White City Tennis Club Ltd v John Alexander's Clubs Pty Ltd - [2009] NSWCA 114

No judgment structure available for this case.

New South Wales

Court of Appeal

CITATION: White City Tennis Club Ltd v John Alexander's Clubs Pty Ltd & Anor [2009] NSWCA 114

HEARING DATE(S): 5 May 2009

JUDGMENT DATE:
3 June 2009

JUDGMENT OF: Giles JA at 1; Basten JA at 2; Macfarlan JA at 3

DECISION: (a) Appeal allowed.
(b) Set aside the orders made at first instance on 21 November 2008 that the proceedings be dismissed with costs.
(c) Declare that the second respondent holds all of its right, title and interest in the land identified in Folio Identifier 2/1114604 on a constructive trust for the appellant.
(d) Order that upon the appellant paying to the second respondent the amount of $6.73 million on or before the date 3 months from the date of these orders, the second respondent transfer all of its right, title and interest in the land contained in Folio Identifier 2/1114604 to the appellant.
(e) Grant liberty to any party to apply on 7 days notice to the others to vary the period of time referred to in the preceding order.
(f) Order the respondents to pay the appellant's costs of the proceedings at first instance and on appeal.
(g) The respondents to have certificates under the Suitors' Fund Act 1951, if qualified.

CATCHWORDS: EQUITY - general principles - unconscionability - party to joint venture agreement asserts property rights in a manner inconsistent with agreement after other party surrendered its property rights to facilitate performance of the agreement - EQUITY - fiduciary duties - limited fiduciary relationship arising out of contractual obligation to exercise option in particular way - EQUITY - equitable remedies - constructive trust - no pre-existing fiduciary relationship necessary where unconscionability - CONTRACTS - termination of contract - rights and obligations accrued prior to termination - CORPORATIONS - legal capacity and relations with outsiders - circumstances in which companies the alter egos of their controller - REAL PROPERTY - Torrens Title - indefeasibility of title - in personam exception applicable where registered proprietor is a primary wrongdoer

LEGISLATION CITED: Real Property Act 1900
Suitors' Fund Act 1951

CATEGORY: Principal judgment

CASES CITED: Assets Co Ltd v Mere Roihi [1905] AC 176
Avondale Printers & Stationers Ltd v Haggie [1979] 2 NZLR 124
Bahr v Nicolay (No 2) [1988] HCA 16; (1987-8) 164 CLR 604
Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137
Beatty v Guggenheim Exploration Co (1919) 122 NE 378
Bernard Elsey Pty Ltd v The Commissioner of Taxation [1969] HCA 46; (1969) 121 CLR 119
Boardman v Phipps [1967] 2 AC 46
Butler v Fairclough [1917] HCA 9; (1917) 23 CLR 78
Brunninghausen v Glavanics [1999] NSWCA 119; (1999) 46 NSWLR 538
Carson v Wood (1994) 34 NSWLR 9
Chan v Zacharia [1984] HCA 36; (1983-4) 154 CLR 178
Chattock v Muller (1878) 8 Ch D 177
Farah Constructions v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89
Frazer v Walker [1967] 1 AC 569
Gissing v Gissing [1971] AC 886
Hamilton v Whitehead [1988] HCA 65; (1988) 166 CLR 121
Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41
Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705
LHK Nominees Pty Ltd v Kenworthy [2002] WASCA 291; (2002) 26 WAR 517
Logue v Shoalhaven Shire Council [1979] 1 NSWLR 537
McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457
Muschinski v Dodds [1985] HCA 78; (1984-5) 160 CLR 583
Pallant v Morgan [1953] Ch 43

TEXTS CITED: R P Austin and I M Ramsey, Ford's Principles of Corporations Law, 13th ed (2007) Butterworths
Glover J, Commercial Equity: Fiduciary Relationships, (1995) Butterworths
J D Heydon and M J Leeming, Jacobs' Law of Trusts in Australia, 7th ed (2006) Butterworths
Meagher Gummow & Lehane's Equity: Doctrines & Remedies, 4th ed (2002) Butterworths
T G Youdan, Equity Fiduciaries and Trusts, (1989) Carswell

PARTIES: White City Tennis Club Ltd (Appellant)
John Alexander's Clubs Pty Ltd (First Respondent)
Poplar Holdings Pty Ltd (Second Respondent)

FILE NUMBER(S): CA 40038/09

COUNSEL: S T White SC/J R Clarke (Appellant)
J M Ireland QC/J S Cooke (Respondents)

SOLICITORS: Kemp Strang Lawyers (Appellant)
Colin Biggers & Paisley (Respondents)

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): SC3359/07

LOWER COURT JUDICIAL OFFICER: Young CJ in Eq

LOWER COURT DATE OF DECISION: 21 November 2008

LOWER COURT MEDIUM NEUTRAL CITATION: White City Tennis Club Ltd v John Alexander's Clubs Pty Ltd [2008] NSWSC 1225

CA 40038/09
SC 3359/07

GILES JA
BASTEN JA
MACFARLAN JA
WEDNESDAY 3 JUNE 2009

WHITE CITY TENNIS CLUB LTD v JOHN ALEXANDER’S CLUBS PTY LTD & ANOR

Judgment

1 GILES JA: I agree with Macfarlan JA.

2 BASTEN JA: I agree with the orders proposed by Macfarlan JA and with his Honour's reasons.

: This is an appeal from a decision of Young CJ in Eq of 21 November 2008: [2008] NSWSC 1225.

Nature of the Case and Conclusion

4 In this case, two joint venturers agreed that one, Company A, would attempt to obtain an option to acquire land to be used in the joint venture. The option was acquired by a contract with third parties to which both joint venturers were parties. The option holder, Company A, subsequently purported to terminate the joint venture agreement upon the basis of repudiation of the agreement by Company B and have its nominee exercise the option and deny any entitlement of Company B to an interest in the land.

5 The joint venture agreement expressly provided that if Company A exercised the option it was to do so on behalf of a company to be formed in which both joint venturers would effectively have interests and that if it did not exercise the option, Company B was to have the opportunity to acquire the land. To enable Company A to acquire the option, Company B had surrendered valuable existing rights which it had in respect of the land.

6 I have concluded:

(a) That it would be unconscionable for the nominee to deny Company B’s interest in the land (see [63,74-6, 80 and 95] below).

(b) That the nominee accordingly holds the land on constructive trust for Company B, subject to Company B paying the amount for which the land was acquired by the nominee (see [64, 77 and 110-4] below).

(c) That Company A and the nominee are the alter egos of the individual who controls them (see [94-5] below).

(d) That the constructive trust arose even if it be assumed that Company A’s termination of the joint venture agreement were valid (see [71] below).

(e) That it is not necessary to base the finding that a constructive trust exists upon a conclusion that there was a fiduciary relationship between the parties, although my view is that there was in fact at least a limited fiduciary relationship between them (see [64, 83-91] below).

(f) The nominee is not entitled to deny the existence of Company B’s rights upon the basis that it has an indefeasible title pursuant to the Real Property Act 1900 (see [102] below).

Factual Background

7 In 1919, the New South Wales Lawn Tennis Association acquired what is known as the White City site at 30 Alma Street Paddington in Sydney. The business of the association and of its successor, Tennis NSW, was conducted at the site until its relocation to Homebush in about 2000.

8 The appellant club (“the Club”) was formed in 1948 and from that time operated a tennis club at the site pursuant to licences granted by the owner. From about 1970, it leased part of a two storey building constructed in 1970 under the Northern Stand of the Centre Court at the site. In 1986 a form of lease was signed relating to those parts of the building for a term of ten years and three months commencing on 1 July 1985. That lease was subsequently replaced by one having a term of twenty five years commencing on 1 October 1995.

9 On 19 January 2004, Tennis NSW and the Club entered into a Heads of Agreement designed to facilitate the redevelopment of the White City site. The Heads of Agreement foreshadowed the grant to the Club of an option to purchase the portion of the site upon which the Club conducted its activities. That portion of the site was a large area south of a canal which divides the site.

10 On 23 April 2004, the first respondent John Alexander’s Clubs Pty Ltd (“JACS”) submitted to the Club an amended version of a proposal described as “Revised Proposal to Manage, Purchase the Land, Redevelop and Operate a Tennis and Sporting Facility at White City Tennis Club”. Support, in general terms, for the proposal was given by resolutions passed at an extraordinary general meeting of the Club (the “EGM”) held on 16 June 2004. The managing director of JACS is a well-known former international tennis player, Mr John Alexander. He gave evidence that he was the Managing Director, Chairman and majority shareholder of JACS. He said he controlled the company and that it was the corporate vehicle through which he was to pursue his business interests. The other director of the company, Mr Jordan, agreed that this was so.

11 The original proposal had been submitted to the Club by JACS on 26 February 2004. It contemplated that the parties would enter into a “Joint Venture Agreement”.

12 On 26 August 2004, Tennis NSW rescinded the Heads of Agreement which it had entered into with the Club and on 9 December 2004 advised that the portion of the White City site which had been the subject of the Heads of Agreement would be offered for sale by tender early in 2005.

The Memorandum of Understanding

13 On 28 February 2005, the Club and JACS signed a Memorandum of Understanding (“the MOU”). As this document assumes considerable importance in relation to the resolution of the issues on this appeal, it is necessary to refer to it in some detail.

14 It recited that the Club wished to continue providing its members with the facilities of a tennis club “enhanced and enlarged as described in this MOU thereby perpetuating the sport of tennis at White City” and that “JACS has the expertise and ability to construct, erect and operate world class sporting, health, fitness, racquet sports and social clubs and wishes to construct, erect and operate such a club” on the White City site.

15 The following provisions then appeared:

(WCH)

(“the tender”)

(“the third party”)

1.8.1 the third party and JACS prepare and lodge the tender for the purchase of the Land which will provide for the Land to be purchased by the third party;

(“the option from the third party”)

(“the option period”)

16 It was common ground that the reference to “a third party” in clause 1.8 was to the Trustees of the Sydney Grammar School (“SGS”) who subsequently purchased the White City site from Tennis NSW.

17 The MOU then recited, in clause 1.12, that the development by the parties of their intended arrangements “has now reached a stage where the Parties are able to enter into this MOU as an agreement of the kind contemplated by the First Resolution”. This was a reference to the first resolution passed at the EGM. A copy of the notice of extraordinary general meeting setting out the terms of the resolutions which came to be passed at the EGM was attached to the MOU. The first resolution referred to a proposed agreement to be made with JACS reflecting the terms of JACS’ amended written proposal. It was said that the terms of that proposal included a number of objectives, the first of which was:

“1. That, as a minimum, the part of the land shown as lot 5 in the Master Plan is acquired by an entity, the equity in which will be owned by qualified foundation members and qualified new members. The land be leased to [JACS] so they may conduct the business referred to in paragraph 2 on the land.”

18 “The Land” referred to in the MOU was defined as “all or part lot 3 in Deposited Plan 234605 …”. Lot 3 comprised the whole of the White City site. Clause 2.2(b) stated that “if WCH purchases part only of the Land, the expression ‘the Land’ shall thereafter mean such part of the Land as has been purchased by WCH”.

19 Under the heading “General Principles”, the following appeared:

“3.1 Each of the Parties will use its best endeavours to bring the Project to fruition and will do all things in its power reasonably necessary to do so.

3.2 The Parties will work together reasonably and in good faith to bring the Project to fruition.

^st

3.4 Each party will keep the other fully informed of all progress in the Project including but not limited to the negotiations for, or the tendering for the purchase of the Land and the acquisition of the Approvals.”

20 Clause 3.5 stated that it was fundamental to the project that Foundation Members would have a number of “Fundamental Entitlements” which included availability for their use of the “world class sporting, health, fitness, tennis, racquet sports and social club” more fully described in Schedule 5. A “Foundation Member” was defined as “any person who was at 31 July 2004, and remains at the date of the establishment of the [new] Club, a member of WCTC and who becomes a member of the [new] Club.”

21 Acquisition of the site upon which the contemplated activities were to take place was dealt with by clause 3.7:

“3.7 JACS agrees that it will seek to obtain an option to purchase the Land or part of it from TNSW or the third party and in the event it obtains the option from TNSW or the third party referred to in Clause 1.8 herein or any right to purchase the Land or any part of it then:

3.7.1 in the event JACS exercises the option from TNSW or the third party that it will exercise the option on behalf of WCH, upon WCH simultaneously granting to JAWCC a 99 year lease of the land [and] entering into the operating agreement referred to in clause 6.1(e) herein;

3.7.2 JACS will seek to procure in favour of WCTC a further option to purchase the Land or part of it exercisable by WCTC within 90 days of expiry of the Option Period in the event JACS is unable to or fails to exercise the option from TNSW or the third party in accordance with its terms.

3.7.3 in the event WCTC is unable to procure the further option referred to in Clause 3.7.2 herein and JACS has not exercised the option from TNSW or the third party 30 days prior to the expiration of the Option Period, then upon WCTC giving written notice to JACS that WCTC requires JACS to exercise the option on behalf of WCTC, that JACS will proceed to exercise the option from TNSW or the third party on behalf of WCTC.”

22 Under the heading “The Conditions Precedent”, the following appeared:

“4.1 The Parties acknowledge that the Project cannot proceed unless:

(a) WCH acquires the Land or a sufficient interest in the land at least so much of it as is necessary for the successful completion of the Project;

(b) the Approvals and all necessary operating consents and licences are obtained;

(“the Pre-conditions”)

23 There then followed a description of the general structure of the arrangement. This was in essence as follows:

JACS was to incorporate a new company (JAWCC) [John Alexander’s White City Club Pty Limited] which was to be the principal operating company for the project.

JACS was to cause White City Holdings Limited (“WCH”) to be incorporated to hold the land and to grant a 99 year lease to, and enter into an operating agreement with, JAWCC.

The shareholders of WCH were to be the Foundation Members (in effect, existing members of the Club) and members of the public who subscribed for shares pursuant to a prospectus to be issued.

An Establishment Agreement was to be entered into providing for the development by JACS of a club of the type described in clause 3.5 (see [20] above).

24 Clause 6.1 stated that JACS was to be responsible for various steps to progress the venture including the incorporation of WCH and the preparation of the Establishment Agreement.

25 Under the heading “Disclaimer”, the following appeared:

“7.1 Nothing in this MOU shall be taken to constitute the Parties as partners or as joint venturers for any purpose whatsoever”.

26 I pause to observe that, notwithstanding this provision, the arrangements clearly constituted some type of “joint venture” of the parties, if that term is used in its broadest sense (see United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1 at 10 as to the protean nature of the expression). As pointed out above (see [11]), JACS’ first proposal used the term “joint venture”. What followed in the dealings of the parties did not render that description no longer applicable.

27 Describing the arrangements as a “joint venture” does not however have any particular legal consequences. The rights and obligations of the parties remain to be determined by examination of the detail of what they have agreed and done.

The White City Agreement

28 On 15 April 2005, on behalf of itself and Sydney Maccabi Tennis Club Ltd (“Maccabi”), SGS lodged a tender to purchase the White City site. The tender was successful and resulted in a sale by Tennis NSW to SGS being settled on 30 June 2005. The part of the land upon which Maccabi had operated a tennis club for some years (“the Maccabi land”) was immediately on-sold by SGS to Maccabi.

29 Immediately prior to that settlement, that is, on 29 June 2005, SGS, Maccabi, JACS and the Club entered into an agreement (“the White City Agreement”). There had been two earlier versions of the agreement, to which I will refer later.

30 The White City Agreement of 29 June 2005 recited the following:

31 The following then appeared in relation to the grant of an option.

“Option to JACS or its associated nominated entity (together referred to as ‘JACS’ in this section)

32 The “Option Land” was defined by clause 7(b) as “all of the land south of the storm water channel other than the Maccabi Land”. The “Option Amount” was defined by clause 9 as being $6.33m, subject to payment of additional amounts up to $400,000.

33 There was then a provision for the grant of a lease by SGS and Maccabi to the Club over the whole of the White City site for the period 1 July 2005 to 30 September 2007 to terminate earlier if JACS or the Club exercised the option referred to in clause 8 (see [31] above). Clause 21(a) provided that the Club would surrender “any rights it has, or would but for this agreement have had, in relation to the Land under the arrangements entered into” between Tennis NSW and the Club.

34 Clauses 42 and 43 of the Agreement were in the following terms:

“42 WCTC and JACS agree that their MOU dated 28 February 2005 and their agreement dated 18 June 2005 continue in accordance with their terms and each agrees to carry out its obligations under this agreement in accordance with those agreements.

43 To the extent of any inconsistency between this agreement and any other agreement between any of the parties, this agreement will prevail, unless specifically stated. This Agreement may be executed in any number of counterparts, by different parties on separate counterparts. Each complete set of counterpart, when executed by all parties, shall be original but all such counterparts shall together constitute the same instrument.”

35 In argument on the appeal, the respondents submitted that it was significant that there had been two earlier versions of the White City Agreement (dated 15 April and 10 May 2005) which were relevantly in the same terms but did not contain counterparts of clauses 42 and 43 of the agreement of 29 June 2005. It was submitted that those agreements were inconsistent with the MOU, with the result that the MOU became inoperative for the period 15 April 2005 to 29 June 2005 when the MOU was revived by clause 42 of the 29 June 2005 agreement.

36 Clauses 42 and 43 of the 29 June 2005 agreement may have had their genesis in a Heads of Agreement dated 18 June 2005, entered into between the Club, JACS and three individuals said to be trading as “Alexander’s Tennis at White City”. This agreement incorporated interim arrangements concerning the conduct of tennis activities on behalf of the Club. It is referred to in that context in clause 2(d) of the White City Agreement of 29 June 2005 (see [30] above).

37 The Heads of Agreement of 18 June 2005 also contained a schedule of agreed amendments to the White City Agreement dated 10 May 2005. Neither the appellant nor the respondents suggested that these proposed amendments had any present significance, no doubt primarily because most, if not all, of them were incorporated into the later, third version of the White City Agreement. It is worth mentioning however that an agreed amendment to clause 3 was the insertion of clause 3(ii) which was to read “WCTC and JACS acknowledge that the Memorandum of Understanding between them of 28 February 2005 remains in place despite this Agreement”. This clause did not appear in the 29 June 2005 agreement in these terms but clause 42 reflected its intent.

Events Subsequent to the White City Agreement

38 Thereafter many discussions and other communications occurred within the membership of the Club and with JACS concerning the project. It will be necessary to refer to some of these later when I turn to the question of whether the Club repudiated the MOU. It is sufficient at this stage to record that many of these discussions and other communications were acrimonious.

39 On 12 April 2006, JACS served on the Club a Notice of Termination of the MOU, alleging that the Club had “evinced an intention not to be bound by the MOU and … repudiated its obligations thereunder”. The response by email dated 13 April 2006 from Mr Geoff Simpson, the newly elected President of the Club, was in the following terms:

“With regard to the MOU, I understand your position and as James A and I had previously indicated, we were prepared to look at an updated version in any case. However, you will appreciate that we must tread very carefully in the coming months with regard to terms and conditions and keeping members informed. Much work remains to be done.”

40 However, by letter of 16 August 2006, the Club, through Mr Simpson, formally rejected the purported termination of the MOU by JACS and stated that “the current Board of [the Club] remains committed to the principles outlined in the MOU as being in the best long-term interests of the members and will do its utmost to work co-operatively with JACS to achieve that outcome”. It was not contended by the respondents on the appeal that the Club had by this stage waived its rights to object to the Notice of Termination.

41 In the first half of 2007 there was exchanged between the Club and JACS correspondence in which the Club asserted that any interest in the land acquired by JACS, or a nominee of JACS, following an exercise of the option conferred by the White City Agreement would be held on a constructive trust for the benefit of WCH “and/or the proposed Foundation Members being the current members of” the Club. JACS denied this would be so and continued to assert that the MOU had been terminated.

42 On 27 June 2007, a sale of the Option Land by SGS to the second respondent, Poplar Holdings Pty Ltd (“Poplar”), was completed following upon Poplar, as nominee of JACS, exercising the option conferred by clause 8(a) of the White City Agreement. Poplar subsequently became registered proprietor of the Option Land. Mr Alexander was a director of Poplar and held all of its issued shares. He said in evidence that he was not sure if it was he or JACS who was the controlling shareholder in 2007. The other director, Mr Jordan, said in evidence that Poplar was incorporated for the purpose of exercising the option in the White City Agreement. Mr Alexander said in evidence that it was “most likely that was the case”.

43 The Club subsequently brought the present proceedings alleging that Poplar holds its interest in the Option Land on constructive trust for the Club. This contention was rejected by the primary judge who dismissed the proceedings. Broader relief was sought by the Club at first instance but the relief sought has now been limited to a declaration of that constructive trust and an order:

“That, upon the Plaintiff paying to the Second Defendant the amount of $6.73 million, and/or such other amount the court considers appropriate, on or before 3 months from the date of these orders, the Second Defendant transfer all of its right, title and interest in the land contained in folio identifier 2/1114604 to the Plaintiff”

It is common ground that the amount of $6.73 million is the amount paid to SGS by Poplar upon exercise of the option conferred by the White City Agreement and that the land referred to in this form of order is the Option Land.

The Primary Judge’s Decision

44 The primary judge encapsulated the Club’s principal submissions as follows:

“10 The plaintiff says that the MOU imposed a fiduciary duty on JACS that if it exercised the option, it would do so and only do so on behalf of WCH. The plaintiff says that JACS breached this fiduciary duty and because of that breach of the fiduciary duty, the plaintiff was deprived of the opportunity (which it would certainly have taken up) to exercise the option that it had in default of JACS exercising its option. It says that but for JACS not abiding by its fiduciary duty, it has lost the right to the land. Accordingly, upon paying JACS the amount it paid for the land, JACS should hold the land on trust for it.”

45 After referring to various authorities, his Honour said that “reliance is an element in all fiduciary relationships” ([29]) and that “in commercial transactions where there is equal bargaining power between parties who have voluntarily entered into ordinary arm’s length commercial arrangements, no fiduciary relationship arises because there is no need for equity to intervene” (at [31]). After saying that “in the instant case there are some indications that there could be a fiduciary duty”, he referred to clause 3.7.1 of the MOU which provided that “in the event JACS exercises the option … it will exercise the option on behalf of WCH … “ (see [21] above). He then said:

“34 However, there are a large number of counter factors. There is no question of a weaker vulnerable party relying on the representations of a stronger party. Although the plaintiff is a tennis club rather than a trading corporation, the minutes of its board meetings and other papers in evidence show that it was at all material times run by experienced business people who seemed to know exactly what they were doing. Furthermore, the parties do appear at all material times to be assisted by solicitors independent of each other and the parties put their rights and obligations into detailed documents.

46 He then referred to an exchange of emails between JACS and the Club and commented:

“38 This correspondence suggests that at the end of March 2005, the arrangement was that far from the plaintiff leaving everything to the first defendant to arrange in trust and confidence that it would do so on behalf of the plaintiff or associated entities of the plaintiff, the plaintiff considers that the arrangement was that the parties would work out the bid strategy together, a situation that Mr Alexander appears to have accepted. Furthermore, the plaintiff was threatening that unless something happen by 4 April 2005, it would take immediate action to do something else. This implies that at all material times it considered that it was free to take such action.”

47 His Honour said that the correspondence, and the cross-examination on it, gave him “the strong impression that instead of there being an arrangement whereby the plaintiff entrusted JACS to act on its behalf, the plaintiff was going to act on its own behalf unless JACS complied with its demand” and that this point “was never really addressed by the plaintiff in its final submissions” (at [39]). He went on to say:

Equity, Fiduciaries and Trusts

“[I]t is trite, but necessary to note, that one party’s contractual obligation to do acts for the benefit of the other does not of itself mean that person’s purpose in the relationship is to act in the other’s interests. If it did, contract law would be revolutionized with the consideration doctrine itself becoming the touchstone of the fiduciary principle.”

41 A further problem in the instant case is to look at the entity to whom any fiduciary duty would be owed. The undertaking, if that’s what it be, in the MOU was not to hold the option on behalf of the plaintiff, it was to hold it on behalf of WCH. WCH was a company to be formed by JACS. The shareholders of the proposed company were to be those of the members of the plaintiff who chose to subscribe for shares plus members of the public. There was no identity with the people who were to receive the benefit that ownership of those shares at WCH might give and the plaintiff. The mere fact that these people may have been the majority of the shareholders in the plaintiff is immaterial. The plaintiff only really comes into the picture if the option is not exercised. In that situation, then the plaintiff itself may bid for the land and the potential beneficiaries under the “Project” (as defined in the MOU) miss out on any benefits. What the plaintiff appears to be saying is that its club in some form or other would have been conducted on the Option Land either because its members would be the members of a new club (assuming that all the members took up their entitlements), or alternatively, if the option was not exercised by JACS on behalf of WCH then it would exercise the option and would be able to be master of the situation as to how its members would enjoy the land in the future. As Mr White put it in his closing address, “but for” JACS not exercising the option on behalf of WCH the plaintiff lost its right.

42 I very much doubt whether, if there were a fiduciary duty, it could be said that it was a fiduciary duty owed to the plaintiff. However, I can understand the argument (not that it was put), that the duty might be owed to the plaintiff in a sort of representative capacity because there was nobody else who could enforce it and it was the plaintiff that was giving up rights such as its rights to use a club house through to 2020 that was paving the way for the whole Project. I do not have to decide the point which is in a rather grey area as to who can enforce a fiduciary duty. However, the fact that there is the problem makes it less likely that there is such a fiduciary duty at all.

43 Accordingly, putting all things together, I find that the plaintiff has not established any fiduciary duty. The way the parties framed their MOU and the way they behaved (which I will be dealing with under heading 4 later), shows that they did not have a relationship in which the first defendant was to act on behalf of the plaintiff in a manner in which the plaintiff stood back and allowed the first defendant to carry through a relevant transaction on its behalf.”

48 The primary judge also held that the decision in Pallant v Morgan [1953] Ch 43 did not assist the Club. In that case, two people had made an agreement that one would bid on behalf of himself and the other at the auction of a property. The first person bid successfully and sought to retain the property for himself. Notwithstanding that the agreement was too uncertain for enforcement, it was held that this would amount to a fraud on his part and that the property was held by him on trust for himself and the other person jointly. The substance of the reasons given by the primary judge for rejecting the Club’s submission that the present case was analogous to this case was, first, that “one needs to look at the understanding or arrangement made between the parties which kept the plaintiff out of the market” and “we just do not know what the details of the underlying arrangements were” ([99]). The second reason was that there was no fraud or unconscionable conduct by JACS because any obligation which may have hampered it came to an end with the termination of the MOU ([102]).

49 The other findings of the primary judge included the following:

(a) That, at least in part, the MOU was intended to create legal relations between the parties ([56-9]). What his Honour said was capable of embracing clause 3.7 of the MOA as to the exercise of options to purchase (see [21] above), although his Honour did not expressly mention this provision in this context. In any event, the finding is not challenged on appeal. Nor is his Honour’s finding that the MOU was not void for uncertainty ([60])..

(b) That a number of aspects of the conduct of the Club, or those connected to it, demonstrated that the Club was unwilling to perform the MOA and had repudiated it ([77] and [81]). The Club challenges this finding on appeal.

(c) That if there were any fiduciary duties which arose, they came to an end with the termination of the MOA ([83]). This is challenged by the Club on appeal.

(d) That if the Club did have any rights against Poplar, Poplar’s “indefeasible title would probably not of itself defeat those rights” ([86]) because of the “personal equities” exception to indefeasibility. He however held that the “fraud” exception to indefeasibility was not applicable. The applicability of both of these exceptions is in issue on the appeal.

The Contractual Arrangements

50 As mentioned above, there was no challenge on appeal to the findings of the primary judge (see [49(a)] above) that the MOU was “at least in part” intended to create legal relations between the parties and was not void for uncertainty. Further, it was not contended that clause 3.7 (see [21] above) was a part of the MOU which was not intended to create legal relations. This was appropriate as clearly in my view it was so intended.

51 The next question is: What does clause 3.7 mean? Here, there was no debate on appeal nor do I think that there could reasonably have been. The meaning of the clause is clear: if JACS obtained from Tennis NSW or “the third party” (being SGS) an option to purchase the Land, or part of it, and if it exercised that option, it would do so on behalf of WCH which was a company the parties had agreed JACS would cause to be incorporated and to have agreed directorships and memberships.

52 The intent of clause 3.7 was reinforced by clause 1.8 (see [15] above) which recited that JACS was negotiating to have SGS grant to it “on behalf of WCH an option to purchase part of the Land”. Thus it was both contemplated that an option obtained by JACS would be held by it “on behalf of WCH” and agreed that if it was exercised by JACS, JACS would do so “on behalf of WCH”.

53 As the position stood after execution of the MOU, if JACS obtained such an option and exercised it professedly on its own behalf and not on behalf of WCH, JACS would in my view have been in breach of the contract constituted by this part of the MOU. It would have been in breach because the positive stipulations that JACS cause WCH to be incorporated and that the option be exercised on behalf of WCH necessarily implied that JACS would not exercise the option on its own behalf. This proposition was an essential element in the Club’s submissions. It was not sought to be contradicted by the respondents. Nor do I think it could reasonably have been.

54 Clause 3.7 went on to identify what the parties agreed would happen if JACS did not exercise the option. Clause 3.7.2 (see [21] above) provided that the Club would have the opportunity to exercise a further option to purchase, if that could be obtained. If such a further option were unable to be obtained, the Club was to be entitled to require JACS to exercise on behalf of the Club the option that had been obtained, if JACS had not exercised it 30 days prior to the expiration of the option period (clause 3.7.3).

55 The proper inference to be drawn from these provisions is, as submitted by the Club, that the parties were making provision for what was to happen in the event that the project could not proceed. The parties acknowledged by clause 4.1 (see [22] above) that there were a number of reasons why the project might not be able to proceed apart from an inability to obtain the necessary land. In particular, relevant approvals and consents might not be able to be obtained or sufficient shares in WCH might not be able to be sold to make the project commercially viable. The parties agreed that in that event the Club was to have the right to acquire the Option Land, assuming that a relevant option was, or relevant options were, able to be obtained and on the basis, of course, that the Club would pay for the acquisition.

56 It is notable that clause 3.7 does not specify that any acquisition by the Club is to be upon a limited basis. In those circumstances, it is implicit that the acquisition, if it occurs, is to be by the Club beneficially. An exercise by JACS of an option in accordance with clause 3.7.1 stood in a different position as the exercise was expressly stated to be “on behalf of WCH”.

57 JACS’s response to these steps in the Club’s submissions was to assert that after the date of the MOU there were “significant changes in the parties’ commercial intentions evidenced by the execution of three further agreements, culminating in the third White City Agreement dated 29 June 2005”. As it was put at the commencement of the oral submissions on behalf of the respondents, “the landscape had entirely changed by the time of the White City Agreement”.

58 JACS submitted that because they contained no counterpart to clause 42 in the third White City Agreement (see [34] above) was included in the first and second White City Agreements, they had the effect of abrogating the MOU, although (as the respondents seemed to accept) the MOU was revived by the third White City Agreement due to the presence in that agreement of clause 42. It was said that the changes in the parties’ commercial intentions made it “impossible to argue that enduring equitable obligations subsisted” in the manner contended for by the appellant.

59 I do not agree that in any presently relevant respect the White City Agreements affected the arrangement between the Club and JACS recorded in the MOU. Each of the White City Agreements provided (see [31, 35] above) for the grant to JACS of the very type of option which the MOU contemplated that JACS would seek to obtain. The fact that the option could be exercised not only by JACS but also by “its associated nominated entity” did not mean that the option was not of the type contemplated by the MOU. Indeed, the ability of JACS to exercise the option through a nominee facilitated the performance by JACS of its obligation under the MOU to make any exercise of the option one “on behalf of WCH”.

60 Nor do I see it as of any significance that the provision in the White City Agreements relating to the option does not state that any exercise of it by JACS is to be “on behalf of WCH”. The White City Agreements were not agreements between the Club and JACS only. SGS and Maccabi were also parties. It was the relationship of the Club and JACS on the one side with SGS and Maccabi on the other which was the primary subject matter of the agreements. The agreements did not purport to affect the arrangements between the Club and JACS and there is no reason to think that the precise arrangements which they had were a matter of concern, or indeed interest, to SGS and Maccabi. There was in my view no inconsistency between the White City Agreements and the MOU. As a result, it cannot be inferred that any of the former were intended to abrogate the latter.

61 The White City Agreement of 29 June 2005, by clause 42 (see [34] above), specifically noted the continued efficacy of the MOU as between the Club and JACS. This did not amount to a revival of the MOU but an explicit recognition of its continued operation. The effect of clause 43 was that the White City Agreement was to prevail over the MOU in the event of any inconsistency between the two agreements but there was in my view no inconsistency, at least none which is relevant to these proceedings. My view as to this matter accords with that of the primary judge (Judgment [66-8]).

62 JACS next contended that the arrangements reflected in the MOU had come to an end by the time when JACS’ nominee, Poplar, exercised the option to purchase the Option Land, because the MOU was terminated by JACS’ Notice of Termination of 12 April 2006. The primary judge accepted this submission, holding that the Notice of Termination was justified by the Club’s repudiation of the MOU (see [49(b)] above). The Club challenges that finding on appeal. I will return to consider that challenge later in this judgment but for the present will proceed upon the assumption that the Notice of Termination was not effective and that the MOU was still operative at the date upon which Poplar exercised the option. I will consider also whether JACS would in any event be assisted in resisting the Club’s claim by an affirmation of the primary judge’s finding that the MOU had been terminated before the date upon which the option was exercised.

Constructive Trust

63 If JACS had exercised the option purportedly on its own behalf and for its own benefit whilst the MOU was on foot, JACS would have been in breach of the contractual provision in clause 3.7 of the MOU. As I have concluded earlier (see [53] above), the MOU impliedly prohibited JACS exercising the option on its own behalf. The parties had agreed that if the option was available and was not exercised by JACS on behalf of WCH, the Club would be entitled to acquire the property (see [55] above). If JACS had exercised the option and done so on its own behalf, it would have acquired property which JACS and the Club had contractually agreed the Club would be entitled to acquire if the option was not exercised on behalf of WCH. Further, it would have done so in circumstances where the option had been acquired by JACS by reason of the Club’s involvement in the White City Agreements and the Club’s undertaking, given by those agreements, to surrender its existing rights to a long term lease over part of the Club House and licences to use the tennis courts. The primary judge held that the “only way in which” SGS and Maccabi “would carry on negotiations and grant an option, was if this [surrender] occurred” (Judgment [79]). This finding was not challenged on appeal.

64 It is a short step from this point to the conclusion that if JACS had exercised the option on its own behalf that it would have held the property so acquired upon a constructive trust for the Club. In my view there would have been no need to enquire whether there was a pre-existing fiduciary duty. It is sufficient if the conclusion is reached that, in all the circumstances, it would have been unconscionable for JACS to maintain that it was the beneficial owner of the Option Land following upon an exercise of the option by it. Deane J put the position this way in Muschinski v Dodds [1985] HCA 78; (1984-5) 160 CLR 583:

“The principal operation of the constructive trust in the law of this country has been in the area of breach of fiduciary duty. Some text writers have expressed the view that the constructive trust is confined to cases where some pre-existing fiduciary relationship can be identified. Neither principle nor authority requires however that it be confined to that or any other category or categories of case. Once its predominantly remedial character is accepted, there is no reason to deny the availability of the constructive trust in any case where some principle of the law of equity calls for the imposition upon the legal owner of property, regardless of actual or presumed agreement or intention, of the obligation to hold or apply the property for the benefit of another” (at 616-7, references omitted).

65 It has been said that “the constructive trust differs in essential respects both from the express and the resulting or implied trust. It differs from the express trust in that it is raised by operation of law without reference to the intentions of the parties concerned and indeed largely contrary to the desires and intentions of the constructive trustee” (J D Heydon and M J Leeming, Jacobs’ Law of Trusts in Australia 7^th ed (2006) Butterworths, at [1301]). That is not to say however that a constructive trust may not be imposed to give effect to contractual intentions where the basis for finding an express or resulting trust is not present. Indeed, Deane J in Muschinski v Dodds said in relation to the origins of the constructive trust that “[i]n its basic form it was imposed, as a personal obligation attaching to property, to enforce the equitable principle that a legal owner should not be permitted to use his common law rights as owner to abuse or subvert the intention which underlay his acquisition and possession of those rights” (at 613).

66 An example of the use of the constructive trust in a contractual context can be seen in the principle that “a contract for valuable consideration to assign property gives rise to a constructive trust of that property (provided, at least in the case of a contract which is wholly executory, it is specifically enforceable … ); different considerations arise where the consideration is executed … : the vendor holds the property on trust for the purchaser” (Meagher Gummow & Lehane’s Equity: Doctrines & Remedies, 4^th ed (2002) Butterworths at [7-150]). Here, the contract could not be described as “wholly executory” as the Club had materially assisted JACS in acquiring the option by joining in the White City Agreements and agreeing to surrender its rights in respect of the White City site. This was in conformity with the MOU which recorded JACS’ agreement to attempt to obtain an option and obliged the Club (as well as JACS) to do all things in its power reasonably necessary to bring the project to fruition (see [19] above).

67 A case which bears some analogy to the present is Carson v Wood (1994) 34 NSWLR 9 in which there was a contract which provided for the transfer of certain trademarks by the respondents to a company (to be formed) in which the appellants and the respondents were to hold equal shares. The respondents did not transfer the trademarks and claimed to be entitled to retain them for their own use and benefit. It was held by this Court that the particular respondent which held the trademarks held them as constructive trustee for both parties in equal shares. It was said by Clarke JA (with whom Kirby P agreed) that the assertion by the respondents of sole beneficial ownership of the trademarks “involved the subversion of the intention which underlay” the relevant contractual provision and that it was “in these circumstances inequitable and unconscionable” for the relevant respondent “to persist in that claim and the appropriate remedy available to the [appellants] is a declaration of a constructive trust” (at 17B; see also Sheller JA at 26E-G to similar effect). The Court did not suggest that the right of the appellants to a declaration of a constructive trust might be dependent on a finding that a pre-existing fiduciary relationship existed and there was no finding that such a relationship existed.

Was the Constructive Trust dependent upon the MOU not having been terminated?

68 It is notable that in Carson v Wood, by the time of the respondents’ claim to retain the trademarks beneficially, the respondents had terminated the relevant contract by reason of repudiatory conduct on the part of the appellants. The Court applied the principle expounded by Dixon J in McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457:

“… when a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected” (at 477-8).

69 The Court concluded that the rights of the appellants concerning the trademarks were not conditional upon the appellants complying with the provision which they were found to have repudiated and that those rights had accrued. Accordingly they were able to be enforced notwithstanding termination of the agreement.

70 Likewise here, the Club’s rights were not relevantly conditional. After the MOU, the Club had joined with JACS to enter into the White City Agreement with SGS and Maccabi to procure the options contemplated by the MOU. This having occurred, JACS’ obligation to exercise its option “on behalf of WCH” was in my view an accrued one which was enforceable notwithstanding the subsequent termination of the MOU (assuming that JACS is correct in contending that that termination in fact validly occurred).

71 Even if the MOU was validly terminated and the Club did not have enforceable contractual rights in respect of the options after the termination, the remedy of a constructive trust was in my view still available to the Club. Although relevant contractual rights are undoubtedly of assistance to a plaintiff, the ultimate question to be addressed in relation to the imposition of a constructive trust is whether the holder of the legal title to the property in question “may not in good conscience retain the beneficial interest” (Jacobs’ Law of Trusts at [1301] quoting Cardozo CJ in Beatty v Guggenheim Exploration Co (1919) 122 NE 378 at 380 see also Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at 108).

72 In Chan v Zacharia [1984] HCA 36; (1983-4) 154 CLR 178, the fiduciary relationship continued after the termination of the partnership agreement out of which it arose, to ensure compliance with the “agreed procedure for the realization, application and distribution of the partnership property” (at 197) and to impose upon the former partners a liability to account as constructive trustees for any benefit obtained by use of their fiduciary positions (at 199).

73 Furthermore, as Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137 demonstrates, departure from an arrangement falling well short of an enforceable legal agreement may amount to unconscionable conduct giving rise to a constructive trust. In that case the parties to a de facto relationship had pooled their earnings, with contributions to the acquisition of land and the building of their home being on the basis of, and for the purposes of their relationship. It was found that the appellant’s assertion, after the relationship had failed, that the property in which the parties had lived and which was financed in part through the pooled funds was his property to the exclusion of any interest of the respondent amounted to “unconscionable conduct which attracts the intervention of equity and the imposition of a constructive trust at the suit of the respondent” (at 149).

74 Another demonstration of the point is the decision in Pallant v Morgan referred to in [48] above. It was held in that case that specific performance of the agreement was not available because there was “too much left undecided” (at 48). Nevertheless, Harman J considered that to allow the defendant to retain the land in the circumstances of the case “would be tantamount to sanctioning a fraud on his part” (at 48), with the result that it was found that the defendant held the property on trust for himself and the plaintiff jointly.

75 I do not agree with the primary judge’s reasons for distinguishing this case (see [48] above). First, I do not consider that there were any further “details of the underlying arrangements” (Judgment [99]) which needed to be known. The relevant arrangement was in my view spelt out very clearly by the MOU, that is, that any exercise of the option by JACS was to be “on behalf of WCH” and that the directors and shareholders of WCH were to comprise persons selected or obtained in agreed ways. Secondly, I do not consider that the arrangement was one which was dependent upon the Club not giving grounds for JACS to terminate the agreement. JACS acquired the option, in the course of giving effect to the MOU, with the assistance of the Club. Having had that assistance in acquiring the opportunity to purchase the property upon the basis that the property would be used for the purposes of the joint venture and, failing that, made available to the Club, it would have been unconscionable for JACS to claim the property for its own use and benefit, whether or not JACS had terminated the MOU.

76 That the Club might, on the view contended for by JACS, have been responsible for the project not going ahead would not in my view entitle JACS in good conscience to forfeit the option, and land acquired pursuant to it, to itself. At most, it might in my view support an argument that any property acquired by JACS pursuant to its exercise of the Option should be held on trust for JACS and the Club jointly, rather than simply for the Club. I would not however uphold this argument as it seems to me that the parties’ agreement (see [55] above) that the Club was to have the opportunity to purchase the Option Land for itself if the project did not proceed is decisive. For JACS to retain even a half share in the Option Land, contrary to the intentions of the parties as expressed in the MOU, would in my view amount to unconscionable conduct on its part. To allow that to occur would be tantamount to imposing a penalty, not calculated by reference to any loss suffered by JACS, upon the Club for its (assumed) repudiation of the MOU. If the project did not proceed because of the Club’s breach or repudiation of the MOU, JACS’ remedy was in my view one in damages.

77 The decision in Chan v Zacharia, as expressed by Deane J, was that the former partner “holds and will hold any fruits of [his] abuse of fiduciary position and pursuit of personal interest upon constructive trust for those entitled to the property of the dissolved partnership” (at 205). Here, the MOU provided that in the event that the project did not proceed the Club was to be entitled to acquire the Option Land (see [55] above). Thus, to adapt the reasoning of Deane J to the present case, the Option Land is held upon a constructive trust for the Club which is the party entitled to the relevant part of the property of the failed joint venture.

78 The decision in Avondale Printers & Stationers Ltd v Haggie [1979] 2 NZLR 124 also provides assistance to the Club’s contentions. In that case, the plaintiff abandoned its rights to purchase a property in reliance on the promises of the defendants that they would invest in the development and would grant the plaintiff an option to purchase at the end of two years. It was held that the defendants’ denial of the common intention of the parties amounted to equitable fraud and that the appropriate remedy was a constructive trust. Mahon J said that the key to the case with which he was concerned lay in the question “whether the transferor would have parted with his property but for the oral undertaking of the transferee” (at 163). In the present case, there was a surrender of rights by the Club which was of similar effect and which would not have occurred but for JACS’ promise to exercise any option it obtained “on behalf of WCH”.

79 Mahon J emphasised that departure from the terms of an agreement will not in itself be sufficient to give rise to a constructive trust: “the circumstances must show that reliance upon legal title in [the] particular situation amounts to a fraud on the plaintiff” (at 163). That, he indicated, will most commonly be the case where “the legal owner has so conducted himself as to induce the other party to act to his own detriment in the reasonable belief that by so acting he was acquiring a beneficial interest in the land” (at 163-4, referring to two passages in the speech of Lord Diplock in Gissing v Gissing [1971] AC 886 at 905). Here, as the primary judge held, the Club did suffer detriment by surrendering its lease and its licenses to use the tennis courts (Judgment [94]). His Honour went on to say:

“94 … However, it was bound to [surrender these rights] whether the option was exercised by anybody or not. The only way in which people in different interests to the plaintiff and the defendants would carry on negotiations and grant an option, was if this occurred. Accordingly, although there is a detriment, it is not something that flows from the plaintiff to the defendants and was really a condition precedent in a collateral transaction. Accordingly, although I have taken it into account, I do not consider that it affects any proprietary interest between the parties.”

80 In my view, however, what is critical is that it was the Club’s participation, in particular by surrendering its existing rights, which enabled JACS to obtain the option. That participation was procured by a promise to exercise the option, if at all, for the benefit of the joint project and, if the project did not proceed, to allow the Club to acquire the Option Land for itself. It would in the circumstances have been unconscionable for JACS to disregard that promise by exercising the option for its own benefit.

81 I note in passing that Mahon J took the view (at 159), as I have done (see [64] above) that a finding of a pre-existing fiduciary duty is not a pre-requisite to the imposition of a constructive trust in cases of the type under consideration.

82 I add in conclusion on this topic that both Pallant v Morgan and Avondale Printer v Haggie are treated as authoritative in Jacobs (at [1341]) where the authors note that Pallant v Morgan and a case to similar effect, Chattock v Muller (1878) 8 Ch D 177, “do not depend upon the existence of a specifically enforceable contract, nor indeed perhaps upon a contract at all, but upon it being fraudulent of the defendant to set up an absolute title”.

Whether Fiduciary Relationship

83 As I have said above (at [64]), I do not regard a finding of a fiduciary relationship between the Club and JACS as an essential pre-requisite to the imposition of a constructive trust in the present case. Nevertheless, the existence of a relevant pre-existing fiduciary relationship would enhance the Club’s case and I accordingly proceed to consider whether there was one.

84 It is not necessary to enquire whether the relationship generally between JACS and the Club was fiduciary in character. It is sufficient to consider whether in exercising the option which the MOU contemplated may later be acquired, JACS was to be subject to a fiduciary duty owed to the Club to exercise it in a particular manner. As Mason J pointed out in Hospital Products, the fact that a general fiduciary relationship does not exist “does not exclude the existence of a more limited fiduciary relationship for it is well settled that a person may be a fiduciary in some activities but not in others …” (at 98, citations omitted).

85 I have set out above (at [45-7]) the primary judge’s reasons for concluding that no fiduciary relationship arose. In my view, the primary judge was in error in focusing upon the question of whether the relationship of the Club and JACS generally in relation to the project was one whereunder the Club relied upon JACS to act on its behalf. The question which needed to be addressed was whether there was a fiduciary relationship between the Club and JACS specifically in relation to any exercise by JACS of the option which clause 3.7.1 of the MOU contemplated that JACS would obtain.

86 It has rightly been said that “evaluations of contract terms between the parties is still the primary consideration in determining whether a relation is fiduciary. If there is a contract, and the contract allocates rights and duties between its parties, then fiduciary characterisation may be simple” (Glover J, Commercial Equity: Fiduciary Relationships, (1995) Butterworths, at [3.26]). The present is such a case so far as clause 3.7.1 of the MOU is concerned. As Mason J put it in Hospital Products, “the existence of a basic contractual foundation has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties” (at 97).

87 By contractually agreeing to a provision in terms of clause 3.7.1, the Club was relevantly placing itself in the hands of JACS. From that point on it had to trust that JACS would exercise any such option “on behalf of WCH”, as it said it would. It relied on JACS commitment to do so by surrendering its rights in respect of the White City site. It was vulnerable to abuse of that commitment by JACS as such abuse might lead to the loss to the Club of the opportunity to acquire a valuable property and the opportunity to continue on the White City site an activity it had been conducting there for over 55 years.

88 The relationship in this respect meets the classic test for the existence of a fiduciary relationship as stated by Mason J in Hospital Products as follows:

“The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations (cf. Phipps v. Boardman) viz., trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners. The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions "for", "on behalf of" and "in the interests of" signify that the fiduciary acts in a "representative" character in the exercise of his responsibility, to adopt an expression used by the Court of Appeal.” (at 96-7, citations omitted).

89 I do not regard Professor Finn’s statement quoted by the primary judge (see [40] of the Judgment quoted at [47] above) as conflicting with the view I have expressed. The express contractual stipulation here is that if the option is exercised by JACS it is to be exercised “on behalf of WCH”, that is, in part in the interests of the Club which had through its members a real practical interest, discernable from the MOU, in rights to be acquired by the company to be called WCH. In light of the terms of the MOU and the assistance provided by the Club after the MOU to procure the option for JACS, including by surrender of the Club’s existing rights, the option was one which the Club was entitled to expect would not be exercised by JACS in its own interests. The relationship meets the test formulated by Professor Finn: “a person will be a fiduciary in his relationship with another when and insofar as that other is entitled to expect that he will act in that other’s or in their joint interest to the exclusion of his own several interest” (in T G Youdan, Equity Fiduciaries and Trusts, (1989) Carswell, at 54; and see the passage at 33-4 cited with approval in Brunninghausen v Glavanics [1999] NSWCA 119; (1999) 46 NSWLR 538 at [100]).

90 The primary judge saw a further problem (see [41] and [42] of his Judgment quoted in [47] above) arising out of the identity of the person to whom any fiduciary duty would be owed. I do not share his concern in this respect. The contractual obligation to exercise the option in a particular way, if the option was to be exercised by JACS at all, was owed to the Club. The fiduciary duty mirrored that obligation and was thus owed to the Club,

91 It follows from the above that any exercise by JACS of the contemplated option for its own benefit would have been a breach of fiduciary duty and the property acquired by reason of that breach, in this case the Option Land, would be held on constructive trust for the Club.

Poplar’s Position

92 Thus far, I have considered what would have been JACS’ position if it had exercised the Option on its own behalf. In fact, the Option was exercised by JACS’ nominee, Poplar.

93 In my view, Poplar is in no better position than JACS would have been if JACS had exercised the Option.

94 I have referred earlier ([10] and [42] above) to the evidence concerning Mr Alexander’s relationship to JACS and Poplar. That evidence in my view warrants the conclusion that those two companies were each, in the context of this project, the alter ego of Mr Alexander, in the same way that Mr Elias’s company was treated as his alter ego in Farah Constructions v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 at 128, citing Hamilton v Whitehead [1988] HCA 65; (1988) 166 CLR 121 at 127. Also supportive of this conclusion is Bernard Elsey Pty Ltd v The Commissioner of Taxation [1969] HCA 46; (1969) 121 CLR 119 at 121 per Windeyer J (and see generally R P Austin and I M Ramsey, Ford’s Principles of Corporations Law, 13^th ed (2007) Butterworths at [16.180]).

95 In these circumstances, if JACS would have held the Option Land on constructive trust for the Club in the event that it had exercised the Option for its own benefit, Poplar, which was the entity which in fact exercised the Option, must similarly hold the Option Land on constructive trust for the Club, JACS and Poplar each simply being vehicles for the pursuit by Mr Alexander of his business interests. To use the language of Viscount Haldane LC in Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705 at 714, Mr Alexander’s actions were “the very action[s] of the company itself”. The knowledge and actions of Mr Alexander and his two companies were effectively the knowledge and actions of one entity. In these circumstances Poplar cannot escape liability to hold the land on constructive trust by claiming that it is in any better position so far as equitable fraud is concerned than JACS or Mr Alexander.

Whether Poplar’s Registered Title is Indefeasible

96 As mentioned above ([42]), Poplar exercised the option granted by the White City Agreement and became the registered proprietor of the Option Land.

97 Poplar contended that by reason of s 42 of the Real Property Act 1900 it held its interest in the land free from any unregistered interest under any constructive trust which the Court might otherwise hold existed. The relevant part of s 42(1) is in the following terms:

“42( 1) Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded except” (various further, presently irrelevant, exceptions are there listed).

98 This position is mirrored in s 43(1) which relates to the position of a person dealing with a registered proprietor:

“43(1) Except in the case of fraud no person contracting or dealing with or taking or proposing to take a transfer from the registered proprietor of any registered estate or interest shall be required or in any manner concerned to inquire or ascertain the circumstances in or the consideration for which such registered owner or any previous registered owner of the estate or interest in question is or was registered, or to see to the application of the purchase money or any part thereof, or shall be affected by notice direct or constructive of any trust or unregistered interest, any rule of law or equity to the contrary notwithstanding; and the knowledge that any such trust or unregistered interest is in existence shall not of itself be imputed as fraud”.

99 The “fraud” exception stated in ss 42(1) and 43(1) means “actual fraud, moral turpitude” (Farah Constructions quoting Butler v Fairclough [1917] HCA 9; (1917) 23 CLR 78 at 97 per Isaacs J). The primary judge found that fraud in this sense had not been established. As he noted, “ordinarily ‘constructive or equitable fraud is insufficient’ to fall within the fraud exception to indefeasibility. See Assets Co Ltd v Mere Roihi [1905] AC 176 at 210” (Judgment [87]). The Club has not in my view established on appeal any basis for interfering with the finding that there was no actual dishonesty on the part of the respondents.

100 There is however another exception to indefeasibility. It was held by the Privy Council in Frazer v Walker [1967] 1 AC 569 that the general principle of indefeasibility “in no way denies the right of a plaintiff to bring against a registered proprietor a claim in personam, founded in law or in equity, for such relief as a court acting in personam may grant” (at 585). As pointed out by Wilson and Toohey JJ in Bahr v Nicolay (No 2) [1988] HCA 16; (1987-8) 164 CLR 604, provisions equivalent to ss 42 and 43 of the Real Property Act “do not protect a registered proprietor from the consequences of his own actions where those actions give rise to a personal equity in another. Such an equity may arise from conduct of the registered proprietor after registration … And we agree with Mahoney J in Logue v Shoalhaven Shire Council [1979] 1 NSWLR 537 at 563 that it may arise from conduct of the registered proprietor before registration” (at 638). In Farah Constructions, the High Court emphasised that a registered proprietor was not subject to a “personal equity” in this sense merely because the proprietor had notice of an earlier interest or notice of third party fraud. It is necessary for a registered proprietor to be a “primary wrongdoer”. In this context the High Court approved the decision of the Western Australian Full Court in LHK Nominees Pty Ltd v Kenworthy [2002] WASCA 291; (2002) 26 WAR 517. In that case, Pullin J referred to Bahr v Nicolay, Muschinski v Dodds and Baumgartner and said that in those cases:

Farah

101 What Pullin J was referring to can be seen by reference to the facts of those cases. In Bahr v Nicolay, the second respondents had become registered proprietors upon the understanding, common to themselves and the vendor to them, that they were bound to resell the property to the appellants who were previous owners of the property (see at 638 per Wilson and Toohey JJ). In Muschinski, Mrs Muschinski made contributions in relation to the acquisition and development of the property in which she and Mr Dodds were to live upon the basis that “Mr Dodds would, in due course, contribute, both in money and by labour, to the subsequent development”. It was held that Mr Dodds’ conduct in seeking to catch and retain the unfair advantage of unforeseen circumstances by asserting his legal entitlement of a one-half interest in the property without assenting to any adjustment to compensate Mrs Muschinski for the unintended gross disproportion between their respective contributions” was plainly “unconscionable for the purposes of the relevant principle of equity” (at 621 per Deane J). The facts in Baumgartner have been referred to earlier (see [73] above).

102 The defendants in each of these cases were attempting “to ignore an obligation to share or convey the land with or to the plaintiff”. The High Court accepted Pullin J’s characterisation of the defendants as “primary wrongdoers”. The analogy to the present case is a strong one. Mr Alexander, through his alter egos JACS and Poplar, is “attempting to ignore” what I have held to be an obligation to give the Club the opportunity to acquire the Option Land. In the circumstances I have described, this amounts to unconscionable behaviour on the part of Mr Alexander, JACS and Poplar such as would make each of them “primary wrongdoers”. There is thus available against the registered proprietor of the Option Land, Poplar, a “personal equity” which defeats Poplar’s claim to indefeasible title by reason of its registration. Registration accordingly does not constitute a barrier to the imposition of a constructive trust.

Whether the MOU was terminated by JACS following repudiation by the Club

103 As I indicated earlier (see [71-81] above), I do not regard the answer to this question as crucial to a determination of the Club’s claim to a constructive trust: Thus, my view is that in the circumstances as they occurred the Club is entitled to the declaration of the constructive trust that it seeks, whether or not JACS is found to have properly terminated the MOU by its notice dated 12 April 2006.

104 Ordinarily, it would be appropriate for me to nevertheless express my views as to the correctness of the primary judge’s conclusion that the Club repudiated the MOU and in consequence JACS validly terminated that agreement. That is not appropriate in this case because of the absence of detailed consideration by the primary judge of matters relevant to the repudiation issue. His Honour’s conclusion that there was repudiation by the Club prior to JACS’ Notice of Termination of 12 April 2006 was based upon an acceptance, without individual consideration, of some thirteen sub-paragraphs of JACS’ submissions which his Honour set out. His conclusion that there had been a repudiation after 12 April 2006 was also founded upon an acceptance, again without individual consideration, of written submissions of JACS which his Honour set out.

105 The submissions which his Honour accepted were expressed in general terms and, at times, in emotive language. Detailed consideration needed to be given to whether the matters relied upon were capable of constituting repudiatory conduct and, if they were, of the evidentiary foundation for them.

106 The need for detailed analysis by the primary judge is illustrated by reference to the first three of the respondents’ submissions quoted, and accepted, by the primary judge. The three submissions give a fair indication of the character of the remaining 10. These submissions were:

“(a) shortly after Mr Kolev became president of WCTC in October 2005, WCTC engaged in conduct that was incompatible with the MOU and in breach of the aforementioned clauses and which directly threatened the Project. This included entering into discussions on behalf of WCTC with third parties in breach of clause 3.3 and undertaking actions to disrupt the Project described in the MOU in breach of clauses 3.1and3.2;

(b) Mr Kolev took the helm as President in October 2005. He was the voice of members of WCTC who were averse to JACS’ involvement in the project described in the MOU. By being elected to President, Mr Kolev and his supporters prevailed. Mr Kolev was a strongly minded representative of a group that did not like the JACS’ proposal. Between the period November 2005 and 12 April 2006, by virtue of his position as President he was the one who took the lead on behalf of WCTC in its initiative in dealing with JACS;

107 The first of these submissions is exceedingly general in character. It was arguably, but not patently, intended to incorporate some nine “particulars” that were given in the Notice of Termination as grounds justifying the termination. By way of example, the first of those was: “The plaintiff had entered into discussions and negotiations and entered into an agreement with Tennis NSW concerning the purchase of the land”.

108 When a complaint to the effect of this particular was made by JACS to the Club in November 2005, the Club responded by asserting, in effect, that its dealings with Tennis NSW did not relate to the purchase of the land but to formalisation of the lease and licence arrangements in favour of the Club. It is not clear whether there was material before the Court from which a determination as to the truth of that matter could have been made. In any event, no relevant finding was made.

109 The second and third submissions (sub-paragraphs (b) and (c)) focus upon the views of individual board members of the Club. The matters to which they refer do not appear capable of constituting a communication by the Club to JACS that the Club was unwilling or unable to perform its obligations under the MOU.

Orders to be made

110 The relief sought by the Club is described in [43] above. In light of my conclusions, it is appropriate that the declaration of a constructive trust, as sought by the Club, be made.

111 The order sought by the Club for the transfer of the Option Land by Poplar to the Club is expressed to be contingent upon the Club paying to Poplar the amount of $6.73M. It is common ground that this represents the adjusted Option Amount identified in clause 9 of the White City Agreement. Payment of it is accordingly an appropriate condition of the grant of relief.

112 The reference in the form of orders sought by the Club on appeal to an additional condition of the payment of “such other amount [as] the Court considers appropriate” has its genesis in the following comments of the primary judge:

“112 The other problem I found in the statement of claim was that there was no offer to do equity. The nearest the plaintiff got was para 26 where it is pleaded that the plaintiff was entitled to an order that upon it paying to Poplar the option amount payable under the cl 8(b) option, Poplar convey the Option Land to the plaintiff and this is also reflected in prayer 2. However, that is not an offer, or alternatively a sufficient offer to do equity. Poplar has almost certainly suffered far more detriment than merely payment of the option fee including its own conveyancing costs. A person seeking equitable relief must offer to do equity or the suit is demurrable.” (Judgment [112]).

113 It is clear that fiduciaries who are accountable for property or profits resulting from breaches of their fiduciary duties are entitled, at least where they have acted honestly, to an allowance for the value of their work and skill (Boardman vPhipps [1967] 2 AC 46 at 104 and 112).

114 The respondents conceded that there is no basis in the evidence as it stands for quantifying any allowance of this type, assuming that the respondents would otherwise be entitled to it. They seek an order that this Court remit the proceedings to the Equity Division so that an inquiry may be undertaken to investigate the matter. There are a number of reasons why I do not consider that such an order should be made. They are as follows:

(a) It was open to the respondents to lead evidence at first instance of costs and expenses incurred and other matters to found a contention that the Club’s relief should be conditioned upon payment of a further identified sum beyond the Option Amount. It did not do this. It was not for the Club to lead such evidence because it was the respondents and not the Club who had knowledge of the relevant facts. There was at least an evidentiary onus on the respondents to lead evidence as to these matters.

(b) There has been no suggestion that at first instance there was any application made, or even foreshadowed, for the deferral of an investigation into what, if any, allowances should be made.

The second type of expense comprises the costs of the preparation of a development application lodged on 17 April 2008 (including “the fees of architects and other numerous consultants … paid by Walker Corporation, which was Poplar’s financier”). However there is no certainty, or indeed probability, that the Club would want to take advantage of any consent which may be given pursuant to this development application which the respondents have chosen to formulate and lodge. The lodgement on 17 April 2008 occurred long after the commencement of the present proceedings on 27 June 2007 and long after the correspondence which was exchanged in the first half of 2007 (see [41] above) in which the Club asserted that any interest in the land acquired by JACS or a nominee of JACS would be subject to a constructive trust. The steps toward development taken by the respondents were accordingly taken with full knowledge of the Club’s challenge to Poplar’s title.

(d) The Club was given a notice to quit the site on 26 September 2007 and it may be assumed that it did so in conformity with the notice. It has a strong interest in achieving finality in this litigation at an early opportunity, as was recognised by the order which was made expediting this appeal.

Proposed Orders

115 I propose that the following orders be made:

(a) Appeal allowed.

(b) Set aside the orders made at first instance on 21 November 2008 that the proceedings be dismissed with costs.

(c) Declare that the second respondent holds all of its right, title and interest in the land identified in Folio Identifier 2/1114604 on a constructive trust for the appellant.

(d) Order that upon the appellant paying to the second respondent the amount of $6.73 million on or before the date 3 months from the date of these orders, the second respondent transfer all of its right, title and interest in the land contained in Folio Identifier 2/1114604 to the appellant.

(e) Grant liberty to any party to apply on 7 days notice to the others to vary the period of time referred to in the preceding order.

(f) Order the respondents to pay the appellant’s costs of the proceedings at first instance and on appeal.

(g) The respondents to have certificates under the Suitors’ Fund Act 1951, if qualified.

**********

Citations

White City Tennis Club Ltd v John Alexander's Clubs Pty Ltd [2009] NSWCA 114

Most Recent Citation

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28

John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19

Turner v O'Bryan-Turner [2022] NSWCA 23

Cases Cited

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Statutory Material Cited

2

White City Tennis Club Ltd v John Alexander's Clubs Pty Ltd [2008] NSWSC 1225

United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49

Clay v Clay [2001] HCA 9

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CITATION:	White City Tennis Club Ltd v John Alexander's Clubs Pty Ltd & Anor [2009] NSWCA 114
HEARING DATE(S):	5 May 2009
JUDGMENT DATE:	3 June 2009
JUDGMENT OF:	Giles JA at 1; Basten JA at 2; Macfarlan JA at 3
DECISION:	(a) Appeal allowed. (b) Set aside the orders made at first instance on 21 November 2008 that the proceedings be dismissed with costs. (c) Declare that the second respondent holds all of its right, title and interest in the land identified in Folio Identifier 2/1114604 on a constructive trust for the appellant. (d) Order that upon the appellant paying to the second respondent the amount of $6.73 million on or before the date 3 months from the date of these orders, the second respondent transfer all of its right, title and interest in the land contained in Folio Identifier 2/1114604 to the appellant. (e) Grant liberty to any party to apply on 7 days notice to the others to vary the period of time referred to in the preceding order. (f) Order the respondents to pay the appellant's costs of the proceedings at first instance and on appeal. (g) The respondents to have certificates under the Suitors' Fund Act 1951, if qualified.
CATCHWORDS:	EQUITY - general principles - unconscionability - party to joint venture agreement asserts property rights in a manner inconsistent with agreement after other party surrendered its property rights to facilitate performance of the agreement - EQUITY - fiduciary duties - limited fiduciary relationship arising out of contractual obligation to exercise option in particular way - EQUITY - equitable remedies - constructive trust - no pre-existing fiduciary relationship necessary where unconscionability - CONTRACTS - termination of contract - rights and obligations accrued prior to termination - CORPORATIONS - legal capacity and relations with outsiders - circumstances in which companies the alter egos of their controller - REAL PROPERTY - Torrens Title - indefeasibility of title - in personam exception applicable where registered proprietor is a primary wrongdoer
LEGISLATION CITED:	Real Property Act 1900 Suitors' Fund Act 1951
CATEGORY:	Principal judgment
CASES CITED:	Assets Co Ltd v Mere Roihi [1905] AC 176 Avondale Printers & Stationers Ltd v Haggie [1979] 2 NZLR 124 Bahr v Nicolay (No 2) [1988] HCA 16; (1987-8) 164 CLR 604 Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137 Beatty v Guggenheim Exploration Co (1919) 122 NE 378 Bernard Elsey Pty Ltd v The Commissioner of Taxation [1969] HCA 46; (1969) 121 CLR 119 Boardman v Phipps [1967] 2 AC 46 Butler v Fairclough [1917] HCA 9; (1917) 23 CLR 78 Brunninghausen v Glavanics [1999] NSWCA 119; (1999) 46 NSWLR 538 Carson v Wood (1994) 34 NSWLR 9 Chan v Zacharia [1984] HCA 36; (1983-4) 154 CLR 178 Chattock v Muller (1878) 8 Ch D 177 Farah Constructions v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 Frazer v Walker [1967] 1 AC 569 Gissing v Gissing [1971] AC 886 Hamilton v Whitehead [1988] HCA 65; (1988) 166 CLR 121 Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705 LHK Nominees Pty Ltd v Kenworthy [2002] WASCA 291; (2002) 26 WAR 517 Logue v Shoalhaven Shire Council [1979] 1 NSWLR 537 McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457 Muschinski v Dodds [1985] HCA 78; (1984-5) 160 CLR 583 Pallant v Morgan [1953] Ch 43
TEXTS CITED:	R P Austin and I M Ramsey, Ford's Principles of Corporations Law, 13th ed (2007) Butterworths Glover J, Commercial Equity: Fiduciary Relationships, (1995) Butterworths J D Heydon and M J Leeming, Jacobs' Law of Trusts in Australia, 7th ed (2006) Butterworths Meagher Gummow & Lehane's Equity: Doctrines & Remedies, 4th ed (2002) Butterworths T G Youdan, Equity Fiduciaries and Trusts, (1989) Carswell
PARTIES:	White City Tennis Club Ltd (Appellant) John Alexander's Clubs Pty Ltd (First Respondent) Poplar Holdings Pty Ltd (Second Respondent)
FILE NUMBER(S):	CA 40038/09
COUNSEL:	S T White SC/J R Clarke (Appellant) J M Ireland QC/J S Cooke (Respondents)
SOLICITORS:	Kemp Strang Lawyers (Appellant) Colin Biggers & Paisley (Respondents)
LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	SC3359/07
LOWER COURT JUDICIAL OFFICER:	Young CJ in Eq
LOWER COURT DATE OF DECISION:	21 November 2008
LOWER COURT MEDIUM NEUTRAL CITATION:	White City Tennis Club Ltd v John Alexander's Clubs Pty Ltd [2008] NSWSC 1225