) 12 ACSR 779

SEA Food International Pty Ltd v Lam (1998) 16 ACLC 552

The Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] & Ors [2008] WASC 239

University of Western Australia v Gray [2008] FCA 498; (2008) 246 ALR 603

Victoria University of Technology Inc v Wilson (2006) 68 IPR 597

Victoria University of Technology v Wilson [2004] VSC 33; (2004) 60 IPR 597

Warman International Ltd v Dwyer (1995) 182 CLR 544

TABLE OF CONTENTS

Introduction:
The principal issues
The related issues
Liabilities of fiduciaries for diversion of corporate opportunity
The scope of the duty generally
The defence - a change of position
Identifying the nature and content of the fiduciary duties owed to the plaintiff by the first two defendants
The particular circumstances of the plaintiff
The need for 'real and sensible' conflict
Prescriptive and proscriptive obligations
The position of executive and non-executive directors
The corporate architecture of WAE
Contractual limitations
Available remedies

An account
The relief sought by the plaintiff - a constructive trust
Adjusting the constructive trust - equitable charge or lien
Account of profits or compensation

The issues of fact - the evidence generally

The history of WAE - Bloodhound Gold
Western Areas Exploration NL
Messrs Streeter and Cooper become directors of WAE
Mr Streeter's Background
The ANPC proposal
Proposed capital reconstruction of WAE
The Cue tenements
The caveats

Affirmation by the plaintiff - the Cue tenements transaction
Mr Streeter's conduct
The ANPC syndicate
Similality of objectives
Meetings between Brailey and various ANPC personnel
The ANPC people meet Mr Streeter
The sequence and purpose of meetings
The purpose of including the Cue tenements
The new company structure
Mr Cooper's position
Use of the name Western Areas NL
Draft agreement - Cue tenements
The draft chairman's letter
The significance of the draft chairman's letter
The ANPC proposal - an opportunity for WAE
The veil of concealment
The proposal to liquidate WAE
July 2000 IPO for WANL
The breaches of fiduciary duty
Just allowances or apportionment of profits
The Forrestania effect
History of the ANPC tenements and the Cue tenements after July 2000
Progress and development of the Forrestania project by WANL
Contest for the control of the plaintiff - the removal of Messrs Streeter and Cooper from the board - 2006
Credit of witnesses
Laches, acquiescence and delay
Factors affecting relief claimed

Inability of the fiduciary to profit
Just allowances - apportionment of profits
The constructive trust - its purpose
The basis for calculating allowances

Allowances based on the amount of capital introduced - the multiplier effect
Method of accounting for profits
Relief to be granted

1. EM HEENAN J:  These reasons begin with a broad outline of the events which have generated this litigation and of the principal questions of law which the parties contend arise from their dispute.  Inevitably, the facts in issue are complicated and extensive leading to corresponding intricacy in the legal submissions which the parties have advanced.  This calls for an initial analysis of the facts and an examination of the legal principles which are said to apply to them before dealing with the evidence on contentious issues in detail.  This necessarily involves some repetition but this preliminary outline is drawn from the findings of facts which have been made after the later, more elaborate, consideration of the evidence.

Introduction:

1. The plaintiff is a junior exploration company formed by its promoters with a view to securing interests in various mining tenements, originally for gold and later for nickel, in established mining areas in the central and northern goldfields region.  When incorporated the plaintiff was known as Bloodhound Gold NL and, under that name, attempted to secure an interest in mining tenements prospective for gold and to become listed on the Australian Stock Exchange (ASX).  Little came of those efforts and by 1997 it had changed its name to Western Areas Exploration NL (WAE) and was instead pursuing the acquisition of various interests in mining tenements for nickel, although it was still alert to the opportunities to acquire areas prospective for gold.  It is not uncommon to find gold and nickel mineralisation occurring in close proximity.  In need of capital or loan funds, it later attracted the interest of the first defendant, Mr Terrence Ernest James Streeter (Mr Streeter) who also had an ambition to become involved in a successful mineral exploration company and its development.  Mr Streeter and his accountant and associate, Mr David Charles Cooper (Mr Cooper) joined the board of the plaintiff and before long had effectively been granted the control of the plaintiff because of Mr Streeter's apparent readiness to invest funds.

2. Another director of the plaintiff at this time, and the one‑time chairman of the plaintiff, was Mr Lex Howard John Brailey (Mr Brailey) who, until the events which led to this litigation, appears to have enjoyed a good working relationship and a harmonious association with Messrs Streeter and Cooper.  From the time when Mr Streeter first became associated with the plaintiff, in about February 1998, the mutual objective remained the same, namely to list the company on the ASX and to conduct an initial public offer (IPO) to raise sufficient funds to undertake an exploration programme upon mining tenements which the plaintiff had obtained or which it might obtain.

3. In late November and early December 1999 a group of geologists calling themselves Australian Nickel Project Consultants (ANPC) established contact with Mr Brailey, and then with Messrs Streeter and Cooper, with the idea of raising capital to promote the formation or acquisition of a public company listed on the ASX to undertake the testing and, if thought appropriate, the development of a suite of mining tenements for gold and nickel which the ANPC group had themselves assembled. 

4. It is the plaintiff's case that the ANPC personnel first approached Mr Brailey who, recognising this as a potentially significant opportunity for the plaintiff, referred them to Mr Streeter.  There is no doubt that the ANPC personnel then met with Mr Streeter, and later with Messrs Streeter, Cooper and other financial advisers, leading to Mr Streeter becoming interested in participating in and promoting the exploration opportunity proffered by the ANPC approach.  According to the plaintiff, this opportunity came to Mr Streeter and Mr Cooper because of their association and connection with the plaintiff and at the direction of Mr Brailey.  The plaintiff characterised this as a WAE opportunity and it is clear that, in the initial stages, serious attention was given by Messrs Streeter and Cooper to using WAE as the vehicle to acquire the ANPC tenements, to become listed on the ASX, and to develop the project. 

5. As negotiations proceeded between Messrs Streeter, Cooper and the ANPC personnel and their financial consultants the structure of the project changed.  A newly formed company, Western Areas NL (WANL) was  incorporated, the ANPC tenements were to be transferred or assigned ('vended into') the new company, seed capital was to be provided by Mr Streeter or his associated private company, Jungle Creek Gold Mines Pty Ltd (Jungle Creek) and there was to be an IPO to raise capital for the planned exploration and development programme.  Not until all this was a fait accompli in February 2000 did Messrs Streeter, Cooper or any of their associates disclose to Mr Brailey or to the plaintiff that such a scheme of promotion was afoot.  Until late January 2000 Mr Brailey had been under the understanding and expectation that the assessment and implementation of the ANPC proposal was under consideration by Mr Streeter for and on behalf of the plaintiff.  When he learned that the opportunity had been taken up by Messrs Streeter, Cooper, the ANPC personnel and others through the formation of a new company (WANL) he became angry, refused to lend assistance to the proposal and resigned as a director of the plaintiff. 

6. Mr Streeter was in effective control of the plaintiff from about March 1998 onwards and he continued in control of the plaintiff throughout the critical period when this new project was under investigation and adoption and for years afterwards until August 2006, when he and Mr Cooper were removed as directors of the plaintiff at an extraordinary general meeting (EGM) convened by Mr Brailey and some of his colleagues and supporters.

7. Meanwhile, the IPO for the new company, WANL, had been successfully completed and the company was listed on the ASX on 26 July 2000 with Messrs Streeter and Cooper as directors and with three of the ANPC geologists either co‑directors or senior executives. 

8. It will be necessary later to examine in detail the capital and other contributions made by Mr Streeter, his company Jungle Creek and by Mr Cooper to the flotation of WANL.  For the present, it is sufficient to mention that on the float of WANL Mr Streeter or Jungle Creek was offered the opportunity to acquire 4,500,000 shares in WANL credited as being fully paid at 20 cents but at a discount of two-thirds; that is, at 6.66 cents per share.  Mr Streeter also received 400,000 options to acquire fully paid shares in WANL at an exercise price of 40 cents on or before 31 March 2004.  Mr Cooper received 400,000 options to acquire fully paid shares at an exercise price of 40 cents per share on or before 31 March 2004. 

9. In return for Mr Streeter investing $300,000 in seed capital in WANL, and at his direction, Jungle Creek received a further 5,625,000 options to acquire shares at an exercise price of 20 cents on or before 31 March 2004.  Jungle Creek also received 150,000 shares for the transfer of its interests in certain applications for exploration licences over areas near Cue ('the Cue tenements').

10. In due course, Messrs Streeter and Cooper personally or through associated companies each exercised their March 2004 options so acquiring an additional 400,000 shares each in WANL as at February 2004.  Similarly, Jungle Creek exercised its options to acquire shares in WANL at 20 cents before March 2004 and thereby acquired an additional 5,625,000 shares. 

11. The parts of the present holdings of the defendants or their associated companies in WANL which are derived from these initial allotments of shares and options are:

    Mr Streeter  (through Jungle Creek)             400,000 shares

    Mr Cooper (200,000 personally and

    200,000 through Fidene)           400,000 shares

    Jungle Creek  4,500,000 shares

    Jungle Creek  5,625,000 shares

    Jungle Creek       150,000 shares

    Total Allotment  11,075,000 shares

12. The sale of Jungle Creek's interest in the Cue tenements to WANL, how Jungle Creek came by that interest, and the origin of the Cue tenements must be stated to appreciate the nature of the plaintiff's claim in respect of that share allotment.  The deal is somewhat complicated and will be described more fully later.  Here a thumbnail sketch will suffice. 

13. Before the approaches from the ANPC personnel in November and December 1999 WAE had an interest in three applications for goldmining exploration areas (EAs)  near Cue in the north-eastern goldfields.  In 1998 the plaintiff was associated in a joint venture with another company, Golden Granite Mining Ltd (Golden Granite) in a 70%‑30% joint venture which had applied for those three EAs at Cue.  Collectively these formed one of the prospects which the promoters of WAE were advancing in its unsuccessful attempts at listing during 1997 and 1998.  Ultimately, only one of the EAs was approved and granted but the interests in all the applications were held in the joint venture between the plaintiff and Golden Granite.

14. In early 2000 Golden Granite was looking to dispose of its 30% interest in this joint venture and had offered it for sale to Mr Streeter for $5,000,  but at that stage, until WAE's future direction had been agreed upon and finance secured, Mr Streeter was not willing for the plaintiff to acquire the Golden Granite interest in the Cue tenements.  Again, for reasons which can be left until later, the negotiations between Mr Streeter and Mr Cooper with the ANPC personnel led to a proposal that the plaintiff, WAE, would vend into the new company the whole of the available interests in the Cue tenements in return for an allotment of vendor shares to WAE.  At that point, however, the plaintiff only had a 70% interest in the Cue tenements but there was this opportunity to acquire the remaining 30% from Golden Granite and so to sell the entirety to WANL as proposed in return for vendor shares.  However, that is not what happened. 

15. Aware that the Golden Granite interest in the Cue joint venture was available for purchase, Mr Streeter arranged for another one of his companies, Meeka Star Mines Pty Ltd, to purchase the 30% interest in the joint venture from Golden Granite and then to assign that 30% interest to his other company, Jungle Creek.  Accordingly, when it came to the implementation of the flotation of the new proposal for WANL,  the original plan for WANL to acquire 100% of the Cue tenements was achieved but only 70% was purchased from the plaintiff and the remaining 30% was acquired by WANL from Jungle Creek in return for the allotment of 150,000 vendor shares to Jungle Creek.

1. The plaintiff contends that this process, by which Jungle Creek derived the 30% interest in the Cue tenements and sold them to WANL in return for vendor shares, was another diversion or misuse of a commercial opportunity which effectively belonged to the plaintiff and that by taking up this opportunity while a director of the plaintiff, Mr Streeter acted in breach of fiduciary duties.  It is further alleged that Jungle Creek was a knowing participant and recipient of the benefits of that breach of duty.

2. It is in this way that the plaintiff contends that the various acquisitions of shares, options, and the conversions of options to shares by the three defendants, Mr Streeter, Mr Cooper and Jungle Creek are benefits derived from breaches of fiduciary duties owed towards the plaintiff by Messrs Streeter and Cooper and that, as a consequence, all those shares should be declared to be held as the subject of a constructive trust or trusts for the benefit of the plaintiff.

3. There is a further series of developments the significance of which is much in controversy.  After the successful flotation of WANL, the seven projects which had been vended into the company at the introduction of the ANPC personnel and the single EA at Cue derived from the plaintiff and from Golden Granite were the subject of investigation and exploration by the new company.  Various works were undertaken and money spent in exploring and assessing those prospects but nothing of immediate interest was discovered.  Consequently, one by one, four of those seven various prospects were either allowed to lapse or were disposed of to other unrelated parties.  

4. During this period, in or about late 2002, one of the original ANPC geologists, Mr Terry Grammer, who is plainly an extremely acute and successful exploration geologist, noticed that certain mining tenements, predominantly for nickel, located at Forrestania (south‑west of Southern Cross) were being offered for sale.  He was interested in the Bounty mine which had been operated by Viceroy Mining Co in conjunction with a well‑known Finnish mining house, Outoukumpo Mining.  This was being offered for sale by the administrator.  The history was that Outoukumpo and Viceroy had been engaged in successful nickel mining operations at Forrestania for a number of years but Outoukumpo had decided to withdraw from mining operations in Australia.  This left it uneconomic for Viceroy to continue.  It seems that the views of the Outoukumpo and Viceroy personnel, and for that matter the administrator, were that most of the payable nickel reserves at Forrestania had by then been exhausted.  In the result, WANL acquired the interests in the Forrestania tenements originally held by Viceroy and by Outoukumpo in a series of transactions which can be described later.  It then set out upon a new programme of exploration and evaluation of the Forrestania tenements and, within a period of less than four years, discovered that those tenements contained some of the richest and highest grade nickel sulphide deposits in Western Australia and were an enormously attractive mining prospect. 

5. From then on the success of WANL has been nothing less than spectacular.  Over a period of less than four years it went from being a small exploration company with a total capital of approximately $7 million to a major miner producing high grade nickel sulphide concentrate with a market capitalisation of more than $900 million.  This progress towards becoming a large scale miner and producer required many subsequent capital raisings, placements and loans, but all that was successfully undertaken and now WANL, with one of the original ANPC geologists, Mr Julian Hanna, as its managing director and with Messrs Streeter and Cooper as board members, is a large successful nickel producer.

6. During the period from July 2000 until April 2009 the values of the shares in WANL have risen from 21 cents, with a low of 14 cents in June 2001, to a peak of $11.65 on 12 May 2008 before the marked decline associated with the global financial crisis which has occurred more recently.  In March and April 2009 they were in the region of $3.50 or above during the course of this trial.  Since the trial they have appreciated even more.  This is despite the fact that the number of shares on issue in WANL has increased dramatically.

7. The defendants contend that these vast appreciations in the value of WANL shares are due almost entirely to the discovery and successful development of the Forrestania project and that, if they are under any liability to the plaintiff, which they deny, there is no occasion for the plaintiff to secure relief which would have the effect of delivering to it such a windfall profit because, were that to occur, the plaintiff would become unjustly enriched at their expense.

The principal issues

1. The principal issues in this litigation are: 

   1.Were Messrs Streeter and Cooper under fiduciary duties to the plaintiff which precluded them from taking for their private benefit and the benefit of Jungle Creek the allotment of shares and options in WANL in 2000? 

   2.Was there a wrongful diversion of a corporate opportunity for the acquisition of the 30% interest held by Golden Granite in the Cue tenements by Jungle Creek so as to make Jungle Creek accountable to the plaintiff for the 150,000 shares which it was allotted in consideration of the assignment of its 30% interest in the Cue tenements? 

   3.Was the ANPC proposal introduced to Messrs Streeter and Cooper by reason of, because of, or in association with, their roles as directors of the plaintiff so as to render it a breach of fiduciary duty for them to take up and exploit that opportunity rather than make it available to the plaintiff? 

   4.If there has been any such breach of fiduciary duty, is the remedy of a constructive trust available in relation to any or all of the 11,075,000 shares now held by the defendants in WANL and, if so, should some allowance be credited to the defendants for the capital which they expended in acquiring those shares and in exercising the options, with or without interest? 

   5.Should there be any other or additional allowance for the skill, effort and risk involved in that enterprise?  In particular, should any form of relief, for the plaintiff, in the event that it establishes liability by the defendants, be circumscribed because of the vast appreciation in the value of the WANL shares due to the subsequent fortuitous success of the Forrestania project?  (At market prices current at the trial the approximate value of those 11.075 million shares in WANL held by the defendants was in the region of $42 million and it has since increased.)

2. When it comes to the question of whether some form of just allowance should be credited to the defendants, and in particular, to Mr Streeter and Jungle Creek, for the roles which they played in the successful development of the Forrestania project for WANL various related issues arise.    The plaintiff draws attention to the many additional share issues subsequently offered by WANL to shareholders, including the defendants, sometimes consisting of special placements, and to executive remuneration paid by the company to Messrs Streeter and Cooper, among others, for their roles in managing, guiding and implementing the success of that company.  These monetary benefits for Mr Streeter in the years from 2000 to 2008 (including superannuation) are put at $528,000, and additional options to take up a further 1.6 million shares.  In Mr Cooper's case over the same period there was total monetary remuneration (including superannuation) of $501,870 and additional options to take up 1.6 million shares. 

3. The plaintiff contends that these payments and benefits constitute remuneration for the performance of the very services in respect of which the alleged errant fiduciaries are claiming just allowances.  Furthermore, Mr Streeter and Mr Cooper each acquired many additional shares in WANL through the new issues, rights issues and placements already mentioned so that, by June 2008, the latest available annual report of WANL disclosed that Mr Streeter, either alone or in combination with Jungle Creek, held a total of 33 million shares or thereabouts in WANL and Mr Cooper a total of 1.334 million or thereabouts, so that each has independently derived great additional benefit and value from the success of Forrestania.

The related issues

1. There are several other issues which need to be described before undertaking a detailed review of the evidence.  The first is the contention by Mr Streeter, and by Mr Cooper, that the plaintiff, WAE, would never have been able itself to take up the opportunity to promote the opportunity presented by the ANPC personnel in late 1999.  They say that this is so for various reasons.  These include the assertion that by late 1999 WAE was a 'failed company', in that it had lost all, or most, of its original capital in unsuccessful attempts to become listed and to conduct an IPO in 1997 and again in 1998; that it could not afford to discharge the expenditure obligations for the various mining tenements in which it held interests; that there was no prospect of it securing any underwriting support for an IPO which was then considered essential to achieve an ASX listing; that its principal shareholders were unwilling to inject any further capital; and that it was indeed on 'life support', being entirely dependent upon loans provided by Mr Streeter after his introduction to the company in March 1998. 

2. Mr Streeter and Mr Cooper also contend that, with an issued capital of about 9.1 million shares by mid‑1998, there was no reasonable opportunity of an IPO or a significant investment by a major capital backer without a major reconstruction of the share capital and a reduction of 10 to 1 or 20 to 1 of the shares on issue because, if that did not occur, any investor would in effect immediately suffer a major dilution of the capital invested to the advantage of the existing shareholders. 

3. The defendants also contend that, for these and other good reasons, the ANPC personnel were of the mind, after receiving competent and cogent advice from their corporate advisors, that the promotion of their project would best be undertaken by a new company formed afresh for the purpose so that the ANPC personnel would almost certainly have rejected any proposal which involved WAE being the vehicle for the promotion of their project and the necessary IPO.

4. In response, the plaintiff says that the admitted financial stringencies which were handicapping WAE during 1999 were due entirely to the fact that Mr Streeter had not fulfilled his promise to subscribe $250,000 of capital to the company which he had made in March 1998.  Mr Streeter had instead only contributed relatively modest amounts totalling $70,000 or $85,000 which he was treating as loans to the company convertible to shares if and when he chose to make the conversion. 

5. The plaintiff contended, and adduced evidence from various of the original shareholders and promoters of WAE, that those shareholders were men of substance who could quite readily have raised and contributed an aggregate of $300,000 or more as additional capital for the plaintiff if requested to do so when presented with a sufficiently attractive plan to proceed to a listing and an IPO.  The plaintiff also maintained that, so far as a reconstruction of the company was desirable, legal advice had already been obtained and accepted by WAE as to how such a reconstruction could occur.  This included how approval could be obtained from the shareholders for Mr Streeter's shareholding to go beyond the 20% takeover threshold without the need for a full takeover offer to be made so as to render WAE a suitable vehicle to proceed to an IPO and a listing. 

6. Despite all that, or perhaps in addition to it, the plaintiff emphasises that a fiduciary will not escape liability for the misuse or breach of fiduciary obligations merely by establishing that his principal could not, for any reason, have availed of the opportunity which was presented to the fiduciary:  Boardman v Phipps [1967] 2 AC 46 and Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373.

Liabilities of fiduciaries for diversion of corporate opportunity

1. In Green & Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1, dismissing the appeal by the errant fiduciary, Burt CJ said:

   Many of the 'knowledge' and 'opportunity' cases, including Boardman v Phipps [1967] 2 AC 46, which is a leading case, would seem to require that the benefit to be accounted for be acquired by the use of both the knowledge or the opportunity or of one or other of them. That is the way in which it is put by Lord Hodson in the extract from his speech which I have already reproduced ([1967] 2 AC 105). It is an idea which runs throughout the cases. The liability to account is said to attach to 'those, who by use of a fiduciary position make a profit'; Lord Russell of Killowen in Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134, 144. The liability is said to be to 'account for profits acquired by him by reason of his fiduciary position or by reason of the opportunity and the knowledge, or either, resulting from it': Lord Wright in the Regal case, supra, at 154. Or, as Lord Porter put it in that case (at 158): 'The legal proposition may, I think, be broadly stated by saying that one occupying a position of trust must not make a profit which he can acquire only by use of his fiduciary position, or, if he does, he must account for the profit so made'. And many more statements to the same effect could be extracted from the cases.

   The question, however, remains, it being whether it is necessary for a plaintiff claiming an account to prove, that is to say to establish on the balance of probabilities, that the fiduciary did in fact use the knowledge, or the information, or the opportunity which came to him while he stood in that relationship and that he made the profit by such use.  In my opinion it is not.

   It is enough, I think, to show that the fiduciary gains his knowledge or opportunity within the fiduciary relationship; that it was knowledge or an opportunity which could have been used in the sense that it was relevant to the acquisition of the profit or benefit in fact acquired and that by doing what he did to acquire the profit or benefit the fiduciary placed himself in a position where his duty and interest did conflict or in a position where as a real and sensible possibility they may conflict.  If that can be shown, and on the facts of this case the conflict was actual and not merely potential, it is not necessary to go further so as to prove that either the information or the opportunity was in fact used so as to acquire that benefit.  The reason for that, I think, rests in policy and it is based, inter alia, on the impossibility of proof.  That appears in one of the early cases.  In Ex Parte Lacey (1802) 6 Ves Jun 625 at 627 Lord Eldon is reported to have said: 'I say, whether he makes advantage or not, if the connection does not satisfactorily appear to have been dissolved, it is the choice of the cestui que trusts, whether they will take back the property, or not; if the trustee has made no advantage. It is founded upon this; that though you may say in a particular case that he has not made advantage, it is utterly impossible to examine upon satisfactory evidence and the power of the court, by which I mean, in the power of the parties, in 99 cases out of 100 whether he made advantage or not'. Or, as Lord Eldon expressed it in a later case, Ex Parte James (1803) 8 Ves 337, 345: 'No court is equal to the examination and ascertainment of the truth in much the greater number of cases'. It is for this reason that the rule that a person in a fiduciary position is not to allow his interest to conflict with his duty is said to be absolute and inflexible. Should he do so then: 'The consequences of such a conflict are not discoverable. Both justice and policy are against their investigation': see Rich, Dixon & Evatt JJ in Furs Ltd v Tomkies (1936) 54 CLR 583 at 592. And for the same reason, in my opinion, whether a person so placed has in fact used advantages so acquired - knowledge or opportunity - is likewise 'non-discoverable' and proof that he did so is not required. The law was recently so laid down by Gibbs J, as he then was, in Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 393. His Honour there said: 'However, the rule that a person in a fiduciary position is not entitled to make a profit without the knowledge and assent of the person to whom the fiduciary duty is owed is not limited to cases where the profit arises from the use of the fiduciary position or the opportunity or knowledge gained from it. The basis of the rule is that a person in a fiduciary position may not place himself in a situation where his duty and interest conflict. In Aberdeen Railway Co v Blaikie Brothers (1854) 1 Macq 461 at 471; Lord Cranworth LC stated the principle so far as it applies to directors in the following words: 'A corporate body can act only by agents, and it is of course the duty of those agents so to act as best to promote the interests of the corporation whose affairs they are conducting. Such agents have duties to discharge of a fiduciary nature towards their principal. And it is a rule of universal application, that no‑one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect.'

2. Wickham and Kennedy JJ each gave separate reasons for concluding that the appeal should be dismissed but their reasons are consistent with those of Burt CJ.

3. The rule applies in relation to a corporate opportunity which the principal company is specifically interested in pursuing but which a delinquent fiduciary arranges to be exploited by some other entity such as in Cook v Deeks [1916] AC 554 and it also applies to opportunities which do not come directly to a company but which the company could be expected to pursue if it had the opportunity to do so having regard to its existing business activities and its stated aspirations - see per Cooper J in SEA Food International Pty Ltd v Lam (1998) 16 ACLC 552 and Dwyer v Backpackers R Us Co Pty Ltd (2004) 50 ACSR 333.

The scope of the duty generally

1. The defendants seek to justify the course of events which they pursued by their pleas that there was no breach of fiduciary obligation involved in any of their activities.  Counsel for the defendants places particular stress on the warnings of Fletcher‑Moulton LJ in Coomber v Coomber [1911] 1 Ch 723, 728 ‑ 729, and of Kennedy J in Green & Clara v Bestobell 16 ‑ 17 about the dangers of relying upon general principles or trusting to verbal formulae ‑ a point also emphasised by Laskin J in Canadian Aero Service Ltd v O'Malley [1974] SCR 592, 620; (1973) 30 DLR (3d) 371, 620 and by Lord Wilberforce in New Zealand Netherlands Society 'Oranje' Inc v Kuys [1973] 2 All ER 1222 where, speaking of the rule in Boardman v Phipps his Lordship wrote:

   It retains its vigour in all jurisdictions where the principles of equity are applied.  Naturally it has different applications in different contexts.  It applies, in principle, whether the case is one of a trust, express or implied, of partnership, of directorship of a limited company, of principal and agent, or master and servant, but the precise scope of it must be moulded according to the nature of the relationship.  As Lord Upjohn said in Boardman v Phipps at 123: 'Rules of equity have to be applied to such a great diversity of circumstances that they can be stated only in the most general terms and applied with particular attention to the exact circumstances of each case.' Nevertheless, the rule is not to be restricted and the basis of the rule is that a person in a fiduciary position may not place himself in a situation where his duty and his interest conflict ‑ see per Gibbs J in Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 393. Realising the plenitude of the fiduciaries' duties, the strictness of their application and the inevitability of the fiduciaries' liability in the event of breach still renders it necessary to identify the extent of the fiduciary obligation in any particular case in order to determine whether or not a breach has occurred. It is certainly the case that a plea will not be entertained, nor evidence received, to demonstrate that a breach of the obligation did not cause the profit or loss of which the person entitled to the performance of the duty complains but it still remains necessary to identify the scope of the fiduciary duty to determine whether or not there has been any such breach.

1. The defendants stress that there must be a clear identification of what is the scope of the alleged fiduciary duty having regard to the circumstances of the case.  It is not until that duty has been independently identified and defined that it becomes possible to address the question of whether or not there has been any breach of the duty.  In this regard, great care should be devoted to ensuring that the question of the identification of the duty and the determination of any breach is not approached in a manner which involves a circularity of reasoning.  Unless these concepts are kept separate and independent a principled determination of whether there has been an actual breach of some objective duty will become impossible:  Eastland Technology Australia Pty Ltd v Whisson [2005] WASCA 144.

The defence - a change of position

1. No specific defence of change of position has been pleaded by any of the defendants but, nevertheless, the defendants plead a series of events, both before and after the alleged improper diversion of these opportunities to WANL,  as constituting reasons why it would be inequitable to grant the plaintiff relief or relief to the extent claimed.  These pleas, which have the doubtful advantage of being doctrinally opaque, were thought by the plaintiff to be capable of being claims for general relief on the grounds of change of position.  No such potential effect has been disavowed by the defendants. 

2. In particular, the plaintiff has submitted that these defences contend that, at some stage after the alleged diversion of the corporate opportunities to WANL, and in particular after the discovery of the rich nickel deposits at Forrestania, there was immense further investment in WANL by them and others with many capital raisings and the introduction of loan and other funds which contributed significantly to its enormous appreciation in value in market capitalisation on the stock exchange.  The plaintiff's apprehension is that some or all of these investments, capital raisings and loans, and for that matter further share purchases by the defendants, are being relied upon to assert a change of position which would render it inequitable to impose a constructive trust or to require accounting to the extent claimed by the plaintiff.

3. The status of a change of position defence has not been entirely settled.  Its existence and potential was comprehensively analysed by Lord Goff in Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548, 580 and it has also been recognised in David Securities Pty Ltd v Commonwealth Bank of Australia (Swiss Franc Case) (1992) 175 CLR 353. However, Lord Goff in Lipkin Gorman observed that it is commonly accepted that the defence should not be open to a wrongdoer.  That is a view espoused in the academic writing - for example, Edelman, Gain Based Damages 96 ‑ 97, an analysis which appears to have the support of Tipping J of the Supreme Court of New Zealand in Mark Moncrief Stevens v Premium Real Estate Ltd [2009] NZSC 15, [97] ‑ [112]. The same view was taken by Cooke P in Liggett v Kensington [1993] 1 NZLR 257, 275. See also Malcolm Cope, 'Proprietary Claims & Remedies' Federation Press (1997) 123.

Identifying the nature and content of the fiduciary duties owed to the plaintiff by the first two defendants

1. There can be no doubt that it is the role of director which is the foundation of the duty the first and second defendants owed to the company.  It is in that capacity that they are obliged to exercise powers and discretions and to make decisions in the interests of the company.  But it is necessary to do more than just state the general principle.  The content of the duty will depend on the particular factual setting.  A good example of the principle and its application is to be found in the decision of the Privy Council in Cook v Deeks. That case concerned the liability of three directors of a company carrying on the business of railway construction contractors. The directors obtained a contract in their own names to the exclusion of the company in circumstances which amounted to a breach of duty by them and resulted in the imposition of a constructive trust of the benefit of the later contract. But Lord Buckmaster LC, speaking for a board including Viscount Haldane, Lord Parker of Waddington and Lord Sumner, said at 561 ‑ 562:

   It (the question of whether the company would have been at liberty to claim from the three directors the benefit of the contract which they had obtained from the Canadian Pacific Railway Company) cannot be properly answered by considering the abstract relationship of directors and companies:  the real matter for determination is what, in the special circumstances of this case, was the relationship that existed between Messrs Deeks and Hinds and the company that they controlled.  Now it appears plain that the entire management of the company, so far as obtaining and executing contracts in the east was concerned, was in their hands, and indeed, it was in part this act which was one of the causes of their disagreement with the plaintiff.

   …

   In other words, they intentionally concealed all circumstances relating to their negotiations until a point had been reached when the whole arrangement had been concluded in their own favour and there was no longer any real chance that there could be any interference with their plans.  This means that while entrusted with the conduct of the affairs of the company they deliberately designed to exclude, and used their influence and position to exclude, the company whose interest it was their first duty to protect.

2. This is very much the complexion placed by the plaintiff upon the activities of Messrs Street and Cooper during the period from December 1999 until February 2002 when the ANPC opportunity was delivered into the hands of WANL together with the Cue tenements and all three defendants had secured a grant of shares or options on concessional terms which were never made available to the plaintiff.

3. Phipps v Boardman is authority for the proposition that a fiduciary may be liable to account for any profit derived notwithstanding that the trustee acted openly or without fraud and even where the principal had no power to exploit the profit‑making opportunity for the trust itself without overcoming or satisfying some obstacle or formal requirement.  The fact that the company itself was not able then to take up the opportunity which the fiduciary diverted is no defence to a claim by the fiduciary.  That is expressed in emphatic terms in Regal Hastings Ltd v Gulliver, in Keech v Sandford (1726) Cas temp King 61; (1726) Eq Cas Abr 741; [1558 ‑ 1774] All ER Rep 230; (1726) 25 ER 223 and in Warman International Ltd v Dwyer (1995) 182 CLR 544, 558.

4. Before passing to the task of examining the extent of the duty in the present case, it is convenient to note the sequel to the decision in Green & Clara Pty Ltd v Bestobell which is reported as Green & Clara Pty Ltd v Bestobell Industries Pty Ltd (No 2) [1984] WAR 32, a decision of Brinsden J. The question there was whether, upon making an inquiry and taking account of profits made by an errant fiduciary, just allowances should be permitted for the risk and enterprise shown by the errant fiduciary in achieving the profits or benefits which could have enured to his principal. In concluding that while some allowances should be made for the effort taken to achieve the fruition of the venture, his Honour held that no regard should be had for the fact that the fiduciary had embarked upon a risky venture with little capital and few resources. The correct allowance for just salaries was only for a sum equivalent to salaries payable to executives of an established contractor plus something extra for the special work and effort which had been put into the tasks but no more. For a similar recent approach in restricting allowances for work and skill in improving the subject property by a delinquent fiduciary see Lym International Pty Ltd v Chen [2009] NSWSC 167, per Hamilton J, particularly at [9] ‑ [14]. The delinquent fiduciary was refused any allowance for his time and trouble in procuring the completion of the properties which he carried out to increase his own profit. His Honour relied upon the deterrence of others as part of the justification for that course. It will be necessary to return to the topic of just allowances later in these reasons.

The particular circumstances of the plaintiff

1. In the case of the plaintiff, WAE, there was no employed staff.  The company did not conduct any trade, nor did it have any income.  Its only officers were its directors and a secretary who were all unremunerated.  During 1999 and 2000 it was dormant or 'on hold' awaiting an opportunity or an investment which would allow it to pursue the plan of conducting an IPO and becoming listed on the ASX.  That almost inevitably required the introduction of further capital and the opportunity to acquire nickel mining tenements which were prospective.  It had a number of expenditure obligations in relation to tenements or interests in tenements which it held, including the Cue tenements, but these could only be met from capital or from loan funds.  A number of tenements or interests in tenements had to be abandoned, or were abandoned, because of insufficient funds to meet that continuing expenditure. 

2. From March 1998 until June 1998 Mr Brailey, Mr Streeter and Mr Cooper were the only directors of the plaintiff.  When Mr Brailey resigned in June 1998, Messrs Streeter and Cooper were the only directors, with Mr Cooper as the company secretary.

3. From the time that Messrs Streeter and Cooper joined the board in 1998 the company was, at least in the short term, entirely dependent upon the provision of funds introduced either as capital or as convertible loans by Mr Streeter.  He had promised that he would provide up to $250,000 in this way and had provided about $85,000 by mid‑1999 but was slower than expected in providing the balance. 

The need for 'real and sensible' conflict

1. Where the alleged breach of fiduciary duty entails a director of a company diverting a commercial opportunity to some other vehicle, or placing himself in a situation where there is a conflict between the performance of the director's duties to the primary company and the performance of his duties or the extent of its interest in some other company or enterprise, a question arises as to whether or not the fiduciary is entitled to compete for financial benefit with a company of which he is a director.  For there to be a breach of the conflict of duty or conflict of interest rules it is necessary for the given conflict to be 'real and sensible' and more than purely hypothetical:  Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 103 (Mason J); Chan v Zacharia (1984) 154 CLR 195, 205 (Deane J); Queensland Mines Ltd v Hudson (1978) 18 ALR 1, 3; and Consul Development Pty Ltd v DPC Estates Pty Ltd. 

2. The need for a real and sensible conflict to exist is supported by the judgment of Dixon and McTiernan JJ in Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66, 81 ‑ 82 notwithstanding that the question in that case was whether or not an employee was in breach of a fiduciary duty because of conduct alleged to be incompatible, in conflict with, or an impediment to, the fulfilment of his duty to the employer.

3. The core of the plaintiff's claim against the defendants is for disgorgement of alleged improper gains arising from breach of fiduciary duties by the first and second defendants, and for disgorgement of alleged improper gains made by the third defendant as a knowing participant and beneficiary of the breaches of the alleged fiduciary duties.  The claim relies upon the established doctrine that a fiduciary must not derive a profit from, or by reason of or through the use of his fiduciary office without fully informed consent of the principal and also upon the rule that a fiduciary must not place himself in a position where there is a conflict of interests between his duty to his principal and his self‑interest or an associated third party interest.  The plaintiffs say that the defendants wrongly misused an opportunity to engage in the promotion, development and exploitation of the nickel mining and exploration venture.  They submit that the duties of the first and second defendants, as directors, required them to promote the interests of the plaintiff with respect to the opportunity or, at least, not to profit personally by wrongful participation in the promotion of the opportunity for the interests of third parties and themselves. 

4. In his celebrated essay 'Fiduciary Accountability For Business Opportunities' the then Professor R P Austin (now Austin J) (in Finn's 'Equity And Commercial Relationships') Law Book Company (1994) 141, at 147, posed questions which loom large in this case when he wrote:

   In company law cases, for example, we need to know whether there are any profit‑making activities which a director is free to pursue for his own benefit.  What if one of the directors in, say, the Regal (Hastings) case [1967] 2 AC 134 discovered a supermarket for lease nearby while searching for a cinema on the company's behalf, and took the lease himself? The solution to such a problem, as we shall see, depends more on the profit rule and the business opportunity doctrine than on the conflict rule. But for the minute, consider the problem solely in terms of the conflict rule. The company director's personal interest is clearly at stake but what is the duty with which his interest may come into conflict? There is surely no positive duty to report every business opportunity to the company, however remote it is, from the company's existing and probable future activities.

Prescriptive and proscriptive obligations

1. The defendants deny any breach of fiduciary duties.  They contend that there was no duty binding upon them to offer to the plaintiff or to promote in the interests of the plaintiff an opportunity which they say came to them independently of their connection with the plaintiff.  This contention relies upon the established dichotomy between 'prescriptive' and 'proscriptive' duties which establishes, at least in Australia, that it is only proscriptive duties which apply to the fiduciary office, cf Breen v Williams (Medical Records Access Case) (1996) 186 CLR 71 at 113 (Gaudron & McHugh JJ) and 134 ‑ 135 (Gummow J). See also Chan v Zacharia.

2. Consequently, in the present case, the nature and content of the fiduciary duties to the plaintiff owed by the first and second defendants as directors require close examination.  Similarly, essential to the disposition of this case, is a determination of the facts which led to the opportunity which was eventually availed of by the defendants in order to determine whether this was as a result of, or by use of, or through or proximately connected with their offices as fiduciaries for the plaintiff.  Then, because of the enormous commercial success of the opportunity which, so the plaintiffs allege, was wrongly diverted, or alternatively wrongfully enjoyed, by the defendants the question of the nature and extent of the relief appropriate to the occasion is especially important because:

   The stringent rule requiring a fiduciary to account for profits can be carried to extremes and that, in cases outside the realm of specific assets, the liability of the fiduciary should not be transformed into a vehicle for the unjust enrichment of the plaintiff.

   See Warman International Ltd v Dwyer.

The position of executive and non-executive directors

1. The defendants stress that they were non‑executive directors of the plaintiff at the material times.  They submit that this attenuated status, while not absolving them from duties as fiduciaries, is nevertheless relevant to determining the content of their duties in this particular setting.  They say it implicitly reduced them and so is then relevant to the question of whether or not there was any breach of duty as alleged.

2. At [9.040] in 'Ford's Principles Of Corporations Law' (13^th ed) the learned authors, citing Canadian Aero Services Ltd v O'Malley, argue that the equitable fiduciary principles apply to executive and non‑executive company directors, including shadow directors, because of the nature of their office.  This appears to be correct in principle.  I do not see any basis upon which it can be contended that non‑executive directors are outside the scope of these principles although, having regard to the facts of each particular case, the circumstances of their application may result in some difference because of the differences in the extent of knowledge or opportunity available to one or the other.

3. In Eastland McLure JA refers to the possible lack or attenuation of a fiduciary duty not to compete in the case of non‑executive directors after having read the 'writings on the subject'.  This reference by McLure JA in Eastland is at [2005] WASCA 144, 64 where her Honour remarks:

   Austin has suggested ('Fiduciary Accountability For Business Opportunity' in P D Finn (ed) Equity In Commercial Relationships (1987) at 158 ff) that the court should develop a 'line of business' test to the effect that a director or officer may not take up an opportunity for profit if it is within the scope of the business of the company as currently carried on and as planned to be carried on.  On my reading, however, this proposed stringent standard is confined to executive directors and officers.'

4. In that article Professor Austin wrote at 150 ‑ 151:

   Where the fiduciary occupies an executive office on a full‑time basis and his principal is engaged in a commercial undertaking of wide scope, such as a business partnership or corporate business, then it is fair enough to make the fiduciary account whenever the opportunity which he has exploited is of concern and relevance to his principal.  But at the other extreme, when the fiduciary is an unremunerated part‑timer and the relationship is non‑commercial, the 'concern and relevance' test surely takes us too far.  For example, an executor of a deceased friend's estate should not be accountable for a profit made out of a personal stock market transaction merely because the will gives him a power as executor to trade in shares.  In such cases, the kind of connection which should be required to render the fiduciary accountable is much more like Lord Russell's test than Roskill J.  If the information upon the basis of which the executor has traded came to him because of his executorship then it is appropriate to make him account.  But the unremunerated part‑time executor should be allowed to wear two hats.

   Now, there is an obvious way of overcoming this objection to Roskill J's formulation.  It is to say that the 'concern and relevance' test is right for a full‑time executive commercial fiduciary but it is not to be used in part‑time non‑commercial context, where Lord Russell's or some other test is more appropriate.  This is a plausible move, and is consistent with Roskill J's judgment, but it has a significant implication.  It means that we are recognising a special sub‑rule for the full‑time executive commercial fiduciary, a 'business opportunity' doctrine not dissimilar from the United States doctrine.

5. It is apparent that in these passages Professor Austin was promoting a possible thesis which might take account of various factors bearing upon the extent and content of the fiduciary obligation in dissimilar circumstances but in a way consistent with authoritative principle.  This is plainly commendable but it does not amount to an authoritative judicial exigesis of a rule.  Nor was such a thesis adopted by McLure JA in Eastland. 

6. There are many dangers in dealing with abstractions or formulating duties with regard to some classification or label of office such as 'executive' or 'non‑executive'.  Some are that dealing in such abstractions will lead to a neglect of the particular facts and circumstances in which the individual fiduciary has been placed, and to attempt to formulate gradations of duty according to inexact and elastic classifications.  I consider that a surer approach is to accept the established statements of principle and to apply them to the particular features of the individual case, always bearing in mind that for a breach of fiduciary duty to exist there must be a misuse of, or a disloyalty to, obligations owed by the fiduciary to the principal.  The nature and the extent of those obligations are likely to be better discovered and identified by a scrutiny of the particular relationship than by any search for an all‑embracing definition.

1. That Messrs Streeter and Cooper were non-executive directors of the plaintiff is relied upon to circumscribe the fiduciary duties which they owed.  It is put by the defendants that a non‑executive company director has only those powers which are conferred by the constitution of the company and that in the present case the directors together were given powers concerning the management of the company under its articles (exhibit 292 article 14.1) 14 TB 1110 at 12038, which meant  that neither the first nor second defendants owed any duty to devote themselves exclusively or actively to the commercial advancement of the plaintiff.  Furthermore, the defendants submitted that there was no discrete fiduciary duty imposed on the first or second defendant not to compete with the plaintiff, especially in their case as non‑executive directors. 

2. The submission that, only being executive directors, Messrs Streeter and Cooper were not in breach of any fiduciary duty cannot be accepted in the present situation.  There is no authority which positively endorses that proposition.  For the same reasons why there may be a variation in the extent of a common law duty or a statutory duty by a director, when it comes to the performance of reasonable care and due diligence because of the divisions of responsibilities associated with the allocation of duties, as subsequently examined in the authorities dealing with non-directors there may be a variation in the extent of the duty of a fiduciary who is a director according to the divisions of responsibilities and the allocation of duties in the particular position in which he or she is placed.  To accept this is to concede no more than that the extent of the duty will, in part, depend upon the nature of the responsibilities allotted to the fiduciary but this does not support any general conclusion that there is some attenuation of the fiduciary duties of a director according to whether or not he is a non‑executive or executive director, or of the responsibilities of the first or second defendants in this case.

3. The role of a non‑executive director has been addressed in the authorities.  In On The Street Pty Ltd v Cott (1990) 101 FLR 234, 242; (1990) 3 ACSR 54, 61 a company unsuccessfully sought an injunction against one of its former executive directors, who had resigned, to prevent her becoming a director of another company which conducted a business in competition with the plaintiff. Interlocutory injunctions were dissolved after the hearing once it became apparent that there was no evidence to establish that the former director, in her new role, was using or misusing confidential information which had been derived from her office of executive director of the plaintiff, nor was there evidence that she would divulge confidential information. Powell J held that there is no general prohibition on a director, who is not an executive director, being director of a rival company provided that information of the first company is not divulged or used for the benefit of the rival company. The basis for this conclusion is to be found where his Honour said:

   Despite the development of the law affecting the position and duties of directors of a company, there does not yet seem to have been accepted as a general principle, affecting all directors, any prohibition against a director of a company being a director of another company which competes in a way of business with the first company; indeed, such dicta as may be found in the cases would suggest that, at least if he not be an executive director, a director may be a director of a rival company, so long as he does not divulge to, or use for the benefit of, the rival company confidential information of the first company:  see, for example, London v Mashonaland Exploration Co Ltd v New Mashonaland Exploration Co Ltd [1891] WN 165; Bell v Lever Bros Ltd [1932] AC 161; Berlei Hestia (NZ) Ltd v Fernyhough (1980) 2 NZLR 150 at 161; Riteway Express Pty Ltd v Clayton (1987) 10 NSWLR 238. In the case of an executive director such as a managing director it may be that, even in the absence of an express term in any employment contract requiring the director to serve the company exclusively, some such term would be implied: see, for example, Industrial Development Consultants Ltd v Cooley [1972] 2 All ER 162; Thomas Marshall (Exports) Ltd v Guinle [1978] 3 WLR 116.

4. The decision in Riteway Express Pty Ltd v Clayton (referred to in On The Street) is another case in which an injunction was sought against a company director, a non-executive director, to prevent him from acting as a director for a rival company. In that case McLelland J said at 240 ‑ 241:

   The question of the legal propriety of a non‑executive director of a company engaging in a business either on his own account or as a director of another company in competition with that of the first company is one to which, in the present state of development, the law does not have a simple answer:  see, eg, 'Ford ‑ Principles of Company Law' 4th ed (1876) par 1529 at 414 ‑ 415

   …

   It seems to me that much depends in this situation on the degree of likelihood of confidential information being available to the person concerned in his capacity as a director of the first company which would be likely to be exploited in his other capacity, and for this purpose it seems to me that confidential information would embrace information in the first category in the Facenda Chicken case [1986] 3 WLR 288, that is, information which it would be a breach of duty by an employee to disclose during the course of his employment. It seems to me that a director ought not to be under any less onerous obligation than an employee in this regard. It is, of course, possible and, indeed, desirable to distinguish between the position of the executive director, which the first defendant was, but now is not, and a non‑executive director, which the first defendant now is; and it would appear that a greater degree of latitude should be permitted to a non‑executive director, but the question still comes down to what I have earlier described as the degree of likelihood of confidential information being wrongly used, whether consciously or unconsciously.

5. On The Street and Riteway Express each involved attempts to prevent by injunction an existing or former director from participating in the management of a rival company.  The cases concerned whether or not there was a material risk that the director concerned would act in a way which would infringe some legal right of the first company.  They did not address a situation where a director was said to have acted inconsistently with his or her duties to the first company giving rise to an obligation to account or to some other entitlement to equitable relief.  Therefore, they do not provide any firm basis for concluding that the only way in which a director of one company, while being a director of a rival, might infringe the rights of the first company would be through the disclosure or misuse of confidential information, although that would certainly be one way in which a breach of duty would occur.  Neither of the cases examines the consequences of a director of two companies, which are rivals, infringing the conflict of interest duty of a fiduciary or the no profits rule.  They do demonstrate an acceptance that it is not a breach of duty, per se, for a person to be simultaneously a director of two companies which are in competition.  But that does not mean that while a director of the second competing company, the same person who is also a director of the first, may not in various ways infringe the fiduciary duties which he owes to the first company.  This is, as McLelland J acknowledges, a difficult area, but neither of those cases undertake any analysis in this present case. 

6. The question of a comparative attenuation of the extent of the duty by non‑executive directors in comparison to the duties of an executive director has arisen more commonly in cases of alleged negligence, or in those concerning the scope of the duties of skill and care resting upon non‑executive directors.  In AWA Ltd v Daniels t/as Deloitte Haskins & Sells (1992) 7 ACSR 759, at 869 ‑ 875, Rogers J examined in close detail the authorities bearing on the question of the liability in damages by directors for a breach of the duty of care and diligence which they owed as non‑executive directors to the company. His Honour accepted that both executive and non‑executive directors could be liable for damages in negligence for lack of reasonable care and diligence in the management of the company's affairs. In examining the particular facts, his Honour concluded that there was no lack of reasonable care established against the non‑executive directors in that case because of the limited information made available to them by other officers of the company. Because of that fact they were entitled to rely, and did rely, upon information and documentation which came to them from executives of the company. Rogers J held that they were justified in trusting the accuracy of the information supplied, notwithstanding that, unknown to them, it was inadequate.

7. Similarly, in ASIC v Rich [2003] NSWSC 85; (2003) 44 ASCR 341 Austin J was concerned with an action commenced by ASIC against three executive directors and a non‑executive chairman of directors for alleged breach of their statutory duty of care. At [60] Austin J referred to the remarks of Rogers J in Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (1995) 37 NSWLR 438 to the effect that non‑executive directors are not required to give continuous attention to the affairs of the company. But this was in a setting where the point at issue concerned the responsibilities of a non‑executive chairman of directors in a large trading company listed on the ASX. Rather than attempt to determine the scope of the duty resting upon any particular director, or category of directors, merely by reference to whether or not that individual was an executive or a non‑executive director or by some other appellation, Austin J adopted the approach taken by Romer J in Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 where his Lordship said at 427:

   In order, therefore, to ascertain the duty that a person appointed to the board of an established company undertakes to perform, it is necessary to consider not only the nature of the company's business, but also the manner in which the work of the company is in fact distributed between the directors and other officials of the company, provided always this distribution is a reasonable one in the circumstances, and is not inconsistent with any express provisions of the articles of association.

8. Later Austin J addressed similar issues in ASIC v Vines [2003] NSWSC 1116; (2003) 48 ACSR 322. This was a dispute about admissibility of expert opinion evidence to demonstrate what a reasonably competent chief financial officer should do. The issue had arisen in the course of an action by ASIC alleging a breach of s 232(4) of the Corporations Law.  His Honour referred to a series of authorities which suggested that there was, as Professor Ford put it in 'Principles of Company Law' (4^th ed) page 417, no common law standard of a reasonably competent company director analogous to the reasonably competent member of a particular profession or trade such as an architect, solicitor, physician or builder, against whom the conduct of a defendant could be measured when determining whether reasonable care was used.  His Honour held that the position of chief financial officer had become a recognised position in large corporations and that there is identifiable, specialised skill attached to that office, so laying the basis for the admissibility of the contested expert evidence. 

9. All of these three cases concerned the standard of care required or expected of a director, company chairman, or non‑executive director of different companies of a size and complexity which are not comparable with that of the plaintiff in this present litigation.  The issues there under examination are akin to the identification of the prescriptive duties applying to the office of a director both at common law and pursuant to the Corporations Law.  They are distinct, in my mind, from any consideration of the nature and extent of fiduciary duties applying to a director of a company, and in particular the no conflict or no profit rules which, as counsel for the defendant so assiduously asserted, are proscriptive and not prescriptive.  As Owen J has demonstrated in The Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] & Ors [2008] WASC 239, the foundation of those proscriptive fiduciary duties is maintenance of the obligation of loyalty and honesty due by the directors to the company. Those duties are concerned with the misuse of the fiduciary office and, in doing so, concentrate on actions, not omissions, by the fiduciary by which there has been a subversion of the undivided loyalty of the fiduciary to the principal.

10. I immediately realise that the phrase 'subversion of an undivided loyalty' involves a number of latent premises.  In this present case, it includes, as an aspect of the duty of loyalty, an obligation not to take the particular opportunity or profit for the fiduciary personally or for some third person.  Efforts have been made by counsel for the defendants to define that duty as being not to take an opportunity or a profit which 'belongs' to the principal, to utilise a phrase applied by Cooper J in SEA Food International Pty Ltd v Lam at 46 but I do not consider that, in the present case, this is an adequate test. The connotation of 'ownership' which the phrase implies suggests that there will be no liability if the principal did not own the opportunity or could not itself have availed of it. But, as is clear from Phipps v Boardman; Attorney-General for Hong Kong v Reid [1994] 1 AC 324 and Warman International v Dwyer, a fiduciary may be in breach of duty and accountable to his principal notwithstanding that the principal did not 'own' the opportunity or could not have taken advantage of it for itself.  The false fiduciary who accepts a bribe is accountable to his principal notwithstanding that the principal had no prospect of ever being offered or receiving a bribe; and a fiduciary who takes advantage of an opportunity without the informed consent of the principal will be accountable notwithstanding that the principal itself would not have been offered or, if offered, would not have been able to avail of the opportunity ‑ Cook v Deeks and Consul Development Pty Ltd v DPC Estates Pty Ltd. 

11. Counsel were unable to cite any case in which a comprehensive description of the ingredients of these principles had been expounded.  A number of the cases, including Eastland, expressly acknowledge that the law in this area is still in a state of development.  It is important to appreciate that, however the application of the principles might be formulated, any such formulation must take into account that it would be insufficient to confine the principle to cases in which the opportunity or the chance of profit was one which could have been successfully exercised by the principal.  The missing ingredient appears to me to be some adequate description of an activity which derogates from the fiduciary's loyalty to the principal or which imperils, by collateral temptation, that loyalty.  The observations of Lord Templeman in AG for Hong Kong v Reid at 331 convey this dimension of the obligation in the clearest of terms. 

12. There are so many facets to the scope of the no‑conflict duty and the no‑profit duty affecting fiduciaries that it is very difficult to devise any form of universal or embracing test or formulation.  One must therefore proceed on the footing of a recognition of the principles and an awareness of the dangers and fallacies of circular reasoning.  This being so, it seems that there is very little utility in attempting to construct one test for executive directors and another for non‑executive directors or to assume that the distinctions between those two varieties of directors are always the same or even similar.  The role of a director as a fiduciary must be determined having regard to the position in which the individual person is placed in the corporate architecture in which he resides.

13. In a case like the present it might only ever be possible to identify and apply this ingredient of the principle from a close examination of the facts.  But in doing so, one must be constantly alert to the risks of reasoning by tautology by assuming that the existence of a fiduciary duty defines its content.  Perhaps one way of putting it is to consider whether, if the opportunity had been presented to WAE it would have been one which that company would have wished to pursue assuming, for these purposes (even if contrary to the fact), that it would have been able to do so.  This suggests that actual or potential interest in the opportunity by the principal, had it been disclosed to it, is a factor for consideration in determining the scope of the duty.  It seems that that is a justifiable conclusion notwithstanding that it may not apply in every case. 

The corporate architecture of WAE

1. Mr Brailey resigned as a director on 2 June 1998 but returned as a director on 2 July 1998 after the resignation of Mr Moeller at the end of June 1998.  From then until Mr Brailey's resignation on 8 March 2000 the board of the plaintiff was comprised solely of Mr Brailey, as chairman, Mr Streeter and Mr Cooper (exhibit 170 par 58).  From July 1998 the plaintiff's registered office was changed to Mr Cooper's place of business at T A Mairs & Co in Charles Street, South Perth and all the company secretarial and accounting records went to that firm.  Its exploration and other operational documents went to Mr Streeter's office at Jet Fresh.  Mr Cooper took over as company secretary on 14 July 1998.  Accordingly, at the critical time from July 1999 until March 2000 there were only three directors of the plaintiff, each of whom was part‑time and unremunerated.  The operational documents were in the hands of Mr Streeter and Mr Cooper and they had the authority to operate on the bank account which Mr Streeter had established at the Commonwealth Bank ‑ (Exhibit 170, par 74 and Exhibit 232, par 131).

2. A new director, Mr Mentiplay, was appointed to the board of the plaintiff in March 2000 but there is no evidence, oral or documentary, that he attended board meetings or took any role in the affairs of the plaintiff except for one meeting of directors on 28 March 2000 when his name was recorded as an apology (Exhibit 93 ‑ 9 TB 661).  Mr Tom Moeller, the previous managing director of the plaintiff, resigned on 25 June 1998.

3. In these circumstances it is virtually meaningless to attempt to establish, let alone to maintain, a distinction between executive and non‑executive directors of the plaintiff over the period from July 1999 until March 2000.  There were only three directors.  All the work of the company was performed by them or by Mr Cooper in his capacity as company secretary.  So far as there was any established division of responsibility or allocation of duties, it occurred only on a de facto basis.  Mr Streeter was the source of all funds for the continued operations.  He effectively made or approved all the executive decisions of the company and he and Mr Cooper discharged its routine responsibilities.  Mr Brailey conferred with them and attended at occasional board meetings.  Consequently, there appears to me to be no ability at all to divide the scope and content of the fiduciary duties of the first and second defendants along the executive/non‑executive director dichotomy.  They were effectively the agents of the company for all purposes and they were directly involved in the conduct of all the company's activities.  To the extent that it remained feasible, they were responsible for the pursuit of the company's goals in eventually listing on the ASX, conducting an IPO and, to that end, obtaining suitably attractive mining prospects which could be commended to the market.  In a very real sense, they were the company notwithstanding that Mr Brailey also had similar responsibilities.  In my view, this situation amplified, rather than circumscribed, the extent of the fiduciary duty owed to the plaintiff by each of the directors, including the first and second defendants.

Allowances based on the amount of capital introduced - the multiplier effect

1. Alternatively, the defendants advance their case for an increased allowance for the moneys paid for the acquisition of the shares or the exercise of the options.  They contend that a multiplier should be applied to the amount of capital introduced in order to reflect the risk and uncertainty borne by them in outlaying that capital to secure those investments.  In their written submissions they contend that a multiplier of 1 should be applied although, in oral submissions, when the mathematics was questioned, it became apparent that the plaintiffs were claiming a multiplier of 1.8 to 2 for the various investments, that is an increase of 80% on the initial capital and 100% on the moneys outlaid for the options.  The defendants submitted that:

   In addition the third defendant should receive an allowance by way of a multiple of the principal sum it invested to exercise the 5,625,000 options, in order to reflect the risk that was undertaken

   'at the time those options were exercised (June 2003), the Flying Fox deposit had not been discovered and the investment remained high risk.  In respect of that sum of $1,125,000 an appropriate multiple would be 1 (ie, an additional sum of $1,125,000).

   In addition each of the second and third defendants should receive an allowance by way of a principal sum of $160,000 which it invested to exercise the 400,000 option, together with a multiple of that sum to reflect the risk.

2. It is necessary to recall that any just allowance granted to an errant fiduciary for his role in contributing to or enhancing the profits from the fund, enterprise or item of property for which he is accountable is to reflect the value of the efforts, capital or enterprise displayed by the errant fiduciary and not to award him a share in the profit derived.  The allowance may be for the value of capital expended by the fiduciary in obtaining or improving the property acquired in breach of fiduciary duty, and/or for the value of skill, labour and time invested to improve the value of the property or to maintain the business which produces the profits, as in the case of in Re Jarvis.  The quantum of any such due allowance will be arrived at after examining what was done or contributed by the errant fiduciary. 

3. What is not a part of a due allowance is an apportionment of the profit derived, at least not in the absence of any agreement with the principal to share such profits.  To award a share in the profits in excess of the value of the contribution to their acquisition or increase in value would be to allow the delinquent fiduciary to retain the benefit of his breach of duty. 

4. This principle stands in the way of the defendants claim for a multiplier of the value of the shares or options acquired or capital introduced whether that multiplier be 1.8 or 2 or any other figure.  Such an approach is akin to offering the defendants a commission for their breach of duty and no authority was cited on behalf of the defendants to support such an approach.  The plaintiff submits that, stripped of its fundamentals, the multiplier being claimed is no more than a demand for the profit that a person engaging in a high risk investment expects; that it does not represent capital invested by the fiduciary nor capital risked by him, and that it is a claim to participate in the profit.

5. The defendants also seek, in their second formulation for allowances, a multiplier to be attributed to the amount of capital invested and then interest on the sum (increased by the multiplier) from the time the money was outlaid until judgment at 8% per annum.  In the third formulation of relief the defendants seek a multiplier of 2 in relation to the moneys outlaid for the exercise of the options, namely $1,125,000 which so multiplied would become $2,250,000, together with other, but smaller, multipliers in relation to the moneys spent for the exercise of the other options. 

6. The plaintiff submits that these formulations for allowances seek to claim interest not on the amounts invested but on those amounts inflated by the multiplier which, in effect, amounts to a mechanism for claiming a much higher rate of interest on the actual sum invested.  Again no authority is cited by the defendants in support of such a claim or its formulation.  No other or indirect benefits were derived by any of the defendants from holding the shares or options.  In his evidence Mr Hanna explained that WANL has not, to the date of the trial, paid any dividends nor did anyone suggest, nor do the annual reports reveal, that there has been any return of capital to shareholders.

7. For reasons already canvassed, I have concluded that the only allowances which are proper for these defendants are allowances for the actual capital outlaid or value given for the shares acquired and for the options exercised together with interest over the period or periods which have elapsed since the money was paid. I consider that the interest should be simple interest, no claim or basis having been laid for any compound interest. It should be at a rate designed to reflect the commercial rate of interest and, in the absence of any evidence in this regard, I consider that the interest rates should be those prevailing from time to time as prescribed by the court under s 32 of the Supreme Court Act1935 (WA).

Method of accounting for profits

1. The extent of the plaintiff's claim in this action is quite specific, namely, a claim for constructive trusts of the shares obtained by the defendants in WANL in February/May 2000 and further shares obtained by the conversion of options granted in February/May 2000 less allowance for the capital outlaid for the acquisition of those shares and the conversion of the options plus interest. 

2. The imposition of any constructive trust in such circumstances is but one method of requiring a defaulting in fiduciary to account for profits improperly made as a result of his or her breach of duty.  That the appreciation in the value of these shares, and the shares into which the options were converted, beyond their acquisition costs in the present case constitutes profits for the defendants cannot be doubted and no submission was made to the contrary. 

3. This case was contested on the issues of:  whether or not there was any fiduciary duty of the character alleged by the plaintiff; whether there was any breach of duty; and, if so, whether the full measure of appreciation of the shares in WANL should be awarded by way of remedy of account or constructive trust. 

4. This focus on the actual shares acquired by the defendants in breach of their fiduciary duties, as found, has a number of practical benefits and conveniences for the plaintiff.  It avoids the notorious difficulties of conducting accounts in cases where a business opportunity has been diverted and the full extent of the benefit diverted less appropriate allowances is the topic of the accounting, as was the case in Re Henry Jarvis and in Warman.  The difficulties in those cases is to identify and to make appropriate allowance for the contribution through skill and effort to the operation of the entire business by the defaulting fiduciaries, when it is obvious that much of the success of the subsequent enterprise is due to their contributions in capital, skill and supervision.  Difficulties of that kind would no doubt have presented themselves had the plaintiff sought to contend that the whole of the benefit derived from the ANPC proposal should be the subject of an account rather than claiming specific shares which gave entitlement to participate, proportionately and equally with other shareholders, in the fate of the new company. 

5. Similarly, as earlier described there were two subsequent rights issues for existing shareholders to take up additional shares in WANL in 2004 and 2006, entitlements which the defendants exercised in respect of the shares which are the subject of the claims for a constructive trust.  Yet the plaintiff does not make any claim for an accounting, or for a constructive trust, or for allowances, in respect of the shares acquired by the defendants pursuant to those rights entitlements although, possibly, on one view it might have had an arguable claim to do so. 

6. It follows from this that in the present case there has not been any occasion to enquire into or to determine the full extent of the potential liability of the defendants to account had the claim been advanced on a different basis.  This is no implied suggestion that the plaintiff's claim has in any way been miscast or inadequately formulated because I consider that the associated difficulties of claiming an account on a different basis, or of a more extensive kind, would have given rise to problems, and no doubt lengthy delays, and a need to conduct such a difficult account, which, from a realistic view point would probably be a very doubtful, advantage and even possibly a disadvantage.  However, this means that the present case is not the occasion to explore the fullest extent of the liability to account of defaulting fiduciaries in a case such as the present to account.  Nor is it necessary to address how allowances should be awarded if the accounting were conducted on a different basis.  The claim is of a more precise and defined nature which, commendably, avoids those problems. 

7. Accordingly, as the alleged breaches of fiduciary duty have been made out the issue for determination in identifying and quantifying the relief to which the plaintiff is entitled, turns directly to the question of the time at which the shares should be valued or if they are to become the subject of the constructive trust what allowances should be granted to the defendants for their role in producing or preserving the current value of those securities.

Relief to be granted

1. For these reasons I am satisfied that Mr Streeter and Mr Cooper as directors of the plaintiff have acted in breach of their fiduciary duties in diverting and using to their own advantage the opportunity to avail of, or participate in, the ANPC proposal from the plaintiff to the new company formed for the purpose, WANL, in the manner described. 

2. I am satisfied also that the plaintiff has established that Jungle Creek, acting by its director, Mr Streeter, was knowingly involved in Mr Streeter's breach of duty and participated in wrongly obtaining the advantages of those breaches, namely the rights to acquire shares and options in WANL.  Several of the breaches of duty by Mr Streeter have resulted in Jungle Creek taking or acquiring the opportunity which was originally, or could originally have been, wrongfully derived by Mr Streeter.  So, for example, when Mr Streeter supplied the seed capital of $300,000 in May 2000 it was Jungle Creek, rather than Mr Streeter which was allotted the 4,500,000 shares for that subscription of capital together with the associated 5,625,000 options.  Similarly, the breach of duty by Mr Streeter in causing the 30% interest in the Cue tenements to be purchased at the concessional price of $5,000 by Jungle Creek is another example of the benefits of Mr Streeter's breach of duty being derived by Jungle Creek.  A third example of this same process is provided by the exercise of Mr Streeter in October 2003 of his 400,000 options to acquire shares in WANL issued to him in May 2000 and the allotment of the corresponding 400,000 shares to Jungle Creek rather than to Mr Streeter himself. 

3. So it is apparent that in relation to all the transactions and shares or options in which the plaintiff has succeeded in showing a breach of fiduciary duty by Mr Streeter, the ensuing shares have either originally, or later through the exercise of options, been acquired by Jungle Creek.

4. As the plaintiff is seeking a constructive trust over these shares and other appropriate relief the question arises as to whether or not the relief should be ordered solely against Jungle Creek or also, and if so to what extent, against Mr Streeter who is not, at least at present, recorded as the owner of the particular shares in question, although, as the evidence has established he holds directly or indirectly many other shares in WANL.

5. The answer is provided by the rule that where a breach of trust is committed the trustees are jointly and severally liable to the beneficiaries for any loss caused by the breach of trust.  The liability of the defaulting trustees is a coordinate liability in respect of which an order for contribution by one defaulting trustee, which has remedied the default, may be obtained against another: Lingard v Bromley (1812) 1 V&B 114; 35 ER 45; Chillingworth v Chambers [1896] 1 Ch 685 at 698 and 707. So, as written by the learned authors of Meagher, Gummow and Lehane, Equity: Doctrines and Remedies (4th ed) at [10‑005] and by the authors of Jacob's Law of Trusts in Australia (7th ed) at [2117] obvious examples of persons between whom contribution could be ordered in equity, because of the coordinate nature of their liabilities, were company directors: Rainskill v Edwards (1885) 31 Ch D 100.

6. In this particular case neither Mr Streeter nor Mr Cooper was an express trustee but I am satisfied that their breaches of fiduciary duties, as found, can and should result in the imposition of constructive trusts over the opportunities wrongfully diverted and the shares held so as to make them jointly and severally liable for all losses occurred as well as being constructive trustees of the property remaining in their individual hands.  Although no authority has been cited on the issue the learned authors of Jacob's Law of Trusts in Australia (supra) conclude that the principle of coordinate liability 'applies between third parties who participate in breaches of trust so as to make them accountable as constructive trustees, but it is submitted that they do apply, with the qualifications that qualify the general principles' - [2117].

7. It follows from this that I consider that Mr Streeter and Jungle Creek are jointly and severally liable to the plaintiff for the shares now held by Jungle Creek in WANL, subject to the charges for the capital advanced with interest already mentioned.  This means that Jungle Creek should be ordered to transfer to the plaintiff all of those shares, subject to the charges mentioned or, alternatively, to pay compensation to the plaintiff for the value of those shares at the date of judgment at the election of the plaintiff. 

8. It also means that Mr Streeter should be adjudged liable to pay compensation to the plaintiff for the value current at the date of judgment of all those shares presently held by Jungle Creek, less the amount of the charges mentioned.  If the plaintiff elects in favour of an order for the transfer to it of the shares, subject to the charges, by Jungle Creek, and that judgment is satisfied, then that transfer would discharge the concurrent liabilities of both Mr Streeter and Jungle Creek to that extent.  If, however, for any reason, the judgment against Jungle Creek, whether for the transfer of shares or for compensation, is not fully satisfied, the plaintiff would remain able to enforce the unsatisfied balance of the judgment against Mr Streeter.  The same would apply if the judgment sought to be enforced were that against Mr Streeter and there were to be incomplete satisfaction by Jungle Creek.

9. There is every reason to treat Mr Streeter as jointly and severally liable for the breaches of duty found to have been committed by Mr Cooper and for the liability of Jungle Creek because there can be no doubt that all three defendants were acting in concert and with full knowledge of each other's roles, in the diversion of these opportunities and in taking the benefits for themselves from December 1999 onwards.  Similarly, Mr Cooper and Jungle Creek are jointly and severally liable for the breaches of duty of Mr Streeter and for the liability of each other.

10. None of the submissions addressed the point of concurrent liability by the several defendants although the prayer for relief in the statement of claim encompasses this.  Subject to what I consider to be the proper allowances for the capital outlaid together with interest upon it, I consider that the court should declare and order that the 4.5 million shares in WANL acquired by Mr Streeter for Jungle Creek and the 400,000 shares obtained by Mr Streeter from the exercise in October 2003 of the 400,000 options granted to him in May 2000 and taken by Jungle Creek are held on constructive trust for the benefit of the plaintiff. 

11. Similarly I consider that the court should order and declare that the 150,000 shares in WANL held by Jungle Creek arising from the sale of its interest in the Cue tenements, and the further 5.625 million shares, held by Jungle Creek as a result of the exercise of the 20 cent options, are also held on a constructive trust by the third defendant for the benefit of the plaintiff. 

12. The allowances which should be made to the first and third defendants in relation to these shares are:

    •$300,000 being the capital introduced by Mr Streeter to WANL in May 2000;

    •$5,000 being the sum paid indirectly on behalf of Jungle Creek for the acquisition of the Cue tenements before they were sold on or assigned to WANL;

    •$1,125,000 being the sum paid by Jungle Creek for the exercise of the options in June 2003; and

    •$160,000 being the sum paid by Mr Cooper for the exercise of the 400,000 options in October 2003. 

13. In addition, those sums should carry interest from time to time at the rates allowable on judgment in this court being the interest rate applied by analogy under s 32 of the Supreme Court Act.  Counsel will be invited to submit an agreed minute or, failing agreement, submissions as to the calculation of the interest on these up until the date of judgment.  The shares which are the subject of the constructive trust which I have found shall be charged with a payment of the amount of these allowances and interest.  Subject to the satisfaction of those charges, the third defendant will be ordered to deliver to the plaintiff registrable transfers of shares held in WANL in those numbers.

14. In relation to the second defendant, I am satisfied that the plaintiff has established the breaches of fiduciary duty as alleged so as to render Mr Cooper accountable for the 400,000 shares acquired by him or his interests in WANL by the exercise of the options in that company which he was granted in May 2000.  Again, subject to a proper allowance for the capital of $160,000 outlaid to convert those options to shares together with interest on that sum from the date of payment until judgment calculated in the same manner and at the same rates as the interest accruing on such outlays by the first and third defendants. 

15. However, the evidence is to the effect that the conversion of Mr Cooper's shares to options resulted in the shares being taken up by his company Fidene which is not a party to this litigation.  Nevertheless, Mr Cooper holds other shares in WANL and, of greater importance, WANL shares are publicly listed on the stock exchange and available for acquisition in the market.  Therefore, while it may not be possible to identify shares presently held by Mr Cooper which were acquired by reason of and as a result of his breach of fiduciary duty, it is nevertheless obvious that Mr Cooper can be compelled to provide to the plaintiff, subject to the allowances mentioned, 400,000 shares in WANL either by providing such a shareholding from other parcels of WANL's shares which he is holding or by purchasing that number of shares on the market and delivering them to the plaintiff subject to the charge.

16. I will allow the parties to make further submissions with regard to the form of orders which should be made to give effect to this decision.  However, the substantial effect of the orders should, subject to those submissions, be that:

    A.If the plaintiff so elects:

    1.It be declared that the third defendant holds 10,675,000 shares in WANL upon constructive trust for the plaintiff subject to a charge upon those shares to secure payment to the third defendants by the plaintiff of $1,590,000 plus interest thereon for the capital advanced by the first and third defendants for the acquisition of those shares.

    2.Order that upon satisfaction by the plaintiff by payment of the amount charged upon those shares the third defendant take all necessary steps to transfer 10,675,000 in WANL to the plaintiff.

    3.It be declared that the second defendant is bound to deliver 400,000 shares in WANL to the plaintiff subject to payment to the second defendant by the plaintiff of $160,000 plus interest thereon for the capital advanced by the second defendant for the acquisition of those shares.

    4.Order that upon satisfaction by the plaintiff by payment of $160,000 plus interest the second defendant take all necessary steps to transfer 400,000 shares in WANL to the plaintiff.

    5.There be liberty to all parties to apply to determine the amounts of interest payable under pars 1 and 3. 

    B.Alternatively to 1 to 4 (inclusive) above, but only if the plaintiff so elects:

    6.The first, second and third defendants do pay to the plaintiff compensation in an amount equal to the market value on the ASX of 11,075,000 shares in WANL at the date of judgment less the sum of $1,750,000 plus interest thereon for the capital advanced by the defendants for the acquisition of the 11,075,000 shares in WANL which they acquired.

    7.There be liberty to all parties to apply to determine the amount of interest payable on the sum of $1,750,000.

    8.There be liberty to the defendants to apply to determine in what proportions as between themselves each should contribute to their joint and several liability to the plaintiff.