Wright v Lemon (No 2)
[2021] WASC 159
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: WRIGHT -v- DAVID JOHN NEALE LEMON as executor of the estate of MICHAEL JOHN MAYNARD WRIGHT [No 2] [2021] WASC 159
CORAM: LE MIERE J
HEARD: 10-14, 17-21, 24-26, 28 FEBRUARY, 3-5 MARCH, 27-31 JULY 2020
DELIVERED : 2 JULY 2021
FILE NO/S: CIV 1319 of 2017
BETWEEN: JULIAN DAVID MAYNARD WRIGHT
Plaintiff
AND
DAVID JOHN NEALE LEMON as executor of the estate of MICHAEL JOHN MAYNARD WRIGHT
First Defendant
ANGELA MARY MAYNARD WRIGHT BENNETT
Second Defendant
LEONIE BALDOCK
Third Defendant
ALEXANDRA BURT
Fourth Defendant
VOC GROUP LTD
Fifth Defendant
AMB HOLDINGS PTY LTD
Sixth Defendant
WRIGHT PROSPECTING PTY LTD
Seventh Defendant
TERALANI PTY LTD
Eighth Defendant
LAREMONT PTY LTD
Ninth Defendant
Catchwords:
Equity - Fiduciaries' duties - Duties of executors of an estate - Conflicts of interest - No conflict rule - Fair dealing rule a sub-rule of the no conflict rule - Failure to make full disclosure of material facts - Purchase of property at an undervalue - Breach of fiduciary duties
Equity - Fiduciaries' duties - Duties of company directors - Whether directors owe fiduciary duties to shareholders - Fact based fiduciary duties - Whether special circumstances give rise to a specific fiduciary duty - No fiduciary obligation
Equity - Fiduciaries' duties - Duties of shareholders - Whether shareholders owe fiduciary duties to each other - Fact based fiduciary duties - Whether special circumstances give rise to a specific fiduciary duty - No fiduciary obligation
Tort - Deceit - Common law fraud - Whether statements made knowing they were false or with reckless disregard for whether they were true
Tort - Deceit - Common law fraud - Whether failure to disclose amounts to common law fraud - Whether mere silence amounts to fraud
Equity - Equitable fraud - Duty of disclosure - Fiduciary relationship between executor and beneficiary
Equity - Equitable fraud - Duty of disclosure - Fiduciary relationship between director and shareholder
Contracts - Construction and interpretation of contracts - Defined terms - Sophisticated commercial contract - Whether natural meaning is congruent with business sense
Contracts - Construction and interpretation of release clauses - Scope of a general release - Whether release covers claims that were unknown at the time of signing - Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112 - Whether release covers claims of fraud
Contracts - Deed of settlement - Equitable considerations affecting release - General words - Whether releaser was aware of claim - Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112
Equity - Estoppel - Estoppel by convention - Whether parties shared a common assumption - Whether injustice caused by resiling from common assumption - Whether parties acted in reliance on the common assumption
Agency - Liability of principal for misrepresentation by agent - Whether misrepresentation falls within the general class of statements or acts the principal apparently authorised - Whether agent was an 'agent to know' - Jessett Properties Ltd v UDC Finance Ltd [1992] 1 NZLR 138
Contract - Accord and satisfaction - Question of fact - Objective assessment of parties' intention - Whether objective intention was to release parties from claims that were not known at the time of signing
Limitation of actions - Limitation period - Actions in deceit - Fraudulent concealment of cause of action irrelevant - Limitation Act 1935 (WA)
Limitation of actions - Limitation period - Breach of fiduciary duty - Act has no direct application to causes of action founded on equity - Limitation period found by analogy - Common law fraud and breach of fiduciary duties not sufficiently analogous for limitation period to be applied
Equity - Laches - Whether prejudice caused to defendants as a result of delay
Legislation:
Companies (Western Australia) Code (WA)
Iron Ore (Hamersley Range) Agreement Act 1963 (WA)
Iron Ore (Hanwright) Agreement Act 1967 (WA)
Iron Ore (Rhodes Ridge) Agreement Authorisation Act 1972 (WA)
Limitation Act 1935 (WA)
Mining Act 1904 (WA)
Property Law Act 1969 (WA)
Rules of the Supreme Court 1971 (WA)
Result:
Claim dismissed
Counterclaim adjourned for further submissions
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr P Zappia QC & Mr J Healy |
| First Defendant | : | Ms K Stern SC, Ms J Taylor SC & Ms L Coleman |
| Second Defendant | : | Ms K Stern SC, Ms J Taylor SC & Ms L Coleman |
| Third Defendant | : | Ms K Stern SC, Ms J Taylor SC & Ms L Coleman |
| Fourth Defendant | : | Ms K Stern SC, Ms J Taylor SC & Ms L Coleman |
| Fifth Defendant | : | Ms K Stern SC, Ms J Taylor SC & Ms L Coleman |
| Sixth Defendant | : | Ms K Stern SC, Ms J Taylor SC & Ms L Coleman |
| Seventh Defendant | : | Ms K Stern SC, Ms J Taylor SC & Ms L Coleman |
| Eighth Defendant | : | Ms K Stern SC, Ms J Taylor SC & Ms L Coleman |
| Ninth Defendant | : | Ms K Stern SC, Ms J Taylor SC & Ms L Coleman |
Solicitors:
| Plaintiff | : | Butcher Paull & Calder |
| First Defendant | : | Clayton Utz |
| Second Defendant | : | Clayton Utz |
| Third Defendant | : | Clayton Utz |
| Fourth Defendant | : | Clayton Utz |
| Fifth Defendant | : | Clayton Utz |
| Sixth Defendant | : | Clayton Utz |
| Seventh Defendant | : | Clayton Utz |
| Eighth Defendant | : | Clayton Utz |
| Ninth Defendant | : | Clayton Utz |
Case(s) referred to in decision(s):
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Table of Contents
A. Summary
B. Overview of parties' cases
Summary of Julian's case
Michael and Angela's breach of fiduciary duty as executors of Peter's estate
Fraud of Michael and Angela in relation to Julian's interest in Peter's estate
Michael and Angela's breach of fiduciary duty as directors of WPPL
Fraud of Michael and Angela in relation to Julian's WPPL shares
Summary of defendants' case
Breach of fiduciary duty ‑ Michael and Angela's duties as executors of Peter's estate
Breach of fiduciary duty - Michael and Angela's duties as directors of WPPL
The fair dealing rule
Julian's fraud case
Deed of Settlement
Accord and satisfaction
Limitation periods and laches
Res judicata and Anshun estoppel
Barriers to rescission
C. Background circumstances prior to Peter's death
WPPL
Hancock and Wright
The Mining Act - temporary reserves and mining leases
The 1962 Agreement and the 1963 Hamersley State Agreement
The Perron assignment
The 1967 Hanwright State Agreement
The 1968 Royalty Agreement
The 1970 Royalty Agreement
Deed of Partition of One-Third Royalty
Rhodes Ridge Joint Venture Agreement
Marandoo Joint Venture Agreement
Deed to Avoid Dissolution of Partnership
Texas Gulf Iron Ore Assignment Agreement
1984 Agreement
Channar Joint Venture
Marandoo tenements
WPPL's action against HPPL concerning Rhodes Ridge
The Mount Bruce litigation
Concentrator royalty arbitration
Julian's history in WPPL
Julian's early years
Julian works for WPPL
Michael appointed chief executive of the Sunday Independent
Julian's engagement as WPPL director
Julian ceases employment with WPPL
The option agreements
Julian executes option agreements
D. Circumstances and events after Peter's death
Peter dies
Discussions following Peter's death about Julian's WPPL shares
Negotiations to sell and purchase Julian's shares commence
Discussions in October 1985
The Hancock meeting
Negotiations for the sale and purchase of Julian's WPPL shares
Julian alleges Salt represented WPPL's mineral reserves had no value
Michael and Angela managed WPPL
Julian, Michael, Angela make in‑principle agreement
1987 Sale Agreements executed and completed
Statement of Assets and Liabilities
The Keall Brinsden memorandum of 20 March 1987
The draft affidavits
Concentrator royalty arbitration settled
Natalie and Timothy proceedings
Circumstances leading to Julian bringing this action
E. Lay evidence
Evidence adduced
Julian
Shanker Madan
Doug Salt
People who did not give evidence
Michael
Angela
Fieldhouse
Lemon
Approach to evidence
F. Expert evidence
Evidence adduced
Subject of the expert evidence
Value of Peter's entitlement to royalties
Value of Julian's interest in Peter's estate
Value of Rhodes Ridge
Value of WPPL
Discounts for minority interest, marketability and Michael and Angela's limited finance
Limited resources of Michael and Angela
The option agreement
Full or fair value of Julian's interest in Peter's estate
Full or fair value of Julian's 32.9% shareholding in WPPL
G. Claim of breach of fiduciary duty by Michael and Angela as executors of Peter's estate
Fiduciary duties
Did Michael and Angela owe fiduciary duties to Julian in acquiring his interest in Peter's estate?
The fiduciary duties Julian alleges were owed by Michael and Angela
Fiduciary duties ‑ general principle
The fair dealing rule
Peter's entitlement to royalties
Outline of the issue
The 1962 Royalty Agreement contentions
The text of the 1962 Royalty Agreement
The constructional choice
Principles in construing a commercial contract
Proper construction of 1962 Royalty Agreement ‑ entitlement to royalty payment
The 1968 Royalty Agreement
The 1970 Royalty Agreement
The defendants' trust defence
Defendants' estoppel defence
Defendants claim that Julian is estopped
Peter had entitlement to royalties under the 1962 Royalty Agreement
Julian did not know Peter had entitlement to royalties
Consideration paid by Michael and Angela for Julian's interest in Peter's estate
Michael and Angela put themselves in a position of conflict and profit
Michael and Angela did not give full value for Julian's interest in the estate
Disclosure and consent
Non-disclosure - estate assets
Michael and Angela's knowledge of Peter's entitlement to royalties and concentrator royalty arbitration award
Fieldhouse and Salt's knowledge of Peter's entitlement to royalties and concentrator royalty arbitration award imputed to Michael and Angela
Principles of agency
Fieldhouse and Salt were agents of Michael and Angela
Knowledge of Fieldhouse and Salt
Michael and Angela did not disclose estate assets
Michael and Angela failed to make full disclosure after 23 March 1987
Michael and Angela failed to make full disclosure about Julian's WPPL shares
Michael and Angela breached their duty as executors
H. Claim of common law fraud by Michael and Angela in relation to Peter's estate
Julian's claims of fraud
Fraud at common law and in equity
Common law fraud - Peter's estate claim
Fieldhouse made the estate representations
Salt made the estate representations
Salt and Fieldhouse made estate representations knowing them to be false
Julian relied on representations by Salt or Fieldhouse
Fraud claim in relation to estate representations established
I. Peter's estate equitable fraud claim
J. Claim of breach of fiduciary duty by Michael and Angela as directors of WPPL
Fiduciary duty may be owed by director to shareholder
Factors relevant to existence of fiduciary relationship
Closely held company
Julian's dependence upon information
Significance of knowledge of some particular transaction
Vulnerability
Undertaking/entitled to expect
No fiduciary obligation
No breach of fiduciary duty as directors
K. Common law fraud - Peter's WPPL claim
Salt did not make the WPPL misrepresentations
L. Fraudulent concealment - plaintiff's WPPL case
The alleged WPPL nondisclosures
M. Defendants' defences based on the Deed of Settlement
Circumstances surrounding the Deed of Settlement
Construction of release clauses
The terms of the Deed of Settlement
Julian says release does not cover fraud
Equitable principle
N. Accord and satisfaction
O. Limitation defence ‑ actions in deceit
P. Laches
Q. Limitation defence ‑ breach of fiduciary duty
R. Res judicata
S. Anshun estoppel
T. Barriers to rescission
U. Claims against Third to Ninth Defendants
Julian's claim against third to sixth and eighth and ninth defendants
Julian's claim against seventh defendant
V. Defendants' counterclaim
W. Conclusions
LE MIERE J:
A. Summary
Ernest Archibald Maynard Wright was known as Peter. Peter, with his old school friend and business partner, Langley Hancock (Lang), played a significant role in developing and promoting the iron ore industry in the Pilbara region of Western Australia. Peter carried on his mineral exploration business through the seventh defendant, Wright Prospecting Pty Ltd (WPPL). Peter died on 13 September 1985.
Peter had three children ‑ Michael, Angela and Julian. Michael died on 30 April 2012. The first defendant, David Lemon (Lemon), is the executor of Michael's estate and is sued in that capacity. Angela is the second defendant. Julian is the plaintiff.
The third and fourth defendants, Leonie Baldock and Alexandra Burt, are daughters of Michael.
In 1987 Julian signed identical agreements with each of Michael and Angela for the sale of his interest in Peter's estate and his shareholding in WPPL for $3,413,127 each, and agreed to relinquish his position as an executor of Peter's estate (1987 Sale Agreements). On 23 February 1987 settlement under the 1987 Sale Agreements was completed. In accordance with the 1987 Sale Agreements, by order of this court made on 24 April 1987, Julian relinquished his position as an executor of Peter's estate to Michael and Angela.
In 2001, Julian's children, Natalie and Timothy, instituted proceedings in this court against Michael and Angela (Natalie and Timothy proceedings).[1] Michael and Angela filed a cross‑claim against Julian as third party. In April 2008 Michael, Angela, Julian, Natalie and Timothy executed a deed of settlement to resolve the Natalie and Timothy proceedings (the Deed of Settlement). The settlement included Julian's counterclaim against Michael and Angela. Michael and Angela paid Natalie and Timothy $70 million in performance of the Deed of Settlement and the proceedings were dismissed by consent.
[1] Proceedings brought in this court by Julian's children, Natalie and Timothy, against Michael and Angela and in which Julian was a third party.
In this action Julian alleges that he entered the 1987 Sale Agreements in circumstances where:
(a)the assets in Peter's estate had not been fully and accurately disclosed to him;
(b)matters material to WPPL's mining interests and royalties had not been fully and accurately disclosed to him; and
(c)he did not receive full and fair value for the interests which he relinquished.
Julian seeks to set aside the 1987 Sale Agreements and to be reinstated as a one‑third shareholder of WPPL and as a beneficiary of the residuary of Peter's estate.
Alternatively, Julian claims he is entitled to equitable compensation and damages for the loss he has sustained.
The corporate defendants directly or indirectly hold shares in WPPL. In 2012 the shares in WPPL owned by Michael were transferred to the fifth defendant, VOC Group Ltd (VOC). Lemon was appointed a director of VOC. Until August 2018 Ms Baldock and Ms Burt jointly owned the shares of VOC. In August 2018 Ms Baldock and Ms Burt transferred these shares in VOC to the eighth defendant, Teralani Pty Ltd, and the ninth defendant, Laremont Pty Ltd, respectively. Ms Baldock is the sole shareholder of Teralani. Ms Burt is the sole shareholder of Laremont. In July 2015 Angela transferred her WPPL shares to the sixth defendant, AMB Holdings Pty Ltd (AMB), in consideration for the issue of shares in AMB to Angela. The relief claimed by Julian includes the return by way of transfer of his shares in WPPL from VOC and AMB.
Julian claims his entitlement to relief arises from the following causes of action:
(a)breach of fiduciary duties owed by Michael and Angela as executors of Peter's estate in respect to the acquisition of Julian's right to a beneficial interest in Peter's estate;
(b)breach of fiduciary duties owed by Michael and Angela as directors of WPPL in respect to the acquisition of Julian's WPPL shares; and
(c)equitable and common law fraud.
The defendants deny every part of the plaintiff's case and deny Julian is entitled to any relief. They deny Michael and Angela owed to Julian the fiduciary duties alleged by Julian and, in any event, deny they breached any such duties. They deny the alleged fraudulent misrepresentations and/or concealment by or on behalf of Michael and Angela and deny that any such misrepresentations or concealment give rise to actionable misrepresentations. They deny that Julian has established his allegations of fraud against Michael and Angela.
The defendants contend that Julian released the present claims by the Deed of Settlement by which Julian gave extensive releases to Michael and Angela in connection with the 1987 Sale Agreements, interest in or title to any of the shares acquired under the 1987 Sale Agreements and Peter's estate and covenanted not to bring or continue any claim in relation thereto. Further, the defendants contend that Julian's claimed causes of action have been discharged by an accord and satisfaction arising out of the Deed of Settlement.
The defendants further contend that Julian's claims are time‑barred or should otherwise be dismissed on account of laches, the principles of res judicata and/or Anshun estoppel.
The executor of Michael's estate and Angela counterclaim a declaration that the Deed of Settlement is valid and effective as between Julian, Michael and Angela, damages for breach of the Deed of Settlement and an injunction restraining Julian from commencing any further proceedings against Michael's estate and Angela and, or alternatively, any further proceedings connected with Peter's estate or WPPL.
I ordered that any question of the quantum of the damages or an account of loss claimed by the plaintiff be decided separately from and after all other questions in the proceeding.
For the reasons which follow I find:
1.Julian has established his cause of action against Michael and Angela that in acquiring Julian's interest in Peter's estate Michael and Angela breached the fiduciary duty they owed as executor to Julian as a beneficiary of the estate.
2.Julian has established his causes of action in deceit and equitable fraud in relation to Michael and Angela acquiring his interest in Peter's estate.
3.Julian has not established his cause of action against Michael and Angela that in acquiring Julian's WPPL shares Michael and Angela breached the fiduciary duty as directors they owed to Julian as a director and shareholder of WPPL.
4.Julian has not established his causes of action in deceit and equitable fraud in relation to Michael and Angela acquiring his shares in WPPL.
5.Julian's claims against the first and second defendants are barred by the Deed of Settlement.
6.The claims against the third to sixth and eighth and ninth defendants are barred by the Deed of Settlement.
7.Julian breached the Deed of Settlement by instituting this action.
B. Overview of parties' cases
Summary of Julian's case
Michael and Angela's breach of fiduciary duty as executors of Peter's estate
Julian's case is that Michael and Angela breached a fiduciary duty which they owed as executors of Peter's estate to Julian in relation to the acquisition of his interest in Peter's estate.
Julian says that that fiduciary duty required Michael and Angela to:
(a)disclose to Julian all information concerning the value of the interest they were acquiring from him and which was otherwise material to his consent; and
(b)ensure full value was given for the interest the subject of acquisition.[2]
[2] The plaintiff says this principle is sometimes referred to as the fair dealing rule.
Julian says that duty was breached in both respects.
First, as to the failure to make full disclosure, as at the date of Peter's death the following material matters pertaining to the acquisition of Julian's interest were not disclosed to Julian:
(a)at his death Peter had a right to receive royalties under various agreements;
(b)at his death Peter had a right to receive a portion of any sum paid under the concentrator royalty arbitration;[3] and
(c)matters material to WPPL's mining interests.
[3] Any sum that was payable in respect of the concentrator royalties payable under a royalty agreement dated 12 December 1962 between Lang, Peter, WPPL, Hancock Prospecting Pty Ltd (HPPL), Rio Tinto Management Services (Australia) Pty Ltd, Rio Tinto Southern Pty Ltd and Hamersley Iron Pty Ltd (Hamersley Iron).
Secondly, as to the failure to give full value, the interest in Peter's estate acquired from Julian was a valuable asset for which Julian did not receive full value.
Fraud of Michael and Angela in relation to Julian's interest in Peter's estate
Julian's claim in fraud has two limbs:
(a)common law fraud - by their agents Fieldhouse and Salt, Michael and Angela deliberately or recklessly misrepresented to Julian that the statement of assets and liabilities annexed to the affidavit sworn by Michael, Angela and Julian in support of their application for probate of Peter's will was accurate and complete and disclosed all Peter's assets and deliberately or recklessly misrepresented that Peter's estate was insolvent; and
(b)equitable fraud - Michael and Angela concealed from Julian that at his death Peter had a right to receive royalties under various agreements and a right to receive a portion of any sum paid under the arbitration in relation to royalties arising from Hamersley Iron concentrating ore and concealed from Julian matters material to WPPL's mining interests.
Michael and Angela's breach of fiduciary duty as directors of WPPL
Julian's case is that Michael and Angela breached a fiduciary duty which they owed as directors of WPPL to Julian in relation to the acquisition of his WPPL shares.
Julian says that that fiduciary duty required Michael and Angela to:
(a)disclose to Julian all the information concerning the value of the shares which they were acquiring from him and which was otherwise material to his consent; and
(b)give full value for the interest acquired.
Julian says that duty was breached in both respects.
As to the failure to make full disclosure, Michael and Angela, and/or the agents through whom they effected and implemented the acquisition, Salt and Fieldhouse, failed to disclose to Julian material information relating to the potential value of his WPPL shares and relating to his decision whether to sell them.
Julian says that Michael and Angela, and/or Salt and Fieldhouse as their agents, failed to disclose to him information as to the mining interests of WPPL and in particular information as to:
(a)WPPL's interest in the Rhodes Ridge mining tenement, including that the tenement had value notwithstanding it was not on WPPL's balance sheet;
(b)WPPL's contractual rights to receive future royalties from other mines which were to be developed in the Pilbara;
(c)the prospective development of mines at Channar, Marandoo and McCamey's Monster from which WPPL could expect to receive future royalties;
(d)additional past and future royalties which WPPL would receive from the Mount Tom Price mine by reason of the Concentrator Royalty Arbitration; and
(e)the rights which WPPL was negotiating to acquire in relation to the split of the partnership between Hancock Prospecting Pty Ltd (HPPL) and WPPL (Hanwright Partnership).
Fraud of Michael and Angela in relation to Julian's WPPL shares
Julian's claim in fraud has two limbs:
(a)common law fraud - by their agent Salt, Michael and Angela deliberately or recklessly misrepresented to Julian that the directors' report and financial statements of WPPL for the years ended 30 June 1985 and 30 June 1986 did not record any value in respect of mining tenements in which WPPL held an interest, by reason that they had no value, consequent upon the financial expenditure obligations inherent in them and that they could be potentially taken away by the Western Australian government and that WPPL had net assets of approximately $12 ‑ $15 million; and
(b)equitable fraud - Michael and Angela concealed from Julian information about WPPL's assets and value.
Summary of defendants' case
Breach of fiduciary duty ‑ Michael and Angela's duties as executors of Peter's estate
The defendants' case is that none of the duties Julian alleges Michael and Angela assumed as executors and trustees of Peter's will give rise to any actionable breach of fiduciary duty and Michael and Angela discharged any such duties that properly arose.
Breach of fiduciary duty - Michael and Angela's duties as directors of WPPL
The defendants accept that a director may owe a fiduciary duty to a shareholder in relation to dealings with the shareholders' shares where there are special circumstances which give rise to such a duty. The question is whether the plaintiff is in a position of disadvantage or vulnerability which causes him to place reliance upon the defendant and necessitates the protection of equity acting on the conscience of the defendant, or the defendant undertakes or agrees to act for or on behalf of the plaintiff and having regard to those matters, the circumstances are such that the court should find a fiduciary relationship including the relevant obligation alleged.
The defendants' case is that Julian was not in a position of disadvantage or vulnerability which caused him to place reliance upon Michael and Angela, Michael and Angela did not undertake or agree to act for on behalf of Julian, and the circumstances are not such that the court should find a fiduciary relationship including the relevant obligation alleged.
The fair dealing rule
Julian says that Michael and Angela owed to Julian a fiduciary duty in relation to the acquisition of his interest in Peter's estate and his WPPL shares which required Michael and Angela to ensure full value was given for the interest the subject of the acquisition. The plaintiff describes this principle as the fair dealing rule. The defendants make four answers to Julian's reliance upon the fair dealing rule.
First, the fair dealing rule is an aspect of the no profit rule ‑ the obligation imposed by equity on a fiduciary not to obtain any unauthorised benefit from the fiduciary relationship. It does not arise in this case because there was no fiduciary relationship.
Secondly, if Michael and Angela were in a fiduciary relationship with Julian, the fair dealing rule is that a transaction whereby the beneficial interest of a beneficiary is purchased by the trustee is not voidable as of right but may be set aside unless the trustee can show that no advantage has been taken of the position of trustee, and that full disclosure has been made to the beneficiary and that the transaction is fair and honest. There is no obligation for the trustee to pay full value. The trustee must pay an adequate price. Further, a fiduciary is not necessarily a trustee. The defendants say that in this case Peter's estate had not been administered. Neither Julian nor Edix Pty Ltd[4] had a beneficial interest in the property in Peter's residuary estate. Michael and Angela were not trustees of Julian's WPPL shares.
[4] By deed of assignment made 13 May 1996 Julian assigned to Edix Pty Ltd his interest in or to Peter's residuary estate. Edix was the trustee of the Nattim Trust, a discretionary trust of which Julian was guardian and appointor and the beneficiaries included Julian's children, Natalie and Timothy.
Thirdly, if the fair dealing rule applied, the consideration under the 1987 Sale Agreements was fair and there was no breach of the fair dealing rule. Fair value must take into account the restriction in the company articles on sale of shares to a non‑member, the position of a minority shareholder, that the shares were subject to the option[5] and limits on what Michael and Angela could afford to pay.
[5] In June 1983 and January 1985 Julian executed agreements by which he granted to Peter an option to buy all of Julian's shares in WPPL for $1,070,200.
Fourthly, even if Michael and Angela were in breach of their fiduciary duty in paying less than full value for Julian's WPPL shares, equity will not set aside the transaction where, as here, Julian was aware of and consented to selling the shares on those terms. Julian believed the shares were worth more than he was paid.
Julian's fraud case
The defendants deny that Michael or Angela made any false or reckless representations to Julian. They deny Salt or Fieldhouse did so and further deny that Salt or Fieldhouse was relevantly their agent.
Deed of Settlement
By the Deed of Settlement Julian gave to Michael and Angela releases and discharges and covenanted not to bring actions against Michael or Angela. Michael and Angela submit those releases, discharges and covenants preclude Julian maintaining this action.
Accord and satisfaction
The defendants say Julian's present claims have been discharged by an accord and satisfaction arising out of the Deed of Settlement.
Limitation periods and laches
The defendants say that Julian's causes of action for deceit accrued at the latest on 23 February 1987 when the 1987 Sale Agreements were completed and Julian suffered loss through the sale of his interests under value. Fraudulent concealment is not an answer to a statutory limitation period and so the defendants say Julian's action in deceit is barred.
In the absence of fraud or other circumstances rendering the application of the limitation period unconscionable, the statutory limitation period for deceit applies by analogy to the actions for breach of fiduciary duty or equitable fraud. In equity time runs from when the plaintiff discovers, or with the exercise of reasonable diligence ought to have discovered, that he is entitled to relief. If Julian cannot establish Michael and Angela engaged in fraud, his claims were barred in 1993.
Where fraud is an element in the cause of action time begins to run on the discovery of the fraud. In the case of fraudulent concealment, time begins to run on the discovery of the concealment and ascertainment of the cause of action which requires actual knowledge that a fraud has been committed or actual knowledge of the facts which give rise to the action. Julian's claims are that Michael and Angela knowingly acquired his WPPL shares and interest in Peter's estate for less than their true value. The defendants say that by 2008, material provided in the Natalie and Timothy proceedings armed Julian with the key elements of the claims he is now pursuing.
Further, the defendants say that Julian's delay in prosecuting his case would cause significant and irremediable prejudice to the defendants if he is entitled to proceed.
Res judicata and Anshun estoppel
By his counterclaim in the Natalie and Timothy Proceedings, Julian claimed that Michael and Angela breached their fiduciary duties as executors of Peter's estate as a result of their alleged duress, undue influence, bad faith or unlawful conduct which induced his entry into the 1987 Sale Agreements. Julian claimed that Michael and Angela held his shares on a constructive or an implied trust for his benefit and sought the transfer of his shares in WPPL to him and an account of profits. Julian's counterclaim was dismissed by consent. Judgment was thereby entered on his action.
The defendants' case is that in those circumstances Julian is precluded from maintaining his present claims for breach of fiduciary duty, constructive trust, and for orders that the defendants restore to him his shares in WPPL and account for all rights, interests and benefits obtained by reason of holding those shares. The defendants say those causes of action merged in the judgment of this court in the Natalie and Timothy Proceedings and no longer exist.
Further and in the alternative, the defendants say that Julian is prevented from litigating his current claims against Michael and Angela by an Anshun estoppel. The defendants' case is that the subject matter of Julian's counterclaim in the Natalie and Timothy Proceedings and the relief sought by him mirrors the subject matter and claimed relief in the present proceedings and Julian could and should have raised in those earlier proceedings the matters of fact and law upon which he now relies.
Barriers to rescission
The primary relief sought by Julian is rescission of the 1987 Sale Agreements together with the return by way of transfer of his shares in WPPL. Equity will grant rescission if it can do what is practically just between the parties and by doing so restore them substantially to the status quo. For that purpose, ancillary relief may be granted such as an account of profits or an allowance for work done or a sum paid for benefits enjoyed. The defendants' case is that in the present case it is not possible to achieve practical justice and to restore Michael, Angela and Julian to the positions that each occupied prior to the 1987 Sale Agreements whether substantially or at all.
C. Background circumstances prior to Peter's death
WPPL
In 1956 Peter incorporated WPPL. Until his death on 13 September 1985 Peter was a director of WPPL and held one life governor's share.
Michael became a director of WPPL sometime before 1976. In August 1976, Angela and Julian were appointed directors of WPPL. At all material times until January 1987 when Julian sold his shares in WPPL to Michael and Angela, Michael, Angela and Julian each held, in substance, one‑third of the shares in WPPL.
Prior to his death Peter held a life governor's share. The life governor's share, whilst held by Peter, conferred upon Peter effective complete control of the company. The articles of association attached to the life governor's share rights and privileges on the holder including the following. First, the right to hold office for however long and whenever he chose. Secondly, the right to appoint and remove any director. Thirdly, the right at every general meeting and on every poll to 76 votes out of every 100 votes cast. Fourthly, the right at any time to take any unissued shares in the company. Fifthly, the rights attaching to the life governor's share cannot be altered or extinguished on a reduction of the capital of the company without the consent in writing of the holder. When the life governor's share ceased to be held by Peter it shall rank as and become an ordinary share.
A director's report of 6 December 1986 for the year ended 30 June 1986 stated that WPPL's main source of income was from its share of the profit from Hancock and Wright and from royalties received. The company itself or through its subsidiaries also carried on business as printers and publishers and pastoralists and farmers, and carried on manufacturing or industrial businesses ‑ but those businesses ran at a loss or made no significant contribution to the company's profit.
WPPL and subsidiary companies consolidated balance sheet as at 30 June 1986 shows total assets of $22,085,551 and total liabilities of $11,120,292 ie net assets of $10,965,259. WPPL's interest in Hancock and Wright was recorded as $471,053 and stated to be 'at book value'.
Salt, who was a director and company secretary of WPPL, signed the WPPL consolidated accounts for the year ended 30 June 1986. The balance sheet does not include mining tenements or interests as an asset. I accept Salt's evidence that when he signed these accounts, he believed that they were correct and he did not deliberately leave out any assets from the WPPL balance sheet that he prepared for 30 June 1986. Salt's evidence is that there is no entry for mining tenements in WPPLs accounts because in preparing them he followed the way that the accounts were prepared when he first commenced with WPPL in 1976. He also thought the mining tenements were in the name of Hancock and Wright as opposed to WPPL. The statement of assets did not list as an asset any royalties because he followed what was done in prior years and there was never any valuation of future royalties.
Hancock and Wright
During the 1950s and 1960s Peter and Lang explored the Pilbara region of Western Australia and identified large deposits of iron ore. Lang had incorporated a company called Hancock Prospecting Pty Ltd (HPPL) of which he was the life governing director. He had effective complete control of HPPL in the same manner that Peter had effective complete control of WPPL.
During the 1950s Peter and Lang arranged for WPPL and HPPL to commence to carry on business as partners as 'Hancock and Wright'. HPPL and WPPL did not enter into a formal partnership agreement until 1978 and subsequently entered into substituted partnership agreements in 1983 and 1984. The partnership gained control of a number of temporary reserves or tenements in the Pilbara region. The mining tenements and interests are very valuable.
The Mining Act - temporary reserves and mining leases
Section 276 of the Mining Act 1904 (WA) permitted the relevant Minister to temporarily reserve any Crown land from occupation and to authorise any person to temporarily occupy it on such terms as the Minister thought fit. The marginal note in the Mining Act referred to these reserves as '[t]emporary reserves'. The authorisation of temporary occupancy of Crown land was granted in respect of areas or blocks of land identified by numbers and described as temporary reserves. Often, for ease of reference, a temporary reserve was referred to by the prefix 'TR' followed by the block number.
Section 48 of the Mining Act authorised the Governor to grant a lease of any Crown land for purposes including mining and all purposes necessary to effectively carry on mining operations for any mineral other than gold. There was no connection made in the Mining Act between the grant of a temporary reserve and the grant of a mining lease. However, the grant of a mining lease over an area covered by a temporary reserve was only made following expiry or surrender of the temporary reserve.[6]
[6] Nicholas v Western Australia [1972] WAR 168, 171.
The grants of temporary reserves and mining leases relevant to this action took place within the framework of agreements made between the State and the grantees. Each agreement was approved or ratified by an Act of Parliament enacted for that purpose.
The 1962 Agreement and the 1963 Hamersley State Agreement
In October 1962, Hamersley Holdings Pty Ltd (Hamersley Holdings) and Hamersley Iron Pty Ltd (Hamersley Iron) were formed. Hamersley Iron is a wholly owned subsidiary of Hamersley Holdings. Hamersley Holdings is a subsidiary of Rio Tinto Ltd (Rio Tinto). Hamersley Iron was the operative company for what became known, within the Rio Tinto group, as the Hamersley project.
Prior to December 1962, Hancock and Wright was granted rights of occupancy over certain temporary reserves (the 1962 Hancock and Wright TRs). These reserves became the subject of an agreement on 12 December 1962 between Lang, Peter and Hancock and Wright (as Vendors), and Hamersley Iron (as Purchaser) (the 1962 Royalty Agreement) whereby the Vendors sold to Hamersley Iron all their right, title and interest in and to certain temporary reserves, the land comprised therein and all rights to prospect or mine granted thereby or flowing therefrom.
The 1962 Royalty Agreement provided for a royalty to be payable to the Vendors if ore was won from the area of the 1962 Hancock and Wright TRs or from additional identified areas of land over which, at that time, Hancock and Wright did not hold any rights of occupancy. The royalty is 2 ½% of the amount received on disposal of iron ore in unrefined and unmanufactured form fob the first port of shipment.
Pursuant to a State Agreement approved[7] on 13 November 1963 (the 1963 Hamersley State Agreement), Hamersley acquired significant temporary reserves over the areas covered by the 1962 Royalty Agreement.
The Perron assignment
[7] Iron Ore (Hamersley Range) Agreement Act 1963 (WA).
On 22 October 1964, a deed of assignment in respect of the 1962 Royalty Agreement was entered by Stanley Perron of the one part and WPPL, HPPL, Peter, Lang and Hancock and Wright (all called the Prospectors) of the other part, whereby the Prospectors assigned Perron a 15% interest in the royalties payable under the 1962 Royalty Agreement in respect of ore won from Hamersley Iron's Mount Tom Price mine.
The 1967 Hanwright State Agreement
By a further State Agreement[8] approved on 23 October 1967 (the 1967 Hanwright State Agreement), Hanwright was granted temporary reserves over areas which came to be numbered as blocks 4937H (TR 4937) to 4967H (TR 4967H) for a period expiring on 31 December 1968, with successive renewals for a period of 12 months.
[8] Iron Ore (Hanwright) Agreement Act 1967 (WA).
Clause 8(1) of the 1967 Hanwright State Agreement permitted Hancock and Wright to apply for a mining lease of part or parts of the total area of the temporary reserves. Eastern Range lies wholly within TR 4967H and Channar lies wholly within TR 4965H and TR 4966H.
The 1968 Royalty Agreement
On 31 January 1968, Hanwright and Hamersley Iron entered into an agreement (the 1968 Royalty Agreement). Under the 1968 Royalty Agreement, Hamersley Iron was to form a new company, Mount Bruce Mining Pty Ltd (MBM), of which Hamersley Iron would hold 75% and Hanwright would hold 25%. The 1968 Royalty Agreement also dealt with temporary reserves held by Hanwright, described as the 'Mount Bruce Reserves', which included Eastern Range and Channar A. Ore won by MBM from the Mount Bruce Reserves would be subject to payment by MBM to Hanwright of a royalty. If Hamersley Iron gave Hanwright written notice, certain temporary reserves held by Hanwright (including the Mount Bruce Reserves) were to be transferred to MBM.
The 1968 Royalty Agreement provided for MBM to pay to Hanwright a royalty of 2 ½% on ore won from tenements covered by the agreement.
The 1967 Hanwright State Agreement was amended by a further State Agreement (the 1968 Hanwright State Amendment Agreement), approved on 12 November 1968. Temporary reserves earlier issued to Hanwright were cancelled and the relevant temporary reserves were issued to Hanwright.
The 1970 Royalty Agreement
On 5 May 1970 Hanwright and Hamersley Iron and MBM entered into an agreement (the 1970 Royalty Agreement). Under the 1970 Royalty Agreement Hamersley Iron relinquished its option under the 1968 Royalty Agreement. In consideration of that relinquishment and the payment of $5 million by MBM to Hanwright, reserves (the Mount Bruce Temporary Reserves) were divided between Hanwright and MBM. Ore won by MBM from the MBM area would be subject to the payment to Hanwright of a royalty of 2 ½%.
Deed of Partition of One-Third Royalty
On 14 September 1972, a Deed of Partition of One‑Third Royalty, in respect of the 1962 Royalty Agreement, was entered by HPPL, WPPL, Lang and Peter. The Deed was ratified and confirmed on 10 October 1972.
Rhodes Ridge Joint Venture Agreement
On 11 October 1972, the Rhodes Ridge Joint Venture Agreement was entered between Rhodes Ridge Mining Co Ltd, HPPL and WPPL (RRJVA).
Rhodes Ridge Mining Co Ltd was a subsidiary of Texas Gulf Inc. Rhodes Ridge Mining Co held 50% and HPPL and WPPL each 25% of the joint venture and the joint venture assets. The joint venture covered tenements granted by the State in the Rhodes Ridge area.
Rhodes Ridge was the subject of a State Agreement which was authorised by the Iron Ore (Rhodes Ridge) Agreement Authorisation Act 1972 (WA). The Sate Agreement confirmed that significant exploration of Rhodes Ridge had been undertaken by the Joint Venturers revealing large deposits of iron ore with a high grade of iron.
Marandoo Joint Venture Agreement
On 24 October 1973, the Marandoo Joint Venture Agreement was entered between Marandoo Mining Co Ltd, HPPL and WPPL.
Deed to Avoid Dissolution of Partnership
On 2 March 1978 a deed (Deed to Avoid Dissolution of Partnership) was executed. The parties were the shareholders in HPPL, including Lang, and the shareholders in WPPL, being Peter, his wife Pauline Wright, Michael, Angela, Julian and the Wright Family Memorial Foundation Ltd. The effect of the deed was that the parties agreed that no act or thing be done to cause the determination or dissolution of the partnership of HPPL and WPPL for the period while the 1962 Royalty Agreement and the 1968 Royalty Agreement (or either of them) shall remain in force.
Texas Gulf Iron Ore Assignment Agreement
On 27 February 1981 by the Texas Gulf Iron Ore Assignment Agreement, Texas Gulf assigned its interest in the Rhodes Ridge Joint Venture to Hamersley Resources Ltd, a subsidiary of CRA, which subsequently became Rio Tinto Ltd, a part of the Rio Tinto group.
1984 Agreement
In 1984 HPPL and WPPL entered into a variation of partnership agreement (the 1984 Agreement). Clause 4 of the 1984 Agreement provided that each partner shall have the option exercisable at any time during the continuation of the partnership to require the transfer of the HPPL interests to HPPL and the transfer of the WPPL interests to WPPL. Schedule 1 of the 1984 Agreement set out the HPPL interests and sch 2 set out the WPPL interests. The WPPL interests include temporary reserves in the Rhodes Ridge Agreement Area and Giles Mini.
HPPL and WPPL entered into a further partnership agreement on 12 June 1987.
Channar Joint Venture
On 16 November 1987 CMIEC (Channar) Pty Ltd, a subsidiary of Sinosteel, and Channar Mining Pty Ltd, a subsidiary of Hamersley Iron, entered into the Channar Mining Joint Venture Agreement. Hancock and Wright were entitled to royalties from iron ore from the Channar mine.
Marandoo tenements
In October 1990, Hanwright sold its interest in the Marandoo/Wittenoom tenements for $60 million.
WPPL's action against HPPL concerning Rhodes Ridge
On 2 March 2001, WPPL instituted action CIV 1279 of 2001 in this court against HPPL to, amongst other things, obtain declarations to the effect that WPPL was entitled to sole control over and responsibility for the administration, development and disposal of the Partnership's interest in the Rhodes Ridge mining joint venture.
After a long trial Murray J upheld claims by WPPL that it had by notice dated 11 December 1997 validly exercised a right under cl 4 of the 1984 Agreement to call for the necessary steps to be taken to transfer the partnership's interests in the Rhodes Ridge mining areas to WPPL.[9] HPPL appealed. On 30 October 2012 the appeal was dismissed,[10] with the consequence that WPPL obtained, in effect, HPPL's interest in the Rhodes Ridge Joint Venture.
[9] Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [No 9] [2010] WASC 44.
[10] Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; (2012) 45 WAR 29.
On 30 April 2014, this court ordered that HPPL execute a deed of assignment in respect of HPPL's interest in the Rhodes Ridge Joint Venture in favour of WPPL, following which WPPL acquired HPPL's interest in that joint venture.
The Mount Bruce litigation
On 10 May 2013, WPPL and HPPL had been successful in Supreme Court of New South Wales action 2009/323345 in which they claimed royalties payable by Mount Bruce Mining.[11]
[11] Wright Prospecting Pty Ltd v Hamersley Iron Pty Ltd [2013] NSWSC 536.
On 16 September 2014, an appeal by Mount Bruce Mining from the decision of the New South Wales Supreme Court was partially successful,[12] following which Mount Bruce Mining appealed to the High Court. On 14 October 2015, the High Court dismissed Mount Bruce Mining's appeal and the decision at first instance was reinstated.[13]
Concentrator royalty arbitration
[12] Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2014] NSWCA 323.
[13] Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104.
The 1962 Royalty Agreement provided that Hamersley Iron shall pay to the Vendors a royalty of 2 ½% of the amount received on sale or disposal of the iron ore in unrefined and unmanufactured form fob the first port of shipment. The agreement further provided that if the iron ore is beneficiated otherwise than by crushing or screening, the ore shall be deemed to have been disposed of at the time beneficiation begins and the iron ore is deemed to have been disposed of at the assumed fob price. In the absence of actual sales of equivalent iron ore and failing agreement amongst the parties the assumed fob price shall be determined by arbitration.
In 1979, Hamersley Iron installed a concentrator at the Mount Tom Price mine in which ore produced was to be passed through a screening, crushing and beneficiation process.
In late 1979, the possibility of an arbitrated dispute was being discussed between Hamersley Iron and Hancock and Wright. However, before the arbitration could progress the question of when the beneficiation or other treatment of low grade ore began within the meaning of cl 9(b) of the 1962 Royalty Agreement had to be answered by the court.
By action 2313 of 1982 commenced in this court, the parties to the 1962 Royalty Agreement sought an answer to this question. Olney J delivered a judgment on 23 December 1983. An appeal was successful.[14] Leave to appeal to the Judicial Committee of the Privy Council was granted by the Full Court on 6 March 1985.
[14] The National Mutual Life Association of Australasia; Hancock; Wright; Hancock Prospecting Pty Ltd; Wright Prospecting Pty Ltd; LSP Pty Ltd v Hamersley Iron Pty Ltd (Unreported, SCWA, 27 November 1984).
On 11 November 1985, the Privy Council allowed the appeal and reinstated the declaration of Olney J that Hamersley was obliged to pay an amount equal to 2 ½% of the assumed fob price of all low-grade iron ore fed into the feed chute of the wet screening plant of Hamersley's beneficiation plant with the minor alteration deleting the words 'low-grade'.[15]
[15] Hamersley Iron Pty Ltd v The National Mutual Life Association of Australasia Ltd (1985) 64 ALR 19.
The dispute was referred to arbitration by a notice dated 15 January 1986. That is the concentrator royalty arbitration to which I will refer later. The claimants were Lang, Michael, Julian and Angela as executors of Peter's estate, HPPL, WPPL and LSP Pty Ltd and The National Mutual Life Association of Australasia Ltd. The respondent was Hamersley Iron. The dispute referred to arbitration was the determination of the assumed fob price of all ore fed into the feed chute of the wet screening plant of Hamersley's concentrator at Tom Price. Hamersley had not paid the claimants anything on account of that ore since it had commenced feeding ore into its concentrator.
On 30 April 1986, HPPL, WPPL, Lang and Michael, Angela and Julian (as executors of Peter's estate) produced their 'Points of Claim' in the concentrator royalty arbitration. This document was signed by Keall Brinsden, solicitors for the claimants.
On 12 June 1986, Hamersley Iron produced its 'Points of Defence'. Hamersley Iron admitted it was obliged to pay the claimants a royalty but did not admit the amount of that royalty.
As at January 1987, the concentrator royalty arbitration remained unresolved. A heads of agreement to resolve the arbitration was signed in December 1987.
Julian's history in WPPL
Julian's early years
Julian graduated with a Bachelor of Commerce at the University of Western Australia and a Master of Business Administration from North Western University in Chicago. After graduating from North Western University, Julian worked in the finance industry in Chicago before returning to Perth in June 1976.
Julian works for WPPL
On returning to Australia in June 1976 Julian commenced working as the General Manager of the Sunday Independent, a local newspaper owned by WPPL. He worked at the Sunday Independent until June 1983 except for a six month period where he worked for a transport company owned by WPPL.
In 1976 Peter appointed Julian and Angela as directors of WPPL.
Michael appointed chief executive of the Sunday Independent
Michael was appointed a director of WPPL sometime before 1976. He had commenced employment at Wrights Limited, a company owned by WPPL, as general manager during the 1970s. He ceased employment with Wrights Ltd on or about 31 July 1983 and commenced employment at the Sunday Independent as general manager and became Julian's boss. Julian became head of advertising at the newspaper. Julian reported to the general manager who reported to Michael.
Julian's relationship with Michael deteriorated during the time they were working at the Sunday Independent. Julian worked for WPPL in that capacity until he ceased employment in July 1983 in the circumstances to which I will refer shortly.
Julian's engagement as WPPL director
Between his appointment as a director in 1976 and ceasing employment with WPPL in July 1983 Julian regularly attended WPPL board meetings. At those meetings the directors discussed WPPL's non‑mining businesses but not its mining business. Peter told Julian and his siblings that he had agreed with Lang that the children would not be involved in the mining business.
Julian knew that WPPL held mining tenements and received royalties from Hamersley Iron for ore mined at Mount Tom Price. Peter had told Julian that WPPL received those royalties and Julian saw those royalties recorded in WPPL's annual financial statements which he received each year.
Julian ceases employment with WPPL
In 1982 Julian informed Peter that he did not want to be in business and he wanted to pursue his chosen career in investment finance. Julian tried to persuade Peter to let him set up an investment division within WPPL to look after its revenues to replace the royalties when they ran out. Peter did not agree. Julian decided not to work for WPPL any longer. In a memorandum of 12 November 1982 Julian recorded that Peter and Julian had agreed that Julian would continue at the Sunday Independent as advertising manager and deputy chief executive until June 1983 and that Peter had indicated that Julian would either grow closer or further away from the family and Julian was hoping for the former.
In late 1982 or early 1983 Julian borrowed $30,000 from Peter. Julian had traded some bank bills. He had an open position which showed a paper loss. He asked Peter to lend him the money to cover that position by buying an equal number of opposite bank bills to hold the position while he decided which way the market was going. Peter loaned Julian the money but at a family meeting Peter was furious and critical of Julian. Notes to Peter from Angela and Michael of 14 February 1983 and 1 March 1983 respectively show that by that time Julian's relationship with Angela and Michael had deteriorated and both of them held low opinions of Julian.
The option agreements
Julian executes option agreements
In about April 1983 Peter informed Julian that he wanted an option to acquire Julian's shares in WPPL because Julian was leaving WPPL. Julian said he did not want to give up his shares. Peter said that Julian had no choice.
Julian took legal advice from Rod Warren of Warren McDonald French & Harrison. Warren advised Julian that the articles of association of WPPL gave the life governing director or the directors acting in concert the right to require Julian to transfer the shares to their nominee for fair value and that the fair value could be manipulated by the life governing director exercising his power to vary the company's articles and to issue shares at a discount. Warren advised that that power may be subject to the control of the court but they could not advise on that without further investigation.
On 24 June 1983 Julian, Peter, Michael and Angela executed an option agreement (the first option agreement). The essential part of the agreement was that Julian granted to Peter an option for 10 years to buy all Julian's shares for $1,070,200 to be paid in annual instalments commencing on 1 January 1986 and concluding on 1 January 1995. The agreement provided that the option may be exercised at any time but if not exercised by 31 December 1985 Peter would lend to Julian the sum due on that date of each instalment. The agreement provided that in the event of Peter's death, Michael and Angela would honour the contractual obligations and abide by the terms of the agreement.
On 31 July 1983 Julian ceased employment with WPPL and subsequently commenced employment with Healy McKay Investment Services. Between that time (31 July 1983) and Peter's death on 13 September 1985 Julian had no further involvement with WPPL. He remained a shareholder and director but he did not attend directors' meetings and did not receive any financial reports.
Julian was not happy with the terms of the first option agreement and conveyed his reservations to Peter. Peter agreed to alter the option agreement. Julian, Peter, Michael, Angela and WPPL executed an option agreement dated 31 January 1985 (the second option agreement). The second option agreement provided that Julian granted to Peter an option to purchase Julian's shares in WPPL for the purchase price of $1,070,200. The option was for a period of 10 years. If Peter exercised the option before 31 December 1985, Peter was to pay the purchase price by instalments commencing on 1 August 1985 and concluding on 1 August 1994. The agreement provided that if Peter died prior to the payment of the final instalment of the purchase price, Peter's legal personal representatives agreed to fulfil all of Peter's obligations under the agreement.
Peter, Julian, Michael and Angela executed a loan agreement (the Loan Agreement). The Loan Agreement is dated 2 July 1983. However, Julian says that the agreement was executed at or about the time of the second option agreement, that is January 1985, because it refers to the second loan and was executed after the first option agreement. The Loan Agreement provides that if the lender, Peter, exercises the option, the lender agrees until the date on which the option is exercised to lend to the borrower, Julian, interest free each instalment of the purchase price described in cl 4 of the option agreement. Clause 4 of the second option agreement describes the instalments of the purchase price but there is no cl 4 in the first option agreement. I find that the Loan Agreement was executed at about the time of, or shortly before and in anticipation of, the second option agreement.
On 31 July 1985, Salt, the accountant and company secretary of WPPL, caused WPPL to pay to Julian the first instalment pursuant to the option agreement. Julian received $68,095.27, being the first payment of $170,200 less the agreed value of the property at 69 Louise Street and the Volvo sedan which Julian had in his possession.
D. Circumstances and events after Peter's death
Peter dies
Peter died unexpectedly in Thailand on 13 September 1985. He was 77 years old.
By his will Peter appointed Michael, Julian and Angela as executors and trustees of his will.
By cl 3 of his will Peter bequeathed all his shares in WPPL to be divided as to one third to Michael, one third to Angela and the remaining third to Michael and Angela upon trust for Julian's children in equal shares. By cl 4 Peter conferred a power upon Michael and Angela to apply any net income arising from the shares held in trust for Julian's children for their benefit or to accumulate any net income for their benefit until the vesting day.
By cl 5 of his will Peter bequeathed the residue of his estate to Michael, Angela and Julian in equal shares.
Discussions following Peter's death about Julian's WPPL shares
On 28 September 1985 Michael and Angela had a telephone conversation with Carnegie Fieldhouse, a Sydney lawyer who acted for Lang, Peter, HPPL and WPPL. Michael recorded the conversation and caused the recording to be transcribed. Michael asked, in relation to Julian as a director, whether they are required to advise him of meetings. Fieldhouse advised that they are. Michael then said that in relation to supplying Julian with information, his understanding is that if they send a formal notice of a meeting it is up to Julian to attend the meetings in which case he gets what everybody else gets and whatever he cares to request. Fieldhouse said that they must give Julian notice of a meeting and tell him matters that are to be discussed but they are not obliged to give him the results of the meeting. Further, if Julian later asked then they must give it to him and further, as a director Julian is entitled to all the financial accounts, both the balance sheets and all the backup information.
Michael, Angela and Fieldhouse discussed the option agreement. Fieldhouse advised that the executors of Peter's will could exercise the option and if Julian did not agree to that then Michael and Angela could 'force the issue'. Michael asked whether they should go ahead and exercise the option. Fieldhouse advised that it would be in their interest to exercise the option because under Peter's will a third of the shares would go to Michael, a third to Angela and a third to Julian leaving him with a one‑ninth shareholding in WPPL. There was a discussion about capital gains tax and stamp duty. Fieldhouse advised that it might be better to work out some separate sale arrangement with Julian for his WPPL shares but that if Julian was not a willing party, they would have no alternative but to exercise the option.
Michael, Angela and Fieldhouse discussed whether Julian's directorship could be terminated. Fieldhouse advised that it can be terminated by a meeting of shareholders and stated: 'So putting it bluntly, you and Angela could get rid of Julian'. There was a discussion about the Kanawha Coho USA venture. Fieldhouse then referred to conflict of interests. He said that Julian was coming over to see him the next day. Fieldhouse explained that he acts for Peter's estate and for Michael and Angela and if Julian wants any interpretations of Peter's will then he must seek his own legal advice because Fieldhouse would not be acting for him in anything. Fieldhouse said that his loyalty was to Michael and Angela. Michael said that he and Angela would like Fieldhouse to put his mind towards the possibility of parting of the ways with Julian. Having noted that Julian had approached Michael and Angela saying he would like to revise the option agreement, Michael said he would like to reconsider it 'in the context of getting him out one way or the other'. Angela added 'in other words, buying out the 450 shares'.[16]
[16] If Peter's executors exercised the option, Julian's 1,350 shares would form part of Peter's residuary estate to which Julian would be entitled to one‑third, that is, 450 shares.
Michael agreed that Fieldhouse should find out how much Julian would want for his shares. Fieldhouse said that he could use the deal Julian made with Peter as a weapon in talking to him. Michael instructed Fieldhouse: '[J]ust use your own imagination. The basic concept is, we'd like to buy him out one way or the other'. Fieldhouse said that he would work on that in his meeting with Julian the following day.
On 29 September 1985 Fieldhouse met with Julian in Sydney. Fieldhouse reported the discussion to Michael and Angela in a conversation later that day which Michael recorded and caused to be transcribed. Julian said to Fieldhouse that he was not happy with the option arrangement and it should be regarded as something between him and Peter and Peter did not intend for it to carry on after his death. Fieldhouse told Julian that he acts for Peter's estate and for Michael and Angela, that he did not act for Julian, and that Julian would have to get his own advice. Fieldhouse said that as far as he was concerned the option survived Peter's death. Fieldhouse said that he had instructions from Michael and Angela to talk to Julian about them buying out his shares. Julian said that he was entitled to his third and wants to get some figures from Salt to see about the assets and worth of the company and put a figure on his share. Fieldhouse said that Julian really only had a ninth, not a third. The matter was left on the basis that within a week Julian would tell Fieldhouse what he wants for his shares.
Later that day, 29 September 1985, Fieldhouse had a further telephone conference with Michael and Angela, which Michael recorded and caused to be transcribed. Fieldhouse informed Michael and Angela of the substance of his meeting with Julian as I have set it out. Fieldhouse said that he would not be surprised if the figure Julian had in mind was something in the order of $8 million or $9 million as he had mentioned that in some other context. Michael asked how realistic that was. Fieldhouse said he thought it was fairly low. Michael asked whether Fieldhouse thought Julian could reasonably demand $5 million or $6 million or $7 million. Fieldhouse said that a third of the assets and the company are worth more than that but if they held him on the one‑ninth share, one‑ninth is not worth all that. Michael said to Fieldhouse that he should emphasise to Julian that as far as the law goes he (Julian) is only entitled to one‑ninth and he ought to direct his thoughts along those lines. Fieldhouse said he had done that.
Negotiations to sell and purchase Julian's shares commence
Discussions in October 1985
In early October 1985 Julian arranged a meeting with Michael and Angela at the Kings Park restaurant in Perth. Julian said he wanted to keep his shares in WPPL. Michael said that he and Angela would be buying Julian's WPPL shares either by agreement or by the option.
By 4 October 1985 Julian had instructed Rod Warren of Warren McDonald French & Harrison to represent him in relation to Peter's estate and to obtain an opinion from McCusker QC as to whether the option was enforceable by Peter's executors.
On 4 October 1985 Michael sent Salt a memorandum, copied to Angela, about negotiations with Julian to sell his WPPL shares.
Michael recorded in his diary a meeting with Angela, Fieldhouse and Salt on 6 October 1985 about buying out Julian's shares. Michael's notes refer to intending to exercise the option to buy Julian's shares but not to exercise the option until a dividend is due. Michael noted that Fieldhouse will process probate of Peter's will and use Keall Brinsden, solicitors. Michael noted to use Fieldhouse as negotiating officer and that Fieldhouse will work on a counteroffer along the lines of tax free capital gain.
After his meeting with Fieldhouse in Sydney Julian worked out a price. His price was based on one‑ninth of the net assets of the company, one‑ninth of the mineral reserves and one‑ninth of the royalties. Julian phoned Fieldhouse. He gave Fieldhouse a figure which he (Julian) said was based on him holding one‑ninth of the shares but stressed that he did not agree that he only held one‑ninth and he believed he had one‑third of the shares. Fieldhouse rejected the proposal.
The Hancock meeting
Lang wrote a letter dated 1 November 1985 to Michael, Angela and Julian (the Hancock letter) in which Lang said that they should meet as soon as convenient and set out, amongst others, the following things. The division of mining tenements is definite as shown in the extension to the partnership agreement. Under this division the most valuable and possible saleable ore body in 'your half' is Giles Mini. The current iron producers seem to be unanimous in their opinion that Giles is the best iron ore deposit in the whole of the Hamersley field. If Hancock is able to get McCameys off the ground it may be decades before they can work Hope Downs. If McCameys is stopped from going then Hancock may be able to activate some of the Hope Downs areas instead.
When Julian received the letter he wrote to Michael saying that he wished to attend the meeting with Lang.
On 4 November 1985 Fieldhouse instructed Max Vinnicombe of Keall Brinsden to obtain probate of Peter's estate.
On 11 November 1985 the Privy Council delivered judgment on the appeal from the Supreme Court of Western Australia and declared when beneficiation began for the purpose of cl 9(b) of the 1962 Royalty Agreement.
On 21 November 1985 Neville Boughton and Kevin Dalby, the employees of Hancock and Wright attending to the concentrator royalty arbitration, met with Wayne Martin and Phillip McCann of Keall Brinsden to discuss the concentrator royalty arbitration. On 22 November Boughton wrote a memorandum to Dalby, copied to Martin, recording the discussions at the meeting. Michael received a copy of the memorandum and read it and at some time before 28 November Michael had a discussion with Boughton about the arbitration.
On 28 November there was a WPPL director's meeting attended by Michael, Angela, Julian and Salt. The minutes record that Michael reported on the Hancock and Wright royalty case before the Privy Council and informed the meeting that the appeal had been lost and cost were awarded 'against us'. Michael informed the meeting the next task was arbitration, a long drawn out procedure which could take as long as a year. The Hancock letter was tabled and discussed and the meeting decided that all those present would attend a meeting with Lang at 2.30 pm and hear his intentions regarding the future of the Hancock and Wright partnership. There was other business discussed.
On the afternoon of 28 November Michael, Angela and Julian met with Lang (the Hancock meeting). A transcript of the meeting records, amongst other things, the following discussion:
Michael: Julian is a minority shareholder, and he has expressed the desire to sell … we will be negotiating … so we will probably be reduced to the two of us in the foreseeable future. He has expressed that desire a couple of times, and when the relative information comes to hand then we will be in a position to talk to him. As the position now stands in our opinion ‑ Angela's and my opinion ‑ we have 91% and Julian has 9% of the action …
Lang then explained 'what Hancock and Wright have in common' and referred to the areas called the Angelas. Lang referred to his plans to mine McCameys Monster. He said that if that succeeded the Angelas would be a long way down the track but if he did not get McCameys going then the Angelas were next in line for him to push. Lang referred to a contract with the Romanians which would enable him to start the mine hopefully. Lang referred to railway lines, infrastructure, ports, CRA and the Mount Newman people. He referred to Western Ridge. Lang referred to the division of interests between him and Peter. Lang said:
In your half the most valuable thing you have got, in my opinion, is a thing called Giles Mini which most of the so‑called experts in the field will regard as the best iron ore deposits in the Hamersley Ranges. Now that is supposed to go into Rhodes Ridge but there is nothing definite about that, I don't think. I believe there is scope for using that outside of Rhodes Ridge. Now, the only thing I think you can do with that is do the same as what I have tried to do with Western Ridge, and sell it to Mt Newman, because they once made an approach to me to work that deposit.
Lang referred to possibly selling Giles Mini to the parent company of Goldfields UK which mined Mount Goldsworthy in a place called Area C. Lang said:
The way for them to get Area C off the ground would be to buy Giles from you because Giles is high grade and very low in impurities.
Michael referred to the two agreements between Lang and Peter. Michael referred to sch 2 which sets out the items which Hancock has got and the items which Wright has got. Michael referred to selling the interests. Lang said he did not think he would get very much for them at the moment because over the last 20 years governments have been against [Lang and Peter] getting something going. Lang said that if he was successful in getting McCameys Monster going that would set the pattern and show there is a big chance for Australia there. Lang said he was rather optimistic that there is a future in iron ore. There was a discussion after Angela asked about the risk of the government taking the interests away if they did not develop them. Later Lang said:
In my half you will see McCameys and Marandoo. In your half you will see big of the thing is Rhodes Ridge and Giles is the cream of it. Rhodes Ridge of course is enormous ‑ it is equal in size to a thing called Carajas in Brazil which says is worth $3 or $4 billion. It wouldn't be too bad if we could get a bit of that.
The delay is measured from the time a party knew or ought to have known the facts comprising the right.[209]
[209] Williams v Auckland Council [2015] NZCA 479 [103] ‑ [109].
Julian possessed copies of the 1962, 1968 and 1970 Royalty Agreements at least by January 2001 when he gave discovery of them in the Natalie and Timothy proceedings.
Julian discovered a copy of the Keall Brinsden memorandum of 20 March 1987 in these proceedings. If, as I have found, Julian did not receive a copy of the memorandum in March 1987 he must have received a copy after it was discovered by Michael in the Natalie and Timothy proceedings on 4 November 2004 or after it was again discovered by Michael and Angela on 24 January 2008. I find that Julian was in possession of a copy of the Keall Brinsden memorandum no later than January 2008. That memorandum is a critical matter on which Julian relies to establish that Michael and Angela knew that Peter's estate had an entitlement to royalties and an entitlement to participate in the expected award in the Concentrator Royalty Arbitration.
For the reasons set out earlier in these reasons I find that before signing the Deed of Settlement on 22 April 2008 Julian had sufficient knowledge of the facts upon which he brings the present action, or he ought to have known or ascertained the facts.
Julian did not commence the present proceedings until 24 February 2017, a delay of nine years. In that time, he agreed with Michael and Angela to settle his claim against them in the Natalie and Timothy Proceedings by entering into the Deed of Settlement, thereby facilitating a payment to his children of $70 million, dismissing his counterclaim against Michael and Angela with respect to the shares in question and providing broad releases in respect of any claims related to those shares.
His failure to do anything to obtain more detail or prevent the defendants from proceeding on the basis that there was no challenge to their rights, despite asserting unconscionable conduct by Michael and Angela against him, brings laches into application. Julian claims not to have appreciated the significance of the information in his possession, but the 'availability of the means of knowledge is as good as knowledge'.[210]
[210] Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 39 WAR 1 [9306].
Substantial prejudice is caused to the defendants as a result of Julian's delay in bringing these proceedings. Fieldhouse and Michael were central participants in the events the subject of the allegations in this action. Both are alleged to have been the agents or perpetrators of fraud. Fieldhouse died in November 2007, and Michael died on 26 April 2012. There is prejudice and unfairness arising out of the inability of each of Fieldhouse and Michael to defend the allegations now levelled against them.
The seriousness of a finding of dishonesty or reckless indifference to the truth will ordinarily mean that it may not be made without an opportunity being given to deal with the criticism.[211] Michael and Fieldhouse have each been denied that opportunity.
[211] Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361 [67]; Bale v Mills [2011] NSWCA 226; (2011) 81 NSWLR 498 [66] ‑ [67].
Michael, Michael's estate and Angela have each been deprived of the use of the $70 million paid to Natalie and Timothy pursuant to the Deed of Settlement in exchange amongst other things for their title to the shares now sought by Julian.
In the period since (relevantly) 23 February 1987 Michael and Angela expended time and effort in acting as directors of WPPL. The company has not only been a passive recipient of royalties, it has engaged in very substantial litigation to assert and maintain its rights in relation to the Rhodes Ridge and Mount Bruce mineral deposits during the time Michael and Angela were directors.
Equity will not readily countenance delay in such circumstances.[212] It would be 'practically unjust' to afford Julian a remedy in these proceedings having regard to his own significant delay and to the prejudice suffered by the defendants as a result of that delay.[213]
[212] Crawley v Short [2009] NSWCA 410; (2009) 262 ALR 654 [177], [179] - [180].
[213] Crawley v Short [2009] NSWCA 410; (2009) 262 ALR 654 [164].
Q. Limitation defence ‑ breach of fiduciary duty
In view of my finding that Julian is precluded from maintaining this claim by laches it is unnecessary to determine this defence. I will set out my finding in a summary way.
The Act does not specifically deal with actions for breach of fiduciary duty or equitable fraud. Where the Act has no direct application to causes of action founded on equity, the Act may be applied by analogy under doctrines developed by equity.
It is a prerequisite for a limitation period by way of analogy that there is a requisite analogy between the equitable cause of action and one to which the statutory limitation period applies. To determine the closeness of the respective causes of action, the court examines, amongst other things, the scope, policy and purpose of each.
The defendants submit that Julian's actions for breach of fiduciary duty are analogous to claims for breach of contract or deceit.
A claim for breach of fiduciary duty founded upon the same facts as would justify a claim in tort or contract attracts the same limitation period as would apply to a claim in tort or contract.[214] Some differences between the elements of the cause of action or remedies afforded at law and the elements of cause of action or remedies afforded in equity does not prevent the identification and application of the appropriate analogy.[215]
[214] Belan (as executors of the estate of the late Frank Belan) v Casey [2003] NSWSC 159; (2003) 57 NSWLR 670 [149].
[215] Lewis Securities Ltd (in liq) v Carter [2018] NSWCA 118; (2018) 355 ALR 703 [214]; Duke Group Ltd (in liq) v Alamain Investments Ltd [2003] SASC 415; (2003) 232 LSJS 58 [130]; Barker v Duke Group Ltd (in liq) [2005] SASC 81; (2005) 91 SASR 167.
It is difficult to determine whether there is sufficient correspondence between Julian's case for breach of fiduciary duty and his allegations of fraud. Some of the matters underpinning the alleged breaches of fiduciary duty, for example misrepresentations that the Statement of Assets and Liabilities was accurate and complete and disclosed all Peter's assets and that WPPL's financial statements did not record any value in respect of WPPL's mining tenements because they had no value because they required financial expenditure and they could be potentially taken away by the government, are based on the same factual allegations as the common law claims of fraud. However, other allegations do not found the common law fraud claims, for example the failure to disclose matters relating to the Hancock and Wright partnership split or that Rhodes Ridge had extensive reserves of iron ore, security of tenure and CRA as a joint venture partner responsible for carrying out exploration and expenditure.
I am not satisfied that there is sufficient correspondence between Julian's claims for breach of fiduciary duty and his claims for common law fraud so as to apply, by analogy, the limitation period for the common law fraud claims to the breach of fiduciary duty claims.
It is unnecessary to consider Julian's further claims that there are circumstances which make the application of the statute unconscionable and that the court should, in the exercise of its discretion, having regard to considerations similar to those applied in respect of the doctrine of laches, declined to apply the statutory limitation period by analogy.
R. Res judicata
Where an action has been brought and judgment entered on the action, no other proceeding may be maintained on the same cause of action. In determining what the judgment decided, a court will examine the pleadings and the judgement. An issue that appears on the record to have been decided cannot be raised again.
The defendants submit that the issue or issues that have been decided, and which Julian seeks to litigate again, are raised at [14], [16] and [21] of Julian's counterclaim in the Natalie and Timothy proceedings. Paragraph 16 pleads that the defendants acted in breach of the fiduciary duties owed to the plaintiffs which conduct was unlawful or in bad faith or both by reason of the matters pleaded in [14]. Paragraph 14 refers to the defendants forcing Julian to sell his shares by threatening to exercise the option and refusing to provide Julian with any benefits from or through WPPL. Paragraph 21 pleads that by reason of the pleaded duress or undue influence Julian entered into the 1987 Sale Agreements.
The issue is not clear. I am inclined to the view that Julian is not precluded by a res judicata from pursuing this action. However, in view of my other findings it is unnecessary to come to a final view.
S. Anshun estoppel
The defendants submit that Julian is prevented from litigating his claims against Michael and Angela by an Anshun estoppel. An Anshun estoppel precludes the assertion of a claim or of an issue of law or fact between parties to a proceeding or their privies 'if the claim or issue was so connected to the subject matter of the first proceeding as to make it unreasonable, in the context of the first proceeding, for the claim or issue not to have been made or raised in it'.[216]
[216] Timbercorp Finance Pty Ltd (in liq) v Collins [2016] HCA 44; (2016) 259 CLR 212 [27] (French CJ, Kiefel, Keane & Nettle JJ).
The defendants submit that the subject matter of Julian's counterclaim in the Natalie and Timothy proceedings and the relief sought by him mirror the subject matter and claimed relief in the present proceedings and Julian could and should have raised in those earlier proceedings the matters of fact and law upon which he now relies.
Julian submits that Anshun estoppel does not apply because the causes of action in this proceeding are not related to the earlier proceedings and even if they were the court should exercise its discretion to not allow such an estoppel to be raised in these proceedings because of the nondisclosures of which Julian complains in these proceedings.
In view of the findings I have reached, particularly in relation to the Deed of Settlement it is unnecessary to consider questions of nondisclosure in the context of Anshun estoppel.
T. Barriers to rescission
The primary relief sought by Julian is rescission of the 1987 Sale Agreements together with the return by way of transfer of his shares in WPPL.
The defendants submit that at common law, the court would only allow rescission where precise restitution was possible and that a contract may only be rescinded for fraudulent misrepresentation. The defendants submit that in order for Julian to obtain rescission by reference to his cause of action based on deceit, he must establish that Michael and/or Angela engaged in fraud, and he must establish that precise restitution is possible. The defendants submit that precise restitution is not possible.
The defendants agree that equity is more flexible and will grant rescission if it can do what is 'practically just' between the parties and by doing so restore them 'substantially to the status quo'.[217] The defendants submit that it is not possible to achieve practical justice and to restore Michael, Julian and Angela to the position is that each occupied a prior to the 1987 Sale Agreements for substantive reasons. One of those reasons is that the Deed of Settlement would need to be set aside in order to achieve substantial restitutio in integrum. Julian has not sought an order setting aside the Deed of Settlement and two of the parties to that agreement, Natalie and Timothy, are not parties to this proceeding.
[217] Nadinic v Drinkwater [2017] NSWCA 114; (2017) 94 NSWLR 518 [23] (Leeming JA), [1] (Beazley P).
It is unnecessary to consider these issues because I have decided that the Deed of Settlement precludes the granting of relief to Julian. It is inappropriate to consider these matters further because it would be necessary to do so on the basis of particular hypothetical findings and the outcome would be affected by which particular hypothetical findings I adopted for that purpose.
U. Claims against Third to Ninth Defendants
Julian's claim against third to sixth and eighth and ninth defendants
Julian's case is that Michael and Angela breached the fiduciary duties they owed to him and any benefit gained is held by them as constructive trustee. Michael's WPPL shares which he held at the time of his death are now held by VOC Group Pty Ltd, the fifth defendant. The shares in WPPL held by Angela are now held by AMB Holdings Pty Ltd, the sixth defendant.
Julian joined the third to sixth and eighth and ninth defendants because the alleged breaches of fiduciary obligations and fraudulent concealment engaged in by Michael and Angela resulted in Julian's WPPL shares and his interest in Peter's estate which they purchased from Julian under the 1987 Sale Agreements being impressed with a trust in favour of Julian, such that those shares, any dividends paid by WPPL in respect of those shares and his interest in Peter's estate are liable to be accounted for by those defendants to Julian.
I have found that Michael and Angela did not breach any fiduciary duty in acquiring Julian's WPPL shares.
I have found that in acquiring Julian's interest in Peter's estate Michael and Angela breached the fiduciary duty they owed as executor to Julian as a beneficiary of the estate and were liable in deceit and in equitable fraud.
However, by the Deed of Settlement Julian released and discharged Michael and Angela from those claims. Clause 2.1(f) of the deed provides that a reference to a party includes the party's successors and permitted assigns. The third to sixth and eighth and ninth defendants are successors and assigns of Michael and Angela.
Julian's claim against third to sixth and eighth and ninth defendants are not maintainable in this action.
Julian's claim against seventh defendant
Julian joined WPPL, the seventh defendant, because it maintains the register of its members and Julian seeks orders that its register of members is rectified such that Julian is registered as the holder of the shares transferred by him under the 1987 Sale Agreements. The effect of my findings is that no order should be made requiring Julian to be registered as the holder of the shares transferred by him under the 1987 Sale Agreements. No other relief is sought against WPPL.
V. Defendants' counterclaim
The defendants plead, and I find, that by instituting the action Julian has breached the terms of cl 5.3, cl 5.5 and cl 5.10 of the Deed of Settlement. The defendants plead that they will suffer loss and damage by reason of Julian's breach of the Deed of Settlement. The particulars of loss and damage pleaded by the defendants is that the defendants will lose the difference between their recoverable legal costs in these proceedings and the costs they will actually occur in their defence of the claims against them.
The defendants counterclaim for various relief. First, the defendants seek a declaration that the Deed of Settlement is valid and effective as between Julian, Michael and Angela. The validity of the deed was not in issue. The issue was whether or not the deed barred Julian's claims in this action.
Secondly, the defendants seek damages for breach of the Deed of Settlement and interest. That was not the subject of evidence or submissions at trial.
Thirdly, the defendants seek a permanent injunction restraining Julian from commencing any further proceedings against Michael's estate and Angela and, or alternatively, any further proceedings connected with Peter's estate or WPPL. That was not the subject of submissions at trial.
I will hear from the parties as to what, if any, orders are appropriate in relation to the defendants' counterclaim.
W. Conclusions
I have found as follows.
1.Julian has established his cause of action against Michael and Angela that, in acquiring Julian's interest in Peter's estate, Michael and Angela breached the fiduciary duty they owed as executor to Julian as a beneficiary of the estate.
2.Julian has established his causes of action in deceit and equitable fraud in relation to Michael and Angela acquiring his interest in Peter's estate.
3.Julian has not established his cause of action against Michael and Angela that, in acquiring Julian's WPPL shares, Michael and Angela breached the fiduciary duty as directors they owed to Julian as a director and shareholder of WPPL.
4.Julian has not established his causes of action in deceit and equitable fraud in relation to Michael and Angela acquiring his shares in WPPL.
5.Julian's claims against the first and second defendants are barred by the Deed of Settlement.
6.The claims against the third to sixth and eighth and ninth defendants are barred by the Deed of Settlement.
7.Julian breached the Deed of Settlement by instituting this action.
I will hear from the parties as to the orders which should be made to give effect to these findings.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CR
Associate to the Honourable Justice Le Miere
2 JULY 2021
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: WRIGHT -v- DAVID JOHN NEALE LEMON as executor of the estate of MICHAEL JOHN MAYNARD WRIGHT [No 2] [2021] WASC 159 (S)
CORAM: LE MIERE J
HEARD: 21 JULY 2021
DELIVERED : 8 FEBRUARY 2022
FILE NO/S: CIV 1319 of 2017
BETWEEN: JULIAN DAVID MAYNARD WRIGHT
Plaintiff
AND
DAVID JOHN NEALE LEMON as executor of the estate of MICHAEL JOHN MAYNARD WRIGHT
First Defendant
ANGELA MARY MAYNARD WRIGHT BENNETT
Second Defendant
LEONIE BALDOCK
Third Defendant
ALEXANDRA BURT
Fourth Defendant
VOC GROUP LTD
Fifth Defendant
AMB HOLDINGS PTY LTD
Sixth Defendant
WRIGHT PROSPECTING PTY LTD
Seventh Defendant
TERALANI PTY LTD
Eighth Defendant
LAREMONT PTY LTD
Ninth Defendant
Catchwords:
Costs - Whether costs should be paid on indemnity basis - Whether claim was hopeless
Costs - Whether the defendants should pay the plaintiff costs of issues - Whether the defendants introduced new issues - Whether those issues were present in the plaintiff's pleadings
Costs - Special costs order - Whether costs under costs determination inadequate - Legal Profession Act 2008 (WA) s 280(2)
Legislation:
Legal Profession Act 2008 (WA)
Limitation Act 1985 (ACT)
Rules of the Supreme Court 1971 (WA)
Result:
Defendants' claim for indemnity costs unsuccessful
Plaintiff pay all of defendants' costs of the action
Scale limits removed
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr R J Butcher |
| First Defendant | : | Ms K Stern SC, Ms J Taylor SC & Ms L Coleman |
| Second Defendant | : | Ms K Stern SC, Ms J Taylor SC & Ms L Coleman |
| Third Defendant | : | Ms K Stern SC, Ms J Taylor SC & Ms L Coleman |
| Fourth Defendant | : | Ms K Stern SC, Ms J Taylor SC & Ms L Coleman |
| Fifth Defendant | : | Ms K Stern SC, Ms J Taylor SC & Ms L Coleman |
| Sixth Defendant | : | Ms K Stern SC, Ms J Taylor SC & Ms L Coleman |
| Seventh Defendant | : | Ms K Stern SC, Ms J Taylor SC & Ms L Coleman |
| Eighth Defendant | : | Ms K Stern SC, Ms J Taylor SC & Ms L Coleman |
| Ninth Defendant | : | Ms K Stern SC, Ms J Taylor SC & Ms L Coleman |
Solicitors:
| Plaintiff | : | Butcher Paull & Calder |
| First Defendant | : | Clayton Utz |
| Second Defendant | : | Clayton Utz |
| Third Defendant | : | Clayton Utz |
| Fourth Defendant | : | Clayton Utz |
| Fifth Defendant | : | Clayton Utz |
| Sixth Defendant | : | Clayton Utz |
| Seventh Defendant | : | Clayton Utz |
| Eighth Defendant | : | Clayton Utz |
| Ninth Defendant | : | Clayton Utz |
Case(s) referred to in decision(s):
Amaca Pty Ltd (Formerly James Hardie & Co Pty Ltd) v Patricia Margaret Hannell as Executor of the Estate of David Richard Hannell (Dec) [2007] WASCA 158 (S)
McKechnie v Connell (WASC, Nicholson J, Lib No 940023, 20 December 1993, unreported)
Ruddock v Vadarlis (No 2) [2001] FCA 1865; (2001) 115 FCR 229
Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96; (2019) 54 WAR 388
Wagdy Hanna & Associates Pty Ltd v National Library of Australia [2012] ACTSC 126; (2012) 7 ACTLR 70
Warren v Lawton [No 3] [2016] WASC 285 (S)
LE MIERE J:
Summary
On 2 July 2021, I delivered reasons for judgement in which I found:
1.The plaintiff (Julian) has established his cause of action against Michael Wright[218] and the second defendant (Angela) that in acquiring Julian's interest in the estate of Ernest 'Peter' Wright (Peter's estate) Michael and Angela breached the fiduciary duty they owed as executor to Julian as a beneficiary of the estate.
2.Julian has established his causes of action in deceit and equitable fraud in relation to Michael and Angela acquiring his interest in Peter's estate.
3.Julian has not established his cause of action against Michael and Angela that in acquiring Julian's WPPL shares Michael and Angela breached the fiduciary duty as directors they owed to Julian as a director and shareholder of WPPL.
4.Julian has not established his causes of action in deceit and equitable fraud in relation to Michael and Angela acquiring his shares in WPPL.
5.Julian's claims against the first and second defendants are barred by the Deed of Settlement.
6.The claims against the third to sixth and eighth and ninth defendants are barred by the Deed of Settlement.
7.Julian breached the Deed of Settlement by instituting this action.
[218] The first defendant is the executor of the estate of Michael Wright.
On the same day, 2 July 2021, to give effect to those reasons, I ordered that the plaintiff's claim be dismissed. I further ordered that the matter be referred to a directions hearing for the parties to be heard regarding orders relating to the defendants' counterclaim and orders relating to costs. I have not made any further directions in relation to the defendants' counterclaim which remains to be resolved. I made directions for the filing of submissions and affidavits in relation to the question of costs. These are my reasons for determining the question of costs.
For the reasons which follow, I find that the plaintiff shall pay the defendants' costs of and incidental to the proceedings, including reserved costs, and there should be a special costs order as set out in these reasons.
Defendants' claim for indemnity costs
The defendants claimed that the plaintiff should pay their costs of and incidental to the proceeding on an indemnity basis. The defendants put their claim on two bases. The first basis is that the plaintiff, properly advised, should have known that he had no chance of success. The defendants submit that, relevantly, indemnity costs may be awarded where litigation is commenced in the face of a deed of settlement. The defendants refer to the decision of Refshauge J in Wagdy Hanna & Associates Pty Ltd v National Library of Australia[219] in support of their submissions.
[219] Wagdy Hanna & Associates Pty Ltd v National Library of Australia [2012] ACTSC 126; (2012) 7 ACTLR 70.
In Wagdy Hanna & Associates Pty Ltd v National Library of Australia, the plaintiff was an unsuccessful tenderer for the provision of a new storage facility for the defendant. The plaintiff complained of the defendant's tender process and commenced proceedings in the Federal Court of Australia. The proceedings were discontinued and the parties entered into a deed of settlement. Subsequently, the plaintiff commenced new proceedings in the Supreme Court of the ACT, claiming damages or compensation alleging that there had been a breach of a duty of confidentiality in respect of information supplied with its tender and unjust enrichment. The defendant denied it had disclosed any confidential information. It also pleaded that (i) the plaintiff's action was barred by the Limitation Act 1985 (ACT); (ii) the deed of settlement released the defendant from any further claims; and (iii) the plaintiff was estopped (Anshun estoppel) from prosecuting its new claims as it had not raised them in the Federal Court proceedings. The defendant also pleaded a counterclaim, claiming that the plaintiff had breached a covenant in the deed of settlement by commencing proceedings. The orders sought by the defendant in its counterclaim included damages for breach of the deed of settlement and costs to be paid on the indemnity basis. The plaintiff claimed the defendant had breached the deed by disclosing the terms to a journalist and was not entitled to the release. It also claimed that time was postponed under s 33 of the Limitation Act. Justice Refshauge held that the defendant had not breached the deed of settlement, that the plaintiff's claim was covered by the deed of settlement and the defendant could rely on it in its defence and counterclaim.
In addressing the defendant's counterclaim Refshauge J first considered its claim to damages. His Honour determined that the proper measure of damages was an award of indemnity costs. His Honour then considered the costs order sought by the defendant and observed that there was a 'convergence' with its claim for damages. His Honour referred to the power of the court to award costs on an indemnity basis and said that one ground for such an order is where proceedings are commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. His Honour observed:[220]
Of course, such cases should be distinguished from 'marginal' cases, else every unsuccessful litigant would, by definition, be at risk of paying costs on an indemnity basis as the court has rejected their claim or defence. That is neither the law nor appropriate.
Of course, the distinction between a case so hopeless that it ought to be visited with an indemnity costs order and a merely marginal one is not easy to draw [332] ‑ [333].
[220] Wagdy Hanna & Associates Pty Ltd v National Library of Australia [2012] ACTSC 126; (2012) 7 ACTLR 70.
Justice Refshauge concluded:
Nevertheless, it seems to me that there is a case here for an award of indemnity costs on the traditional basis, both because the litigation was commenced in the face of the deed of settlement and then its continuance in the light of the comprehensive evidence of the defendant's witnesses which showed the flimsiness of the inferences that were necessary to underpin the plaintiff's case.
In any event, I am also satisfied that this would be the measure of the damages payable to the defendant for the breach of the deed of settlement. There should be an award of costs of the claim and counterclaim on the indemnity basis to the defendant [339] ‑ [340].
This case is distinguishable from Wagdy Hanna & Associates Pty Ltd v National Library of Australiaon two grounds. First, the defendants' claim for damages in their counterclaim has been expressly reserved.
Secondly, I am not persuaded that the plaintiff commenced or continued the proceedings in circumstances where, properly advised, he should have known that he had no chance of success. The question must be looked at not with hindsight but having regard to the circumstances as they appeared to the plaintiff when he commenced and continued the proceedings. I have found against the plaintiff and in particular I have found that his claims are barred by the deed of settlement. However, I am not persuaded that the plaintiff's arguments that his claims were not covered by the deed were so hopeless that he should be ordered to pay the defendants' costs on an indemnity basis.
It is not sufficient that I have found the plaintiff breached the deed of settlement by bringing these proceedings and that it is likely that the damages to which the defendants are entitled are the actual costs of defending the proceedings which would amount to indemnity costs. The court has inherent jurisdiction to make an indemnity costs order. The discretion to make such an order must be exercised judicially. The defendants' counterclaim has not been determined. It would be wrong in principle to make an order for indemnity costs in anticipation of that being the likely outcome of the defendants' counterclaim.
The court might, in an appropriate case, order indemnity costs where a plaintiff brings proceedings in breach of a deed. However, there is no principle that a court should order indemnity costs merely because the proceeding was brought in breach of a deed or contract not to do so. Whether or not an indemnity costs order should be made will depend on all the circumstances. In this case, I find that the plaintiff's case was not hopeless. The plaintiff's conduct in bringing the action in the face of the deed of settlement does not of itself warrant an order for indemnity costs.
Costs of issues
The costs of proceedings are in the discretion of the court but, without limiting the general discretion, the court will generally order that the successful party recover their costs.[221] Nevertheless O 66 r 1(3) of the Rules of the Supreme Court 1971 (WA) provides that where a party though generally successful in an action has, by the introduction of some issue or issues on which they have failed, increased the costs the court may order such party to pay the costs of such issue or issues. It is common ground that the defendants were the successful parties. However, the plaintiff submits that the defendants increased the costs by the introduction of issues on which they failed.
[221] Rules of the Supreme Court 1971 (WA) O 66 r 1(1).
The plaintiff and the defendants referred to the following statement concerning O 66 r 1(3) by the Court of Appeal in Strzelecki Holdings Pty Ltd v Jorgensen:[222]
Under O 66 r 1(3) RSC, where a party, though generally successful in an action, has, by the introduction of some issue or issues on which it has failed, increased the costs, the Court may order such party to pay the costs of such issue or issues. It is well‐recognised that an order that a successful party recover only a portion of its costs, where it has not been wholly successful, should not be made as a matter of course, for at least two reasons. First, it is often the case that a successful party will not succeed on every issue raised. Secondly, to attempt, in every case, an analysis of which party was successful on which issue would add uncertainty and complexity to the outcome of litigation, and add to the time and cost of costs arguments. Consequently, the power to apportion costs in this way should only be exercised where there are discrete and severable issues on which the generally successful party failed, and which added to the cost of the proceedings in a significant and readily discernible way. Furthermore, while parties should be encouraged to consider carefully what matters they put in issue, justice may not be served if, by too ready a resort to deciding questions of costs according to success on particular issues, parties are dissuaded by the risk of costs from canvassing all issues which might be material to the decision in the case [51].
[222] Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96; (2019) 54 WAR 388.
The plaintiff submits that the success or failure on issues can be summarised as follows:
Plaintiff Successful Defendant Successful Peter's Estate tort of deceit WPPL shares tort of deceit Peter's Estate breach of fiduciary duties and equitable fraud WPPL shares breach of fiduciary duty owed by Angela and Michael as directors Proper construction of 1962 Royalty Agreement Proper construction of 1968 and 1970 Royalty Agreements Valuation of Peter's personal royalty interest under 1962 Royalty Agreement 2008 Settlement Deed Fieldhouse and Salt being Angela's and Michael's agents Accord and satisfaction Limitation period equitable fraud Limitation period tort of deceit Laches and barriers to rescission
The defendants submit that the court should not order the defendants to pay the costs of any issues for three reasons. First, the defendants did not introduce discrete or severable issues on which they failed. Rather, the defendants met the case that was put against them regarding the issues on which they failed. Further, the defendants submit it was entirely reasonable for them 'to put the [plaintiff] to proof of all of the issues necessary to establish [his] cause of action', which is a reference to a statement by the Court of Appeal in Amaca Pty Ltd (Formerly James Hardie & Co Pty Ltd) v Patricia Margaret Hannell as Executor of the Estate of David Richard Hannell (Dec).[223]
[223] Amaca Pty Ltd (Formerly James Hardie & Co Pty Ltd) v Patricia Margaret Hannell as Executor of the Estate of David Richard Hannell (Dec) [2007] WASCA 158 (S) [9].
I do not agree that the defendants did not introduce the issues on which they failed for the purposes of O 66 r 1(3). In this sense 'issue' does not mean a precise issue in the technical pleading sense, but any disputed question of fact or law.[224] An 'issue' refers to a question in dispute in the action between the parties where one side affirms and the other denies a contention. What is in issue is determined on the pleadings. A defendant may relevantly introduce an issue by denying facts pleaded by the plaintiff. A contrary interpretation of the rule would defeat its purpose which is to encourage parties not to incur unnecessary costs by unnecessarily disputing facts or contentions.
[224] Ruddock v Vadarlis (No 2) [2001] FCA 1865; (2001) 115 FCR 229 [11]; McKechnie v Connell (WASC, Nicholson J, Lib No 940023, 20 December 1993, unreported); Warren v Lawton [No 3] [2016] WASC 285 (S).
The defendants submit that the factual and evidentiary substratum to each of the issues on which the plaintiff succeeded was substantially common to all issues that arose in the proceedings. I do not agree. A significant amount of time was taken up with evidence and submissions concerning the issues on which the plaintiff succeeded which was not relevant to the issues on which he failed.
Secondly, the defendants submit that their conduct in contesting the issues on which they failed did not add to the cost of the proceedings in a significant and readily discernible way. I do not agree. The issues on which the defendants failed added significantly to the time, and accordingly costs, of the trial. It is not practicable to go through the evidence of each witness and the submissions of each counsel and attribute parts of the evidence and submissions to the issues on which the defendants failed. To do so in a trial which occupied 22 sitting days would be oppressive and an unjustified use of judicial resources. The appropriate course is to take a pragmatic approach and, if such an order is made, to award the successful party a proportion of their costs but not the full amount so as to reflect the costs incurred in relation to the issues on which they failed.
Thirdly, the defendants submit that as a matter of discretion the court should not apportion costs in this case. They submit that the fact that Julian obtained favourable findings of fact on some, but not all issues, is not to the point given that the case was brought on causes of action which have been held to be barred or discharged and was settled in 2008. The justice of the case, and the proper exercise of the discretion, they submit requires that the court should fully compensate the defendants for the costs incurred in defending proceedings which were, in effect, held to be improperly brought.
I agree. The issues on which the defendants failed included findings of serious misconduct. However, the issues in relation to those matters arose from the plaintiff's pleading and the defendants did not act unreasonably in contesting those matters. The plaintiff failed on all his pleaded causes of action because they were all barred by the deed of settlement. In that sense the defendants were wholly successful.
The defendants should have all of the costs of the action, including reserved costs.
Special costs order
I am of the opinion that the amount of costs allowable in respect of this action under the relevant costs determinations is inadequate because of the unusual difficulty and the complexity and the importance of the matter. I have formed this opinion as the judge who case managed the matter to trial, conducted the trial and reviewed the evidence and legal submissions for the purpose of writing my reasons for judgement, and having regard to the matters deposed to by Gareth Jenkins, the solicitor with the day-to-day conduct of the proceeding on behalf of the defendants, in his affidavit sworn on 16 July 2021. For that reason, I exercise my discretion to make a special cost order pursuant to Legal Profession Act 2008 (WA) s 280(2).
In his written submissions of 15 July 2021 the plaintiff agreed that by reason of the complexity of the case, it is an appropriate case for there to be an uplift in the scale items under the relevant costs determinations but said that the defendants had not provided any evidence in respect of such uplifts and the matter should not be left 'at large' for the costs assessor and reserved his position with respect to making specific submissions in response to the defendants' special costs order submissions. Subsequently, the defendants filed the affidavit of Gareth Jenkins sworn 16 July 2021 and submissions in which they submitted that the circumstances warrant a lifting of all scale limits and orders in the form proposed in their minute of proposed orders filed 20 July 2021. The plaintiff made no submissions in response.
In the exercise of my discretion, I consider the appropriate order is that proposed by the defendants, which is:
The plaintiff pay the defendants' costs of and incidental to the proceeding, including reserved costs, to be taxed if not agreed. Any such taxation of costs is to be undertaken:
(i)without reference to the limits provided for in Table B at cl 13 of the Legal Practitioners (Supreme and District Courts) (Contentious Business) Determination 2020 (2020 Scale), cl 14 of the Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2018 (2018 Scale), cl 13 of the Legal Profession (Supreme Court) (Contentious Business) Determination 2016 (2016 Scale) and cl 9 of the Legal Profession (Supreme Court) (Contentious Business) Determination 2014 (2014 Scale);
(ii)without reference to the hourly rates and the daily rates provided for solicitors (senior, junior and restricted), Clerks and Paralegals, Junior Counsel and Senior Counsel in Table A at cl 11 of the 2020 Scale, cl 12 of the 2018 Scale, cl 11 of the 2016 Scale and cl 8 of the 2014 Scale; and
(iii)including reasonable allowances for work undertaken by Senior Counsel and Junior Counsel.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CR
Associate to the Honourable Justice Le Miere
8 FEBRUARY 2022
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