Zollo v Polley
[2020] SASCFC 100
•29 October 2020
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court: Civil)
ZOLLO & ORS v POLLEY & ANOR
[2020] SASCFC 100
Judgment of The Full Court
(The Honourable Justice Kelly, The Honourable Justice Livesey and The Honourable Justice Bleby)
29 October 2020
EQUITY - GENERAL PRINCIPLES - FIDUCIARY OBLIGATIONS - PARTICULAR CASES - JOINT VENTURER
EQUITY - EQUITABLE REMEDIES - EQUITABLE COMPENSATION - BREACH OF FIDUCIARY OBLIGATIONS
APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - POINTS AND OBJECTIONS NOT TAKEN BELOW - WHEN NOT ALLOWED TO BE RAISED ON APPEAL - QUESTIONS NOT RAISED ON PLEADINGS OR IN ARGUMENT
The parties participated in a joint venture for the development of real estate. On 25 October 2016, the respondents commenced proceedings against the appellants, asserting various causes of action arising in the course of that joint venture, including breach of contract, breach of fiduciary duty, resulting and constructive trust, misleading and deceptive conduct and misrepresentation.
The first appellant is a natural person under a disability through paraplegia and dyslexia. The second respondent is the trustee of the first respondent’s self-managed superannuation fund. The first appellant is a natural person who, at the relevant time, was prohibited from being a director of a company that was a licenced building contractor or supervisor. The second appellant is a company owned and controlled by the first appellant. The third appellant is the corporate trustee of the first appellant’s self managed superannuation fund.
The broad nature of the respondents’ claim was set out in the Statement of Claim. They asserted that the respondents reposed trust and confidence in the appellants in circumstances giving rise to fiduciary duties as joint venturers, that the first and second appellants took unconscionable advantage of the respondents in taking an unauthorised profit of $130,000 as an assignment fee in respect of land purchased for the joint venture, and that the first and third appellants also acted unconscionably in maintaining a claim to a legal interest in real estate paid for by the respondents, notwithstanding that the joint venture did not proceed.
The appellants by their Defence agreed to the characterisation of the relationship between the parties as one giving rise to fiduciary duties, and did not otherwise seek to contradict this at trial. The trial judge found that the first appellant breached those fiduciary duties at the moment of their inception, due to the disciplinary orders that had been made prohibiting him from acting as a director of a company that worked as a building contractor. Further breaches of fiduciary duty and misleading and deceptive conduct by the appellants were found to have occurred in relation to the two land purchases the subject of the Statement of Claim. The trial judge ordered relief that reflected these findings.
The appellants advanced four main grounds of appeal. Ground 1.a took issue with the trial judge’s finding that there was a fiduciary relationship between each of the joint venturers. Ground 1.b complained, further or in the alternative, that the joint venture was void and unenforceable for illegality, being prohibited by the Superannuation Industry (Supervision) Act 1993 (SIS Act). Ground 2 complained, also in the alternative, that the trial judge erred in finding that any fiduciary obligations were breached. Ground 3 complained that the trial judge erred in finding that the appellant’s conduct was misleading. Ground 4 complained that the trial judge erred in finding that any loss was caused by the conduct of the appellants.
Held (per Bleby J, Kelly and Livesey JJ agreeing), dismissing the appeal:
1. The appellants have offered no basis for the Court to go behind the conceded position at trial and allow them to agitate the question of whether the parties were in a fiduciary relationship.
2. The findings as to contraventions of the SIS Act did not rise beyond the status of observations by the trial judge and are incapable of deployment on appeal as somehow constituting a bar to the relief that was granted, especially in circumstances where reliance on the doctrine of illegality was not pleaded at trial.
3. The appellants have offered no basis for disturbing the trial judge’s findings as to their breaches of fiduciary duty and misleading conduct, or that their conduct caused loss.
Superannuation Industry (Supervision) Act 1993 (Cth) ss 15, 62, 193, 215, 216, 221; Defence Service Homes Act 1918 (Cth); Competition and Consumer Act 2010 (Cth) Sch 2, ss 18, 236, 243; District Court Rules 2006 (SA) r 100(1)(c); Supreme Court Rules 1987 (SA), referred to.
Leotta v Public Transport Commission (NSW) (1976) 50 ALJR 666; Dare v Pulham (1982) 148 CLR 658; Gordon v MacGregor (1909) 8 CLR 316 at 321; Queensland Mines Ltd v Hudson (1978) 52 ALJR 399; Williams v Australian Telecommunications Commission (1998) 52 SASR 215; Banque Commerciale SA (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279; Commonwealth Bank of Australia v Quade (1991) 178 CLR 134; Polley & Anor v Zollo & Ors [2019] SADC 76; United Dominions Corporation Ltd v Brian Pty Ltd & Ors (1985) 157 CLR 1; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; Mintech Resources Pty Ltd and Another v Russell-Taylor and Another (2012) 113 SASR 80; Yango Pastoral Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410; Nelson v Nelson (1995) 184 CLR 538; Fox v Percy (2003) 214 CLR 118; Rawcliffe v Bianco Hiring Services Pty Ltd [2002] SASC 430, considered.
ZOLLO & ORS v POLLEY & ANOR
[2020] SASCFC 100Full Court: Kelly, Livesey and Bleby JJ
KELLY J: I would dismiss the appeal. I agree with the reasons of Bleby J.
LIVESEY J: I agree that the appeal should be dismissed for the reasons given by Bleby J.
BLEBY J: By a summons filed on 25 October 2016, the respondents commenced proceedings against the appellants in respect of losses they claimed to have suffered as a result of conduct of the appellants in the course of a joint venture between the parties. The respondents asserted causes of action in breach of contract, breach of fiduciary duty, resulting and constructive trust, misleading and deceptive conduct and misrepresentation.
The first respondent, Mr Polley, is a natural person. He is under a disability through paraplegia and dyslexia. The second respondent, Neil Polley Holdings Pty Ltd, is the trustee of Mr Polley’s self-managed superannuation fund (SMSF).
The first appellant, Mr Zollo, is a natural person. At the relevant time, he was prohibited from being a director of a company that was a licensed building contractor or supervisor. He had been made a bankrupt in 1997 and had not received an automatic discharge at the end of the usual period of bankruptcy. He owns and controls the second appellant, Built It Construction Services Pty Ltd. The third appellant, AZ Holdings (SA) Pty Ltd, of which Mr Zollo is the sole director and shareholder, is the corporate trustee of Mr Zollo’s SMSF.
The broad nature of the respondents’ claim against the appellants is set out in its essence in paragraphs 1 to 5 of the Statement of Claim filed 25 October 2016:
1.The first plaintiff is a natural person under a disability through paraplegia and dyslexia. The second plaintiff is a duly incorporated company and the trustee of the first plaintiff’s self-managed superannuation fund.
2.The first defendant is a natural person carrying on business as a builder/property developer. The second defendant is a company owned and controlled by the first defendant. The third defendant is a duly incorporated company and is the trustee of the first defendant’s self‑managed superannuation fund.
3.The plaintiffs participated in a joint venture with the defendants for the development of real estate. The plaintiffs agreed to provide the money and the defendants agreed to provide the development expertise. The plaintiff’s [sic] reposed trust and confidence in the defendants in circumstances giving rise to fiduciary duties as joint venturers.
4.The first and second defendants took unconscionable advantage of the plaintiffs in taking an unauthorised profit of $130,000 as an assignment fee in respect of land purchased for the joint-venture. The first and third defendants also acted unconscionably in maintaining a claim to a legal interest in real estate paid for by the plaintiffs notwithstanding that the joint-venture did not proceed.
5.The causes of action relied upon are: breach of contract, breach of fiduciary duty, resulting and constructive trust, misleading and deceptive conduct and misrepresentation.
The appellants filed a Defence on 23 November 2016. Importantly, in response to paragraph 3 of the Statement of Claim as set out above, they simply pleaded:
3. Agreed.
The claim centred on the nature and dealings of and within the joint venture. As to this, the Statement of Claim pleaded:
14.In the course of a series of meetings at the Edwardstown property and at the office of the first defendant at North Adelaide the first plaintiff and the first defendant agreed to carry on the joint venture with a view to profit on terms (‘the joint‑venture terms’) that:
14.1 The first plaintiff and his associated entities would provide capital for the purchase of real estate at an interest rate of 5%; and
14.2 The first plaintiff and the first defendant would endeavour to locate suitable properties; and
14.3 The first defendant would provide expertise in developing such properties; and
14.4 The parties would share the profit equally on resale following development of the properties.
15.The first plaintiff and the first defendant agreed to incorporate a company SA Disability Housing Pty Ltd (‘SADH’) to develop disability housing.
These paragraphs were largely admitted.
The respondents then pleaded the dealings of the joint venture with respect to three separate properties. These properties were located at 32 Whysall Road, Greenacres (Whysall Road property), 72 Muller Road, Greenacres (Muller Road property) and 417 and 419 North-East Road, Hillcrest (Hillcrest property).
The trial judge made detailed findings of fact over some 104 numbered paragraphs.[1]
[1] Polley & Anor v Zollo & Ors [2019] SADC 76. A number of these findings of fact come under attack in the Notice of Appeal by reference to other paragraphs within the Reasons for Judgment from which these findings are derived.
The joint venture
The judge made the following findings with respect to the creation and existence of the joint venture between Mr Zollo and Mr Polley. This factual history included initial dealings with respect to the Whysall Road property and what the trial judge found to be false representations engaged in by Mr Zollo from the outset:[2]
[2] Polley & Anor v Zollo & Ors [2019] SADC 76 at [61]-[63]; Findings of Fact [1]‑[19].
1On a date which is uncertain but which occurred in 2012, Mr Polley was introduced to Mr Zollo as a builder and Mr Polley accepted the truth of this statement. This was known by Mr Zollo from the outset of their discussions. Mr Polley was told, and he reasonably believed, that Mr Zollo was a successful builder and property developer but Mr Zollo did not disclose to Mr Polley that he has been the subject of disciplinary action about his builder’s licence. At the time, Mr Zollo was prohibited from being a director of a company that was a licenced building contractor or supervisor. Mr Zollo had been made a bankrupt in 1997 and had not received an automatic discharge at the end of the usual period of bankruptcy. As a result, Mr Zollo does not own any assets in his own name. At the time, Mr Zollo had no capacity to be a director of any entity that had a builder’s licence to work as a building contractor or supervisor. Mr Zollo’s conduct at the time was misleading and his statements to Mr Polley were untrue.
2At the time of this introduction, Mr Zollo led Mr Polley to understand and believe, and Mr Polley did believe, that Mr Zollo was a successful property developer and builder, and that he was able to bring to any task concerning property development, a large level of skill and experience developed over a long period of time from his involvement in the building industry generally. This included a capacity to supervise the whole of any contemplated building project.
3At a time in 2014, Mr Polley was introduced to Mr Zollo. They made an agreement to operate under a joint venture to develop broad acre land for disability housing. From that time, because of the particular factual circumstances, the relationship was fiduciary in nature.
4Mr Polley understood from the outset of the joint venture that as he was a novice in the area of building, he would supply funding through the second plaintiff to the joint venture and Mr Zollo would provide building expertise. It was never possible for Mr Zollo to do this. This understanding was created in the mind of Mr Polley by Mr Zollo who knew of that understanding and to his knowledge it was false.
5Relying upon the representations made to him, Mr Polley pursued Mr Zollo to create a joint venture relationship and to broaden that relationship over a period of time. The representations made by Mr Zollo to Mr Polley are false. If Mr Polley had known the truth, he would have broken off any further contact with Mr Zollo.
6On or about 30 August 2014, Mr Zollo introduced Mr Polley to Mr Peter Balnaves allegedly for the retainer of Mr Balnaves as an accountant for the company SADH. Mr Balnaves was described as an independent accountant. At the time Balnaves, because of his existing relationship with Mr Zollo, had no capacity to act as an independent accountant. As an accountant, he was required to be supervised due to his own earlier criminal behaviour.
7The joint venture being proposed at the time was for a separate entity to be created which was intended to find appropriate properties and to build upon those properties homes especially designed for persons with a disability. Mr Polley was to provide capital and Mr Zollo was to provide skills as a builder and a developer.
8If Mr Polley had been aware of the incapacity of Mr Zollo to fulfil his obligations under the joint venture and the poor reputation of Mr Balnaves, he would never have entered into any form of relationship with Mr Zollo or with Mr Balnaves.
9At the time, Mr Zollo was negotiating with Mr Polley to enter into a joint venture, and upon the agreement to pursue the joint venture. Mr Zollo owed Mr Polley fiduciary duties of loyalty and this required the parties to make full disclosure. If he had fulfilled that duty of full disclosure, Mr Zollo should have informed Mr Polley of the difficulties that faced him as a result of the disciplinary action taken against him about his builder’s licence and that of Built It Pty Ltd and that he was incapable of fulfilling his part of the joint venture responsibilities. Mr Zollo breached his fiduciary duties of full disclosure owed to Mr Polley.
10On or about 24 November 2014, a contract was executed for the purchase of a property at 32 Whysall Road, Greenacres. The purchaser was named as “Mr Polley and or Nominees”.
11By November 2014, the negotiations between Mr Polley and Mr Zollo had resolved that a company would be formed which would seek a builder’s licence so that it could construct disability housing on any land which the joint venture was to purchase. The corporation was to be the vehicle through which the joint venture would operate.
12The disability housing built upon the land would be sold at a profit which profit would be reinvested by the company but after Mr Polley received a full return on the capital used in the joint venture.
13By no later than 24 November 2014, the relationship between Mr Polley and Mr Zollo exhibited all of the indicia of a partnership. The parties called their relationship a joint venture and the parties thereto owed to the other fiduciary duties of loyalty.
14A fiduciary relationship arose between Mr Polley and Mr Zollo no later than the time when they embarked upon the purchase of Whysall Road property as part of their joint venture business even though the precise terms of their agreement had not been completely settled between them. Those fiduciary duties of loyalty include a duty to refrain from pursuing, obtaining or retaining for himself any collateral advantage in relation to a proposed project without the knowledge and informed consent of the other participants.
15As a result of the fiduciary duties of loyalty owed by Mr Zollo to Mr Polley, it was necessary for Mr Zollo to make full disclosure to Mr Polley of his inability to make any contribution to the business of the joint venture as a builder or developer.
16By no later than 24 November 2014, all of the efforts of Mr Polley and Mr Zollo were required to be directed towards the pursuit of this joint venture between them such that Mr Zollo was not permitted to separately profit from the business of the joint venture by taking advantage of an opportunity belonging to the joint venture for his own benefit.
17The company SADH was incorporated on 8 December 2014. There was only one named director, Mr Polley and two shareholders, Mr Polley and Mr Zollo.
18From the commencement of the joint venture and after the incorporation of SADH, Mr Zollo behaved as if he was a director at all material times and exercised a control of the business of both of them such that Mr Polley would in all things, defer to him and particularly on all building and development matters.
19Mr Zollo was always aware that Mr Polley was entirely reliant upon what Mr Zollo told him about his capacity to arrange for and supervise the building works to be undertaken by SADH. Mr Polley had no physical capacity, qualification or experience to be in a position to do these things and he relied entirely on what Mr Zollo said about his (Mr Zollo’s) capacity, qualifications and experience.
(Emphasis added; footnotes omitted)
The judge explained his finding as to the fiduciary nature of the relationship between the joint venturers, including the first appellant and the first respondent:[3]
It is a question of fact in each case whether the relationship between joint venturers is necessarily a fiduciary one. I am satisfied that in the whole of the circumstances of this case, that relationship is a fiduciary one having regard to the inequality of knowledge between Mr Polley and Mr Zollo about building matters, that Mr Polley would, through the second plaintiff, be providing the whole of the capital for the purposes of the development of property to be purchased using that capital and because of the complete reliance placed by Mr Polley on Mr Zollo to bring his building skills and expertise to bear upon the business of the joint business between them. I am satisfied that the relationship between the joint venturers was necessarily a fiduciary one and so the usual fiduciary duties were owed as between [them] for as long as the joint venture subsisted. As a result, the second plaintiff was always intrinsically involved in the joint venture business.
[3] Polley & Anor v Zollo & Ors [2019] SADC 76 at [37].
The judge went on to find, however, that Mr Zollo breached the fiduciary duties that he owed to Mr Polley at the moment of inception of those duties.
The findings of immediate breaches of fiduciary duty and misleading conduct
The trial judge found that at no time was Mr Zollo able to bring any skill, experience or contribution to the development of the Whysall Road property. This was because of disciplinary orders that had been made against him and an undertaking he had given to the District Court in 2012, not to act as director of a body corporate that worked as a building work contractor.[4] He found that on 8 September 1997, Mr Zollo’s builder’s licence had been cancelled. On 14 April 2009, Built It Construction Services Pty Ltd was granted a builder’s licence, but that was suspended on 25 March 2015.
[4] Polley & Anor v Zollo & Ors [2019] SADC 76 at [142]; Findings of Fact [22].
The trial judge further found that on or about 15 December 2014, Mr Zollo had received notice of an impending disciplinary action in relation to Built It Construction Services Pty Ltd and Mr Zollo himself. The allegation was that Mr Zollo had acted as a director of a building company, contrary to the undertaking he had given to the District Court.[5] He found that Mr Zollo’s failure to inform Mr Polley of those undertakings from the outset was a breach of his fiduciary duties of loyalty to act in good faith and to make full disclosure.[6] He also found that the representations that Mr Zollo made to Mr Polley at the time of the joint venture as to his capacity as a builder and works supervisor were false and misleading.[7] The trial judge then found:[8]
Mr Polley was never made aware by Mr Zollo of this notice of impending disciplinary action and this failure breached the terms of the joint venture agreement because Mr Zollo could never bring any particular skill or asset to the joint venture. It also breaches [sic] the fiduciary duties of loyalty that Mr Zollo owed Mr Polley and the obligation to disclose to Mr Polley any issue or difficulty which might stand in the way of him being involved in the development and building work upon the property that had been purchased.
If Mr Polley had been made aware from the outset or at any time about incapacities of Mr Zollo and his breaches of fiduciary duty, he would have terminated the joint venture arrangements immediately. In light of his failures to make disclosure of his actual position and of breaches of the fiduciary duties owed by him, the statements made by Mr Zollo to Mr Polley about what he could do in the joint venture were misleading.
(Emphasis added)
[5] Polley & Anor v Zollo & Ors [2019] SADC 76 at [142]; Findings of Fact [23].
[6] Polley & Anor v Zollo & Ors [2019] SADC 76 at [142]; Findings of Fact [24].
[7] Polley & Anor v Zollo & Ors [2019] SADC 76 at [142]; Findings of Fact [25].
[8] Polley & Anor v Zollo & Ors [2019] SADC 76 at [142]; Findings of Fact [26]-[27].
As noted above, these findings about the joint venture and the fiduciary relationship arising therefrom were made in the specific context of the joint venture embarking on the purchase of the Whysall Road property, which Mr Zollo had recommended to Mr Polley[9] and the purchase of which Mr Zollo had negotiated.[10] However, these findings have a broader impact with respect to the entire joint venture, in that the progress of the joint venture was premised, from the outset, on Mr Zollo’s breaches of fiduciary duty and misleading conduct.
[9] Polley & Anor v Zollo & Ors [2019] SADC 76 at [41].
[10] Polley & Anor v Zollo & Ors [2019] SADC 76 at [42].
The findings with respect to the Whysall Road property
The trial judge found that the sale and purchase of the Whysall Road property had settled the day after the incorporation of SADH, Mr Polley having provided all of the necessary funds, some $362,696.10, through his SMSF. The judge also found that it was agreed that these funds would be provided interest free.[11]
[11] Polley & Anor v Zollo & Ors [2019] SADC 76 at [51].
The trial judge found that Mr Zollo had told Mr Polley that he would attend to the matters necessary for the subdivision and building of two units on the land. Mr Zollo had told Mr Polley that profits would be shared on a 50/50 basis.[12] In the event, the subdivision did not occur. All that was achieved was the demolition of the house. Ultimately, after some 18 months,[13] the Whysall Road property was sold and Mr Polley received the entirety of the purchase price.[14]
[12] Polley & Anor v Zollo & Ors [2019] SADC 76 at [44].
[13] Polley & Anor v Zollo & Ors [2019] SADC 76 at [45].
[14] Polley & Anor v Zollo & Ors [2019] SADC 76 at [95].
The trial judge expressed the view that this transaction was prohibited under s 15 of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act), SADH being a related entity, but noted that no submissions were put to him on the operation of that Act. Indeed, that Act was the subject of neither pleadings nor submissions with respect to any aspect of the matter at trial.
The findings with respect to the Hillcrest property
The trial judge found that on or about 5 February 2015, Mr Zollo informed Mr Polley that he had identified the Hillcrest property as an opportunity for the joint venture. He told Mr Polley that the land was for sale, that it was owned by a party who was indebted to him personally, that it could be purchased at a discount on account of that and that its value was around $900,000. The judge found that these representations were false and misleading and that they were made to induce Mr Polley to agree to the purchase as part of the joint venture business. He further found that at that time, as part of his duty of loyalty, Mr Zollo was required to make full disclosure to Mr Polley about what he knew of the land and that he had a duty not to arrange his own affairs so as not to profit from the purchase of the land by the joint venture.[15]
[15] Polley & Anor v Zollo & Ors [2019] SADC 76; Findings of Fact [28]-[30].
The judge found that on 24 February 2015, Mr Zollo, acting through Built It Construction Services Pty Ltd and/or Nominees, entered into a contract for the purchase of the Hillcrest property from an arm’s length vendor.[16] Mr Zollo did not tell Mr Polley this, and did not tell him that he paid the arm’s length vendor a total of $535,000 for the Hillcrest land, which was the market value.[17] This was as opposed to the $900,000 value that Mr Zollo had represented to Mr Polley. The judge then made the following findings with respect to the purchase of the Hillcrest property:[18]
[16] Polley & Anor v Zollo & Ors [2019] SADC 76; Findings of Fact [50].
[17] Polley & Anor v Zollo & Ors [2019] SADC 76; Findings of Fact [53].
[18] Polley & Anor v Zollo & Ors [2019] SADC 76; Findings of Fact [62]-[71].
62On or about 16 March 2015, Carrington Conveyancers engaged by Mr Zollo prepared deeds of assignment of the two contracts for the Hillcrest land, under which Mr Zollo agreed to assign the benefit of the contracts to SADH in consideration of the payment of $65,000 per contract, in total $130,000.
63Mr Polley through the second plaintiff paid the two assignment fees on the understanding that this was part of the purchase price and relying upon statements by Mr Zollo that the value of the land was not less than $900,000 and he had purchased the land at a significant discount because of the indebtedness of the vendor.
64These statements by Mr Zollo were untrue and were intended to and did mislead Mr Polley in the process of his decision making to commit his funds to the purchase of the Hillcrest land.
65Mr Polley never understood that the sum of $130,000 was payable directly to Mr Zollo as part of an assignment fee.
66Mr Zollo was not entitled to be paid an assignment fee because the opportunity to purchase the Hillcrest land was an opportunity that belonged to the joint venture.
67When Mr Zollo made the decision to enter into the contract to purchase the Hillcrest land, he was in breach of his fiduciary duties of loyalty owed to Mr Polley because he intended to take for himself and his own benefit an opportunity belonging to the joint venture.
68In reliance upon the misrepresentations and misleading conduct of Mr Zollo, Mr Polley through the second plaintiff paid the sum of $130,000 per contract without knowing or understanding the true nature of that payment.
69The vendor of the Hillcrest land was not indebted to Mr Zollo and the purchase price payable by Built It Pty Ltd for the property was not well below market price.
70The request by Mr Zollo to one of his co-joint venturers to pay $130,000 assignment fee to him was a breach of Mr Zollo’s fiduciary duties of loyalty owed to his joint venturer Mr Polley due to his failure to make proper disclosure, profiting at the expense of the joint venture and failing to act in good faith for the benefit of the joint venture.
71Mr Zollo has profited to the extent of at least $130,000 and that he is obligated to reinstate the funds of the second plaintiff which were paid to him in reliance upon the misleading conduct of Mr Zollo.
(Emphasis added)
Elsewhere, the judge had found that Mr Polley did not know what an assignment was, that he only understood that the payments were for the Hillcrest land purchase, which is why he signed the documents, and that in his own mind, he had never agreed to pay anything for an assignment of the contract to the Zollo interests, because he was not aware of that arrangement.[19]
[19] Polley & Anor v Zollo & Ors [2019] SADC 76 at [76]-[77].
The Muller Road property
The trial judge found that at around about the same time as the purchase of the Hillcrest property, following a suggestion by Mr Zollo, the joint venture made an offer to purchase the Muller Road property. This comprised a large area of vacant land, and one block on which was situated a house and some sheds. The only sewer, power and water connections on the property were associated with that house. The judge found that the intention of the joint venture was to develop the land by division into five blocks. For this to occur profitably, it was necessary to demolish the house.[20]
[20] Polley & Anor v Zollo & Ors [2019] SADC 76; Findings of Fact [32]-[34].
The judge found that Mr Zollo suggested a different mechanism for pursuing the joint venture on this occasion, namely that the property would be held jointly in the names of their respective SMSFs, with the intention that the funds would share the profits.
The judge then made the following findings with respect to the purchase of the Muller Road property:[21]
37On 10 February 2015, Neil Polley Holdings Pty Ltd, as trustee of the Neil Polley Superannuation Fund, prepared a letter of nomination authorising SADH to purchase the property at 72 Muller Road, Greenacres.
38Mr Zollo was required to settle a superannuation fund trust as a self-managed super fund with a company, AZ Holdings as trustee. In the absence of any evidence consistent with the settlement of that trust, Mr Zollo has not proved the equitable existence of that settlement. The only evidence before the Court is that AZ Holdings was at all material times acting on its own account as the legal and beneficial owner of all relevant interests.
39The notice of offer to purchase the Muller Road land in the name of SADH was dated 5 February 2015. A letter of nomination dated 10 February 2015 from the second plaintiff as trustee for the Polley Superannuation Fund authorises and instructs SADH to make the offer upon the Muller Road property and to pay the deposit.
40This letter describes the property as being in joint names but that was inaccurate because Neil Polley Holdings Pty Ltd in its capacity as trustee is the named entity; Mr Polley signed the letter both for that trustee and for SADH. There was no authorisation in respect of any Zollo interests.
(Emphasis added)
[21] Polley & Anor v Zollo & Ors [2019] SADC 76; Findings of Fact [37]-[40].
Mr Polley provided the funds for the purchase of the Muller Road property, the full settlement cost of which was $952,657.39.[22] He paid the deposit on 23 March 2015.[23] Settlement occurred at the end of May 2015. The property was settled in the names of Mr Polley’s SMSF, Neil Polley Holdings Pty Ltd and Mr Zollo’s SMSF, AZ Holdings (SA) Pty Ltd.
[22] Polley & Anor v Zollo & Ors [2019] SADC 76; Findings of Fact [49].
[23] Polley & Anor v Zollo & Ors [2019] SADC 76; Findings of Fact [72].
A document called a Declaration of Trust, signed by Mr Polley, was in evidence. This document appears to have effected a separation of interests in the Muller Road property. Mr Polley had understood that the land would be purchased by him, as a joint venture project.[24] He gave evidence that he had not understood that a separation of interests would occur, and that ultimately, he discovered that 24 percent of the overall title had been transferred to Mr Zollo’s superannuation fund.[25]
[24] Polley & Anor v Zollo & Ors [2019] SADC 76 at [84].
[25] Polley & Anor v Zollo & Ors [2019] SADC 76 at [81]-[83].
The appellants pleaded that Mr Polley had, on advice, agreed to have 24 percent of the Muller Road property, and specifically Lot 5, which was the block with the house on it, transferred to AZ Holdings (SA) Pty Ltd, ‘as part payment of the development of the three properties which was registered at the Land Titles Office in Adelaide, South Australia on the 23rd June 2015’. They pleaded that, in consequence, AZ Holdings (SA) Pty Ltd owned 24 percent of Muller Road, being Lot 5 and the house on Lot 5.[26]
[26] Defence at [56].
The trial judge found, however, that Mr Polley had never agreed with Mr Zollo, nor had an understanding that AZ Holdings (SA) Pty Ltd was to take a legal and beneficial interest in the Muller Road land. He further found that s 62 of the SIS Act prevented such an outcome.[27] Again, the operation of the SIS Act against such an outcome was neither pleaded nor the subject of submissions.
[27] Polley & Anor v Zollo & Ors [2019] SADC 76 at [82]-[84]; Findings of Fact [35]-[36].
The trial judge then made the following findings with respect to the Muller Road property transaction:[28]
[28] Polley & Anor v Zollo & Ors [2019] SADC 76; Findings of Fact [83]-[103].
83At the end of May 2015, the Muller Road property was purchased with the intention of dividing the area into five blocks including the block owned legally and beneficially by AZ Holdings.
84The Muller Road land was intended to be purchased in the joint venture through two trustees of two self-managed super funds, one controlled by Mr Polley and the other by Mr Zollo. The whole of the purchase price and cost was produced by Mr Polley.
85The only director and shareholder of AZ Holdings Pty Ltd was Mr Zollo who was the guiding hand and mind of that company.
86 The knowledge of Mr Zollo was the knowledge of AZ Holdings Pty Ltd.
87At the time of the purchase of the Muller Road land, AZ Holdings was aware of the breaches of fiduciary duty of loyalty committed by Mr Zollo as a joint venturer.
88AZ Holdings was also aware through the knowledge of Mr Zollo that the Muller Road land could not be developed into five blocks as anticipated because of the impediment created by the placement of the block of land owned by it upon the whole of the Muller Road land.
89AZ Holdings through the knowledge of Mr Zollo was aware that Mr Zollo was in breach of his fiduciary duties of loyalty owed to the joint venture at the time that the Muller Road land was purchased.
90AZ Holdings was aware that the joint venture and especially the development of the Muller Road land could not proceed as contemplated because of the complete inability of Mr Zollo to contribute in any way to the task of development of that land as he had promised.
91AZ Holdings was the recipient of the benefit of the breaching conduct committed by Mr Zollo and so its position is indistinguishable from that of Mr Zollo.
92The position is the same even if I am incorrect about my rejection of the settlement of Mr Zollo’s SMSF because Mr Zollo said that he was the only member of this fund, the member’s benefit account had only one asset in the form of the Muller Road land and that trust could be called upon to disgorge the asset obtained by it through the breaches committed by the trustee.
93At all material times, AZ Holdings in its capacity as trustee of the Zollo SMSF was unjustly enriched by the transfer to it of the benefit of the 24% of the Muller Road land.
94AZ Holdings was in its own right or alternatively its capacity as trustee of the trust knowingly concerned in the breach of fiduciary duties owed by Mr Zollo to Mr Polley and SADH.
95On 7 April 2015, which was seven weeks before the settlement of the purchase of Muller Road, Mr Rick Buick the manager and building designer for Modern Day Concepts sent an email to Mr Zollo on the topic of the proposed subdivision of the Muller Road, Greenacres property. The email is directed to Mr Zollo. It reads:
Hi Alex
I have overlayed the existing site boundaries for the existing dwelling over the give blocks we have previously. I think keeping the old place may cause a bit of an issue with getting four on the remaining land. Have a look at the attachment and let me know what you think. I think for the amount you would sell that house for compared to the new one wouldn’t be worth keeping. Also in order to keep it we will need to do two compact designs for the corner allotment and one behind that, that may cause an issue with trying to sell them later…
96As a result of the receipt of this letter Mr Zollo and AZ Holdings were aware of the difficulties of developing the Muller Road land whilst retaining the house on the land.
97As a result of the Buick letter, Mr Zollo and AZ Holdings were aware that if the joint venture was to obtain the maximum benefit from the Muller Road land, it would be necessary to knock down the existing dwelling now claimed by Mr Zollo for AZ Holdings.
98Mr Zollo, and so AZ Holdings did not inform Mr Polley of the impediment on the ability of the joint venture to profitably develop the Muller Road land and these failures were a breach by Mr Zollo of his fiduciary duty of loyalty to Polley as a joint venturer.
99Mr Zollo, and AZ Holdings, were aware that as a result of their breaches, any redevelopment of the Muller Road land would be impeded by the resulting configuration of the block and so causing a detriment to the joint venture because it was consequently incapable of redevelopment to obtain the maximum benefit.
100The content of the Buick document was never brought to the attention of Mr Polley. This failure was a material non-disclosure by a party owing a fiduciary duty of loyalty in a joint venture relationship and misleading conduct by Mr Zollo and AZ Holdings of Mr Polley who relied entirely upon the conduct of and statements of Mr Zollo and so AZ Holdings, when deciding to enter into the transaction.
101At the time of the settlement of the Muller Road land on 28 May 2015, by his statements and conduct, Mr Zollo had misled Mr Polley and so the second plaintiff and, in reliance on the misleading conduct of Mr Zollo and not otherwise, Mr Polley and the second plaintiff then agreed to transfer to complete the purchase of the Muller Road land and to pay the full purchase price.
102There was no basis for Mr Zollo to seek the indulgence of the joint venture to be granted a 24% share of the Muller Road property.
103Mr Zollo and so AZ Holdings knew that Mr Polley and so the second plaintiff relied upon the statements of Mr Zollo when he agreed as a joint venturer to enter into the Muller Road transaction. If Mr Polley and so the second plaintiff had known of the breaches by Mr Zollo and therefore the information about Mr Zollo’s true position, he would never have caused the second plaintiff to enter into the Muller Road transaction or any transaction after that time.
(Emphases added)
The judge therefore found that Mr Polley had entered into the Muller Road transaction in consequence of the misleading conduct of Mr Zollo and in circumstances where Mr Zollo and AZ Holdings (SA) Pty Ltd were in breach of their fiduciary duties to Mr Polley. One consequence of this was the unjust enrichment of AZ Holdings (SA) Pty Ltd by the transfer to it of 24 percent of the Muller Road property, which the Zollo interests claimed to be comprised of the most important part of the property, Lot 5 and the house situated thereon. The trial judge rejected this claim bluntly:[29]
There was no occasion for there to be some collateral agreement about this land. The conduct of Mr Zollo rose no higher than a grab of real property assets paid for by Mr Polley and for which Mr Zollo had no entitlement, except on agreement by Mr Polley induced by Mr Zollo’s behaviour.
[29] Polley & Anor v Zollo & Ors [2019] SADC 76 at [129].
The judge ultimately held that the conduct of Mr Zollo in breach of his fiduciary duties of loyalty to Mr Polley in respect of the Muller Road land meant that the registered proprietorship of that land by AZ Holdings Pty Ltd was unconscionable.[30] He further found that the misleading statements made by Mr Zollo to Mr Polley in respect of the Muller Road land caused Mr Polley to allow a 24 percent interest in that land to be transferred to AZ Holdings. Those statements were made in trade and commerce, within the business of the joint venture. Mr Zollo’s conduct breached the standards required under s 18 of the Australian Consumer Law (ACL), which empowered the Court to make orders under ss 236 and 243 of the ACL.[31]
[30] Polley & Anor v Zollo & Ors [2019] SADC 76 at [265].
[31] Polley & Anor v Zollo & Ors [2019] SADC 76 at [299]-[302].
General findings of causation
Elsewhere, the trial judge found:[32]
60The purchase of the Hillcrest land and the Muller Road property were the immediate consequence of this reliance [upon the misrepresentations and misleading conduct of Mr Zollo] by Mr Polley. These purchases would not have occurred but for the breaches of duty and fiduciary duties committed by Mr Zollo.
61The purchases of the Hillcrest land and the Muller Road land occurred because of the reliance of Mr Polley upon the truth and accuracy of the statements of Mr Zollo about his capacity to engage in the business of the joint venture.
[32] Polley & Anor v Zollo & Ors [2019] SADC 76; Findings of Fact [60]-[61].
These findings of causation related specifically to the decisions to purchase these two properties. As I will come to, the judge made further findings of causation with respect to the payment of the assignment fees and the transfer of the 24 percent interest in the Muller Road property.
The trial judge’s orders
The trial judge made the following orders in disposition of the claim:[33]
[33] Polley & Anor v Zollo & Ors [2019] SADC 76 at [304].
1. Mr Zollo pay to the second plaintiff the sum of $130,000.
2. A declaration that the defendants procured the transfer to AZ Holdings of an interest in 24/100th on the whole of the land comprised in Certificate of Title Register Book Volume 6433 Folio 472 (the Muller Road land) as a result of the reliance by the plaintiffs upon the misleading conduct of the defendants in trade or commerce or alternatively as a result of the breaches of fiduciary duty committed by Mr Zollo.
3. A declaration that the defendant AZ Holdings holds 24/100th of the Muller Road land on a constructive trust for the second plaintiff.
4. An order under s 243(a)(ii) ACL declaring that the agreement for the transfer to AZ Holdings of 24/100 of the Muller Road land is void ab initio.
5. An order that AZ Holdings Pty Ltd forthwith do all things necessary and appropriate and execute all such documents as are necessary to bring about the transfer of the interest that it legally owns in the 24/100th of the Muller Road land to the second plaintiff for no consideration and free from any costs or expense to the plaintiffs associated with such transfer.
6. Mr Zollo pay to the second plaintiff interest on the sum of $130,000 calculated from 24 March 2015; the Court will hear the plaintiffs further on the appropriate rate of interest.
7. Damages in favour of the first plaintiff Mr Polley for breach of fiduciary duties to be assessed or agreed.
8. Damages under s 236 of the ACL to be assessed or agreed.
9. The defendants forthwith account for the whole of the benefits received by them as a result of the third defendant being registered as the proprietor of 24/100th of the Muller Road land and an order for payment to the second plaintiff of the benefits received upon taking such an account.
The appeal
The finding of a fiduciary relationship
Ground 1.a. in the Second Notice of Appeal takes issue with the conclusion that there was a fiduciary relationship between each of the joint venturers, as described:
1.The learned trial Judge erred in finding that the relationship of the First Appellant (“Zollo”) and the First Respondent (“Polley”) was fiduciary in nature (Reasons at [37]), where the learned trial Judge should have found that:
a. Zollo and Polley did not conduct any joint venture in partnership but incorporated SA Disability Housing Pty Ltd as the vehicle for any joint venture, and as such:
i.any fiduciary obligations were at law properly owed to SA Disability Housing Pty Ltd by any director, as distinct from being owed between the shareholders of that company being Zollo and Polley;
ii.the case of United Dominions Corporation Limited v Brian Proprietary Limited & Ors (1984) 157 CLR 1 (considered at [32], [34], [236] of Reasons) was relevantly distinguished as only dealing with a joint venture carried on in partnership, as distinct from being carried on via a corporate vehicle as per the instant case;
…
Mr Zollo and Mr Polley were co-shareholders in SA Disability Housing Pty Ltd (SADH). The essence of the appellants’ contention is that SADH was established as the exclusive vehicle through which the joint venture operated. Consequently, the appellants submitted, Mr Zollo and Mr Polley could not have had any fiduciary relationship between them on account of the joint venture.
The appellants relied on United Dominions Corporation Ltd v Brian Pty Ltd & Ors in support of the proposition that it was by no means certain that a joint venture would involve a fiduciary relationship:[34]
The most that can be said is that whether or not the relationship between joint venturers is fiduciary will depend upon the form which the particular joint venture takes and upon the content of the obligations which the parties to it have undertaken.
[34] United Dominions Corporation Ltd v Brian Pty Ltd & Ors (1985) 157 CLR 1 at 10-11.
In oral argument, they placed considerable emphasis on the statement of Mason J in Hospital Products Ltd v United States Surgical Corporation (Hospital Products):[35]
The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position.
[35] (1984) 156 CLR 41 at 96-97.
The appellants relied on various items of evidence to assert that SADH was the exclusive vehicle for the joint venture. The essence of their complaint is that the findings made by the trial judge were insufficient to establish a fiduciary relationship.
In further pursuit of this complaint, the appellants submitted that the evidence showed that Mr Polley retained all control of the spending of monies in pursuit of the joint venture. The submissions seemed to rely on a combination of circumstances, in particular that Mr Zollo was not empowered to sign anything and that he did not do anything for and on behalf of Mr Polley as an individual. As to this, the appellants submitted:[36]
… Not forgetting, that Mr Polley was one step removed from all of the operational risk associated with the joint venture. Mr Polley's risk or vulnerability can at best be described as a more general or broad risk, borne out of deciding to invest his funds in property development. Mr Polley gave his funds, or made his funds available to the separate legal entities that carried on the joint venture, SA Disability Housing and Neil Polley Holdings Pty Ltd. It was those entities that bore the vulnerability associated with Mr Zollo's decision making. Mr Polley's risk was a risk that any shareholder faces and so much as it was a risk associated with investment property –
[36] Appeal Transcript 12.21-33.
This submission was very much directed to the identity of the legal entity that was vulnerable to Mr Zollo’s actions and to the proposition that the only vulnerable entity in the sense described by Mason J in Hospital Products was SADH, rather than any respondent.
In the course of the hearing of the appeal, the Court pressed counsel as to precisely which factual findings were the subject of complaint. In response, counsel focused on paragraphs in which the trial judge had described the relationship between the parties as fiduciary.
Whether a joint venture relationship has a fiduciary character can be a difficult question. However, notwithstanding the matters raised in some detail by the appellants to challenge the trial judge’s conclusion that the joint venture in question was fiduciary in nature, those difficulties simply had not arisen at trial. As I have already noted, the appellants had conceded specifically in their Defence that the plaintiffs (without distinction) had reposed trust and confidence in the defendants in circumstances giving rise to fiduciary duties as joint venturers.
Further, in the course of addresses, the trial judge put squarely to counsel for the appellants that the first appellant and first respondent were in a fiduciary relationship. Counsel for the appellants did not contradict this and the appellants’ address did not otherwise address whether the relationship between those parties was fiduciary.[37]
[37] Trial Transcript 440.17-442.23.
Whether the parties, including the first appellant and the first respondent, were in a fiduciary relationship by reason of their joint venture arrangements was thus not in issue at trial. The considerable time and energy that the appellants put into this first ground of appeal did not engage with this historical reality. In Mintech Resources Pty Ltd and Another v Russell-Taylor and Another, this Court observed:[38]
[38] Mintech Resources Pty Ltd and Another v Russell-Taylor and Another (2012) 113 SASR 80 at [41] (White J, Peek and Stanley JJ agreeing).
Pleadings play an important role in identifying the issues to be determined at trial and thereby in giving the parties proper notice of the claims which they must meet. King CJ spoke of this important function of pleadings in Williams v Australian Telecommunications Commission:
The fundamental purpose of pleadings is to provide a structure or framework for the litigation designed to promote a just outcome. Pleadings achieve this purpose by performing two basic functions. The first is to define the issues between the parties thereby providing the basis for the determination of questions as to discovery before trial and admissibility of evidence at trial and of questions as to what the litigation has decided for the purposes of the rules as to res judicata and issue estoppel. The second function is to give the parties fair notice of the case to be made against them at trial thereby minimising the risk of injustice resulting from surprise. [Emphasis added.]
Similarly, Mason CJ and Gaudron J in Banque Commerciale SA (in liq) v Akhil
Holdings Ltd said:
The function of pleadings is to state with sufficient clarity the case which must be met. … In this way, pleadings serve to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision. The rule that, in general, relief is confined to that available on the pleadings secures a party’s right to this basic requirement of procedural fairness.
(Citations omitted)
It is one thing to allow some tolerance for departure, at trial, from particulars pleaded in a statement of claim when the evidence does not support the allegations as particularised, but nonetheless supports the cause of action as pleaded,[39] or to lead evidence of loss that exceeds that which is pleaded.[40] It is quite another to attempt, on appeal, to resile from a concession in a Defence.
[39] Leotta v Public Transport Commission (NSW) (1976) 50 ALJR 666.
[40] Dare v Pulham (1982) 148 CLR 658.
Pleadings form part of the Court record. They record the issues that are decided by the judgment and which merge in the judgment. The Court record provides the foundation for a plea of res judicata. To allow a party to raise a new case on appeal when the appellate court does not have all relevant material before it, because the issue had been agreed or otherwise not agitated at trial, has long been understood to be impermissible.[41] It would invite a departure from the principles of natural justice such as to inflict a gross unfairness on the respondent.
[41] Gordon v MacGregor (1909) 8 CLR 316 at 321 (Griffiths CJ).
The situation is different where relevant evidence (including evidence which may have affected how a case was pleaded) has been undisclosed until after judgment, and a new trial is sought on appeal. In such a case, an appellate court, having the benefit of the import of that evidence, is required to consider what course would best serve the interests of justice, taking into account a number of competing factors.[42]
[42] Commonwealth Bank of Australia v Quade (1991) 178 CLR 134 at 142-143 (Mason CJ, Deane, Dawson, Toohey and Gaudron JJ).
The appellants have offered no basis for this Court to go behind the conceded position at trial and allow them to agitate (either on appeal, as they sought to do, or at a re-trial, which they did not) the question of whether the parties were in a fiduciary relationship. As the appellants’ own submissions make clear, whether a joint venture or relationship is fiduciary in nature requires close consideration of the integers of that relationship. The appellants’ pleaded concession, that the joint venture relationship between each of them and each of the respondents was fiduciary, formed part of the record of the Court. It relieved the respondents from the obligation to adduce evidence relevant to that question.
It is the case that the trial judge spent some time reasoning to his conclusion that the relationship was fiduciary in nature.[43] It was not necessary to engage in this analysis. Indeed, it would have been preferable not to have done so, given that it was not in issue.
[43] Polley & Anor v Zollo & Ors [2019] SADC 76 at [26]-[37].
It follows that Ground 1.a. of the Second Notice of Appeal is incompetent and should be dismissed.
The failure to find that the joint venture was void and unenforceable for illegality
Ground 1.b. in the Second Notice of Appeal reads:
1.The learned trial Judge erred in finding that the relationship of the First Appellant (“Zollo”) and the First Respondent (“Polley”) was fiduciary in nature (Reasons at [37]), where the learned trial Judge should have found that:
…
b. further or in the alternative the joint venture was void and unenforceable for illegality as being prohibited by the Superannuation Industry Supervision Act (1993) including that:
i.the acquisition of joint venture assets would be funded through Polley’s self-managed superannuation fund;
ii.the joint venture would be conducted in the name of and for the benefit of both Polley and Zollo and their related entities including SA Disability Housing Pty Ltd; and
iii.certain joint venture assets would be purchased jointly, as distinct from being purchased solely in the name of Polley’s self-managed superannuation fund.
This raises a substantive issue to the effect that the joint venture was void and unenforceable for illegality. However, it appears to be cast as a particular of a complaint of a finding that the relationship between the first appellant and the first respondent was fiduciary in nature.
The appellants did not address this part of Ground 1 orally at all. They did so in their written submissions briefly. This was to the effect that the findings that the joint venture, together with specific aspects of the joint venture, were prohibited by the SIS Act, meant that the joint venture was unlawful and unenforceable as between members.
The trial Judge’s findings with respect to the use of Mr Polley’s SMSF were made in the context of the particular transactions under consideration. Thus, in respect of the Whysall Road property, the trial Judge found:[44]
The fourth point agreed was that Mr Polley through the second plaintiff would provide 100% of the finance interest free on the assumption that the project was concluded quickly. Mr Polley was using funds procured from his SMSF. It is unclear to me how it is that Polley had been able to obtain those funds from his SMSF. The evidence was that Mr Polley had not reached an age of retirement or had any entitlement as contemplated under the SIS Act and regulations to call upon the trustee of the SMSF to provide funds personally to him. Mr Blackmore was his financial advisor but he was not called to give evidence.
I am satisfied that it was not possible for Mr Polley to make an agreement to provide 100% of the finance interest free. It was incumbent upon him to ensure that his SMSF generated an income from its capital assets. It was possible for Mr Polley to agree to provide 100% of the finance interest free as long as there was a sufficient prospect of a return at or above the prevailing interest rates applicable to an investment of that amount with a commercial bank. He could not contravene the related party prohibitions set out in the SIS Act.
[44] Polley & Anor v Zollo & Ors [2019] SADC 76 at [51]-[52].
In respect of the Muller Road property, he found that the whole transaction was prohibited:[45]
… By this arrangement, Mr Polley’s SMSF was providing funds for the purchase of an interest in property for the benefit of a third party which is a breach of the sole purpose requirement under s 62 of the SIS Act. That section requires that the member’s funds in any SMSF may only be employed for the sole purpose of the member’s benefit. This whole transaction was a breach of this and a number of other provisions of the SIS Act.
[45] Polley & Anor v Zollo & Ors [2019] SADC 76 at [82].
More generally, the trial Judge found:[46]
… Mr Polley had placed all of his money into his SMSF. It was therefore possible for the super fund to purchase property but only in accordance with the requirements of the SIS Act including the requirement for there to be no separation between the interests of the super fund and the interests of the holder of the investment. It was not possible, for example, for any super fund at the time, or now, to make a loan for a purchase or to create a benefit for a non-member. It was necessary for the super fund itself to make such a purchase. None of this was discussed at the outset. All of the discussions were at the most basic level and there was no descent into detail about those matters.
[46] Polley & Anor v Zollo & Ors [2019] SADC 76 at [108].
The appellants made the sweeping submission that, the trial judge having made findings about the unlawful nature of the ‘joint venture’, he nonetheless granted relief in favour of the first respondent, ‘which, in effect, enforced and affirmed the unlawful association’.[47] They submitted that this amounted to an error in granting the first respondent relief premised on the infringement of the SIS Act.
[47] Written Submissions of the First, Second and Third Appellants at [70].
The trial Judge in fact had examined the contraventions of the SIS Act at the transactional level. He did not make any finding to the effect that the Hillcrest land transaction had contravened this Act.
The appellants’ submission to the effect that the ‘joint venture’ was prohibited by the SIS Act is simplistic and fails to engage meaningfully with the doctrine of illegality. The appellants make the uncontroversial submission that a statute which prohibits, either expressly or impliedly, the making of a contract, can render the contract illegal, void and unenforceable.[48] So expressed, that proposition operates at the highest level of abstraction. In Yango Pastoral Company Pty Ltd v First Chicago Australia Ltd, on which the appellants rely, Gibbs ACJ observed that it was possible for a statute in terms to prohibit a contract but to provide either expressly or impliedly that the contract will be valid and enforceable. His Honour went on to say:[49]
Where a statute imposes a penalty upon the making or performance of a contract, it is a question of construction whether the statute intends to prohibit the contract in this sense, that is, to render it void and unenforceable, or whether it intends only that the penalty for which it provides shall be inflicted if the contract is made or performed.
[48] Yango Pastoral Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 413 (Gibbs ACJ).
[49] Yango Pastoral Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 413 (Gibbs ACJ).
The High Court has considered the doctrine of illegality more recently than in Yango. In Nelson v Nelson,[50] it considered a situation where a mother had paid the purchase price for a house which she then transferred into the names of her adult son and daughter. This transfer was done for the purpose of enabling her to purchase another house subsequently with the benefit of a subsidy under the Defence Service Homes Act 1918 (Cth). She did then purchase another house and received a subsidised loan under the Act, having falsely declared that she did not own or have a financial interest in a house other than the one the subject of the loan.
[50] (1995) 184 CLR 538.
A majority of the Court held that a declaration should be made that the mother held the beneficial interest in the property. However, equity required that the illegal purpose of the transfer warranted the declaration being subject to a requirement that the mother be denied the benefit of her unlawful conduct, that is, the benefit of the subsidy. Justices Deane and Gummow held that the purposes of the statute were sufficiently served by this denial; to deny the mother the enjoyment of what was otherwise the beneficial ownership of the property would not be an appropriate adjunct to the scheme under the Act.[51]
[51] Nelson v Nelson (1995) 184 CLR 538 at 570-572 (Deane and Gummow JJ).
Justice McHugh observed:[52]
The doctrine of illegality expounded in Holman was formulated in a society that was vastly different from that which exists today. It was a society that was much less regulated…
One of the most significant reasons for adopting a less rigid approach to illegality than the bald dictum in Holman or, for that matter, the Bowmakers rule adopted in Tinsley is that statutory illegality can arise in a number of different ways. First, the statute may directly prohibit the contract or trust. Second, while the statute may not prohibit the contract or trust, it may prohibit the doing of some particular act that is essential to carrying it out. Third, the statute may not expressly prohibit the contract or trust but the contract or trust may be associated with or made in furtherance of a purpose of frustrating the operation of the statute. Fourth, the statute may make unlawful the manner in which an otherwise lawful contract or trust is carried out. It would be surprising if sound legal policy required each of these forms of illegality to be treated in the same way. There is, for example, a vast difference between the performance of a contract for carriage of goods by ship that is overloaded in breach of the law and the making of a contract for the carriage of goods where the making of the contract is specifically prohibited.
(Citations omitted)
[52] Nelson v Nelson (1995) 184 CLR 538 at 611 (McHugh J).
The trial judge’s finding about the Muller Road property was to the effect that the application of funds by Mr Polley’s SMSF for the benefit of a third party was in breach of the sole purpose test in s 62(1) of the SIS Act. Section 62(2) of that Act provides that subsection (1) is a civil penalty provision as defined by s 193. Part 21 of the Act provides for civil and criminal consequences of contravening the section.
Part 21 goes further. Thus, for example, section 215(1) provides:
215 On application for civil penalty order, Court may order compensation
(1)If, on an application for a civil penalty order against a person in relation to a contravention, the Court is satisfied that:
(a)the person committed the contravention; and
(b)the superannuation entity in relation to which the contravention was committed has suffered loss or damage as a result of the act or omission constituting the contravention;
the Court may (whether or not it makes an order under subsection 196(3)) order the person to pay to a trustee of the entity or, if the person is a trustee of the entity, to pay to the entity compensation of such amount as the order specifies.
Section 216 makes similar provision where a person is found guilty of a criminal offence constituted by contravention of a civil penalty provision.
Even then, the Court may provide relief from liability on account of a contravention:
221 Relief from liability for contravention of civil penalty provision
(1) In this section:
eligible proceedings means proceedings for a contravention of a civil penalty provision (including proceedings under section 218) but does not include proceedings for an offence (except so far as the proceedings relate to the question whether the court should make an order under section 216).
(2) If, in eligible proceedings against a person, it appears to the court that the person has, or may have, contravened a civil penalty provision but that:
(a) the person has acted honestly; and
(b)having regard to all the circumstances of the case, the person ought fairly to be excused for the contravention;
the court may relieve the person either wholly or partly from a liability to which the person would otherwise be subject, or that might otherwise be imposed on the person, because of the contravention.
This relatively cursory examination of the regime under the SIS Act for the breach of civil penalty provisions such as s 62, and the consequences of such a breach, illustrates the insufficiency of the bare submission of the appellants to the effect that the ‘joint venture’ was ‘unlawful’. In any event, however, the insufficiency of the contention goes further.
The ultimate submission on this ground is that ‘the trial judge erred by granting Mr Polley relief premised on the infringement of the SIS Act’.[53] Unfortunately for the appellants, that is not the basis on which the trial judge granted relief. In respect of the Muller Road property, he found that the actions of the first appellant in procuring for the benefit of the third appellant 24/100 of the property were misleading and had breached his fiduciary duties of loyalty to the first respondent. Further, the statements made by Mr Zollo to Mr Polley in respect of Muller Road were misleading, because they did not disclose that the 24/100 part of that land to be held by the third appellant was an impediment to the development of the land, and Mr Zollo was not entitled to any benefit because he was incapable of fulfilling his duties as joint venturer.
[53] Written Submissions of the First, Second and Third Appellants at [70].
Consequently, the trial judge held that the registered proprietorship of the land in the third appellant, AZ Holdings (SA) Pty Ltd, was unconscionable and that the respondents were entitled to a declaration that the third appellant held the 24/100 interest in the land on constructive trust in favour of the second respondent.
The judge further found that Mr Zollo’s conduct breached the standards required under s 18 of the Australian Consumer Law (ACL), which empowered the Court to make orders under ss 236 and 243 of the ACL.[54]
[54] Polley & Anor v Zollo & Ors [2019] SADC 76 at [299]-[302].
The trial judge granted no relief in respect of the Whysall Road property based on the breach of the SIS Act. With respect to the Hillcrest property, he made no finding of a breach of the SIS Act at all.
In these circumstances, the submission that ‘the trial judge erred by granting Polley relief premised on the infringement of the SIS Act’ is specious. That submission does not, in any event, reflect the ground of appeal. The ground itself and the written submissions made in its support do not engage at all with the scheme of the SIS Act and the improbability of the consequence of the findings of unlawfulness being that the respondents should, in the circumstances of the findings by the trial judge, have been denied relief.
Ultimately, it is not necessary to determine the consequence of the instances of unlawfulness under the SIS Act in respect of the certain transactions identified by the trial judge. Even putting to one side the appellants’ unhelpful conflation of the ‘joint venture’, which was entered into by all the parties, and specific transactions carried out in pursuit of that joint venture, there is a more fundamental problem for the appellants. The breaches of the SIS Act were identified by the trial judge. They were not the subject of any pleadings, let alone as a bar to relief. To the contrary, by way of example, the Defence pleaded that the plaintiffs had breached ‘the contract’ and ‘the joint venture’.[55] The appellants, as defendants, did not place any reliance on ‘illegality’ of any aspect of the joint venture in submissions.
[55] Defence at [63].
Rule 100(1)(c) of the District Court Rules 2006 required the appellants, as defendants, to plead any special defence. Any reliance on the doctrine of illegality to resist the claim on the basis that the joint venture or some transaction in its pursuit was unenforceable because of a contravention of the SIS Act was required to be pleaded. I repeat my observations, above, as to the role of pleadings in this regard: at no point was the trial conducted on the basis that the plaintiffs were somehow barred from obtaining relief on the basis of the ‘illegality’ of the ‘joint venture’.
The findings as to contraventions of the SIS Act did not rise beyond the status of observations by the trial judge, made in a context directed to identifying Mr Polley’s complete reliance on Mr Zollo, in particular in the context of the Muller Road transaction.[56] In the circumstances of the pleadings, and the specific pleadings in the Defence that relied on the joint venture being enforceable, those observations are incapable of deployment on appeal as somehow constituting a bar to the relief that was granted, even if the manifest unlikelihood of the contention could be overcome. This ground is unmeritorious.
[56] Polley & Anor v Zollo & Ors [2019] SADC 76 at [82]-[84].
The finding that any fiduciary obligations were breached
Ground 2 in the Second Notice of Appeal complains:
2. In the alternative, the learned trial Judge erred in finding that any fiduciary obligations were breached by Zollo (Reasons [38], [256]), where the evidence before the learned trial judge established that Polley was fully informed and consented to:
a.the transfer of an interest in the Muller Road land to the Appellants; and
b.the payment of an assignment fee to the Appellants in relation to the assignment of the Hillcrest land.
The appellants’ prosecution of this ground occurred in stages. First, they identified the evidence that they relied on as to the agreed terms and steps taken with respect to the assignment fee in the case of the Hillcrest land and the transfer in the case of the Muller Road property.[57]
[57] Written Submissions of the First, Second and Third Appellants at [41]-[46], [72].
Next, and critically, they submitted that the trial judge had found that Mr Polley understood the nature of the transactions that he entered regarding the Muller Road property and the Hillcrest Land.[58]
[58] Written Submissions of the First, Second and Third Appellants at [73].
Relying on that asserted finding, they then submitted that where a principal, with knowledge of all relevant facts, including the fiduciary’s interest in the matter has assented to the prosecution of the opportunity by the fiduciary, there will be no breach of duty.[59]
[59] Written Submissions of the First, Second and Third Appellants at [74], relying on Queensland Mines Ltd v Hudson (1978) 52 ALJR 399.
They then submitted that at the time that Mr Polley agreed to the transfer and the assignment fee, the only intention of the joint venture was to sell the land to purchasers who would bear the risk of construction.[60] For the reasons appearing below, this issue is better addressed on consideration of Ground 3. However, on this premise, the appellants argued that Mr Polley’s absence of knowledge of Mr Zollo’s undertaking to the District Court that he would not be a director of a company that held a builder’s licence, did not vitiate Mr Polley’s consent to the assignment fee and transfer. This was said to be because Mr Zollo’s inability to act as a director did not impact on the joint venture given its limited intention.[61]
[60] Written Submissions of the First, Second and Third Appellants at [75].
[61] Written Submissions of the First, Second and Third Appellants at [76].
The essential premise of this ground is what was said to be the finding of the trial judge that Mr Polley had understood the nature of the transactions. In support of this proposition, the appellant relied on the following paragraph of the judgment, which they submitted extended to a finding that Mr Polley ‘knew full well what he was doing’[62] when he entered into the transactions:[63]
There is no evidence before me to indicate that Mr Polley lacked the mental capacity to enter into any transaction to do with the joint venture. Also, there is no evidence before me that he was not capable of understanding the general nature of what he was doing or that he did not have the capacity to understand the transaction when it was explained. When he signed the documentation for the transfer of the Hillcrest land and the Muller Road land, he knew that he was signing documents connected with the purchase of land. When he executed the assignment agreements, although not having any understanding about what assignments were about, he thought that he was executing documentation connected with the purchase of the Hillcrest land. He did so acting under the effect of misleading conduct and the breaches of fiduciary duty committed by Mr Zollo but that does not mean and I would not find that he did not understand the nature of the transactions as I have described above.
[62] Appeal Transcript 19.29-32.
[63] Polley & Anor v Zollo & Ors [2019] SADC 76 at [270].
The appellants’ reliance on this paragraph is untenable. First, it ignores the last six lines of this very paragraph, which constitute a clear finding that Mr Polley did not have any understanding as to what the assignments were about.
Secondly, this paragraph appears in the context of a submission made on the part of the respondents, to the effect that Mr Polley did not have sufficient mental capacity to enter into the transactions, in particular the Muller Road transaction, because he was not capable of understanding the general nature of the transaction.[64] The trial judge rejected that submission; this rejection forms the content of the paragraph now relied on. However, as I have already observed, the judge distinguished that rejection from his finding, which he confirmed in that very paragraph, that when Mr Polley executed the assignment documents, he did not understand what they were about and ‘did so acting under the effect of misleading conduct and the breaches of fiduciary duty committed by Mr Zollo’.
[64] Polley & Anor v Zollo & Ors [2019] SADC 76 at [267].
The appellants’ submissions do no more than offer an obvious misconstruction of a single paragraph, out of context. Their proffered construction is at odds with the balance of the trial judge’s findings. For example, with respect to the assignment fees, the judge found:[65]
Mr Polley through the second plaintiff paid the two assignment fees on the understanding that this was part of the purchase price and relying upon statements by Mr Zollo that the value of the land was not less than $900,000 and he had purchased the land at a significant discount because of the indebtedness of the vendor.
These statements by Mr Zollo were untrue and were intended to and did mislead Mr Polley in the process of his decision making to commit his funds to the purchase of the Hillcrest land.
Mr Polley never understood that the sum of $130,000 was payable directly to Mr Zollo as part of an assignment fee.
(Emphasis added)
[65] Polley & Anor v Zollo & Ors [2019] SADC 76; Findings of Fact [63]-[65].
Similarly, with respect to the Muller Road property and the transfer of the 24 percent interest to AZ Holdings (SA) Pty Ltd, the trial judge found:[66]
Mr Zollo, and so AZ Holdings did not inform Mr Polley of the impediment on the ability of the joint venture to profitably develop the Muller Road land and these failures were a breach by Mr Zollo of his fiduciary duty of loyalty to Polley as a joint venturer.
The content of the Buick document was never brought to the attention of Mr Polley. This failure was a material non-disclosure by a party owing a fiduciary duty of loyalty in a joint venture relationship and misleading conduct by Mr Zollo and AZ Holdings of Mr Polley who relied entirely upon the conduct of and statements of Mr Zollo and so AZ Holdings, when deciding to enter into the transaction.
At the time of the settlement of the Muller Road land on 28 May 2015, by his statements and conduct, Mr Zollo had misled Mr Polley and so the second plaintiff and, in reliance on the misleading conduct of Mr Zollo and not otherwise, Mr Polley and the second plaintiff then agreed to transfer to complete the purchase of the Muller Road land and to pay the full purchase price.
(Emphasis added)
[66] Polley & Anor v Zollo & Ors [2019] SADC 76; Findings of Fact [98], [100]-[101].
The trial judge thus made clear findings as to Mr Polley having been materially misled in respect of both transactions.
The argument that Mr Polley’s absence of knowledge of Mr Zollo’s undertaking to the District Court did not vitiate Mr Polley’s consent to the assignment fee does not, in consequence, arise. The premise of this ground fails at the outset: the trial judge did not find that Mr Polley ‘was fully informed and consented to the … payment of the Assignment Fee’.[67]
[67] Written Submissions of the First, Second and Third Appellants at [71].
The position with respect to the Muller Road transaction is similar. Here, Mr Zollo misled Mr Polley not only as to his inability to be a director of a company that held a builder’s licence. He misled him about the impediment to the development of the block by reason of the configuration resulting from the transfer of the 24 percent interest to AZ Holdings (SA) Pty Ltd, which the Zollo interests claimed to comprise Lot 5 and the house thereon. Whether the remaining block was intended to be built upon or simply subdivided and sold off, the profitability of either approach would be impeded.
This ground is premised on a contention that ‘the evidence established’ that Mr Polley was fully informed and consented to the transfer and payment of the assignment fees. The findings that I have identified as contradicting this contention depended in part on the trial judge’s respective findings of credibility of Mr Polley and Mr Zollo when each gave evidence. The judge found Mr Polley to be a credible witness[68] and it is fair to say that this was the case whenever his evidence differed from that of Mr Zollo.
[68] Polley & Anor v Zollo & Ors [2019] SADC 76 at [109], [114].
To put it mildly, the judge did not find Mr Zollo to be an impressive witness. In addition to making multiple findings against his credibility, he found that on numerous occasions he told untruths in his evidence, and deliberately so.[69]
[69] See, e.g., [2019] SADC 76 at [141]-[143], [145]-[150], [153].
With respect to the transfer of 24 percent of the Muller Road property and the consequent impediment, the trial judge said:[70]
Mr Zollo eventually accepted that by 7 April 2015 he was aware that Mr Buick was warning him of an issue about keeping the old house. This is in contradistinction to his earlier evidence where he denied any such knowledge. I am not prepared to accept any of this evidence from Mr Zollo. I find that Mr Zollo was well aware that by keeping 24% of the property and in particular the old house on the property, that the rest of the property would be compromised for development purposes. This failure to inform Mr Polley of this advice of Mr Buick is a further breach by Mr Zollo of his fiduciary duty of loyalty because of his failure to make full disclosure to Mr Polley under the joint venture.
Mr Zollo then said that he spoke to Mr Polley about this problem which is in further contradistinction to his earlier evidence Mr Zollo had given that it was not a problem and was not a concern. He agreed that he was now contradicting his earlier evidence. Mr Zollo said that he did pass on the concerns that Mr Buick had expressed in conversations that he had with Mr Polley about keeping the old house on Muller Road. I reject that evidence of Mr Zollo. It is manifestly untrue. Mr Polley gave no evidence of such a conversation and that proposition was never put to him in cross-examination. Mr Zollo eventually asserted that the decision to keep the old house was a mutual agreement that he made with Mr Polley. I reject that evidence. I find that Mr Zollo was always aware that keeping the old house on the property compromised the ability to subdivide the balance of the Muller Road property so as to make best use of the whole block and that was made clear to him by Mr Buick. It was also made clear by the nature of the plans that Mr Buick prepared.
(Footnotes omitted)
[70] Polley & Anor v Zollo & Ors [2019] SADC 76 at [157]-[158].
With respect to the assignment fees, the judge observed of Mr Zollo’s evidence:[71]
Mr Zollo then agreed that he received the balance of the conveyance assignment fee for each block of about $65,000. At the time, he negotiated the assignment fee of $130,000 for the two blocks, he did not have any expenses associated with the property and he could not present any documentation to justify his claim that he had incurred any expenses. Exhibit P11 is Mr Zollo’s affidavit of 13 July 2017. In it, Mr Zollo agrees that any money that came to Built It Construction Services Pty Ltd in payment of the assignment fee went directly into his own pocket. Mr Zollo attempted to walk back from that admission later in his evidence. I do not accept that evidence. I am satisfied from further evidence put before the Court that this is another untruth told by Mr Zollo.
(Footnotes omitted)
[71] Polley & Anor v Zollo & Ors [2019] SADC 76 at [164].
The appellants, as I have noted, relied on the transactional documents to demonstrate that ‘the evidence established’ that Mr Polley was fully informed of and consented to the transfer and payment of the assignment fees, as well as the decontextualized paragraph [270] of the judgment discussed above. However, other than by reference to that paragraph, the appellants did not explain why this Court should reach different views from those of the trial judge as to the credibility of Mr Polley and Mr Zollo respectively. As the High Court plurality observed in Fox v Percy:[72]
… the mere fact that a trial judge necessarily reached a conclusion favouring the witnesses of one party over those of another does not, and cannot, prevent the performance by a court of appeal of the functions imposed on it by statute. In particular cases incontrovertible facts or uncontested testimony will demonstrate that the trial judge’s conclusions are erroneous, even when they appear to be, or are stated to be, based on credibility findings.
(Footnote omitted)
[72] Fox v Percy (2003) 214 CLR 118 at [28] (Gleeson CJ, Gummow and Kirby JJ).
Paragraph [270] of the trial judgment in the present case establishes no such incontrovertible fact as to Mr Polley’s understanding. The appellant’s submissions rely on misreading that paragraph. The mere fact that there was a path theoretically open to the trial judge to find in favour of the Zollo interests on the question of whether Mr Zollo breached his fiduciary obligations to Mr Polley does not mean that it was an error not to so find. To the contrary, the appellants have offered no basis for concluding other than that the trial judge’s findings on this question were manifestly justified.
I would dismiss Ground 2.
The finding that the appellants’ conduct was misleading
Ground 3 in the Second Notice of Appeal complains:
3. The learned trial judge erred in finding that the Appellants’ conduct was misleading (Reasons [10], [39], [58], [61], [121], [136]), where the evidence at trial established that:
a.Zollo was able to properly perform any obligations under any joint venture; and
b.Polley was not led into error and was fully informed of and consented to the transfer of an interest in the Muller Road land to the Appellants, and the payment of an assignment fee to the Appellants in relation to the assignment of the Hillcrest land.
I would dismiss Ground 3.b. for the reasons I have given for dismissing Ground 2.
Ground 3.a. directs attention to the objectives of the joint venture. It is premised on the proposition that ‘the evidence established’ that the joint venture contemplated the sale of land and design packages, as distinct from building and construction. Thus, the appellants submit, Mr Zollo’s inability to be a director of a company that held a builder’s licence was of no impediment to the joint venture.
The immediate problem with this ground is that the failure to disclose the District Court undertaking was hardly the only instance of misleading conduct that the trial judge found that Mr Zollo had engaged in. The matters the subject of my consideration of Ground 2, above, with respect to the Hillcrest and Muller Road transactions demonstrate findings of misleading conduct at the transactional level as much as at the commencement of the joint venture.
In any event, the contention fails. It relies in the first instance on selected excerpts of Mr Polley’s evidence. Part of that evidence related to the discussions during a meeting on 17 February 2015. The appellants point to the following evidence in chief:[73]
[73] Trial Transcript 78.3-6.
Q. Was there any discussion at the meeting as to whether Alex [Mr Zollo] would have a role as the builder in that builder’s licence.
A. No, only that he would help us with the application.
The appellants also rely on this exchange:[74]
Q. What was said about the time that Mr Zollo was going to contribute.
A. His time in paperwork, applications and things like that.
And finally, in this regard:[75]
Q. Was there a discussion on the topic of why Mr Zollo might not put money into the business.
A His part of the deal was to provide the expertise and my part of the deal was to provide the money.
[74] Trial Transcript 77.2-5.
[75] Trial Transcript 79.22-25.
The submission then was that Mr Zollo’s failure to disclose to Mr Polley the District Court undertaking did not mislead Mr Polley, because Mr Zollo’s role was merely to advise Mr Polley and ‘provide expertise’, as opposed to being personally involved in any building or construction.[76]
[76] Written Submissions of the First, Second and Third Appellants at [82]-[83].
The appellants’ reliance on these excerpts was highly selective. Those excerpts did not incorporate, for example, the following exchange in the very same course of Mr Polley’s evidence:[77]
Q. Was the word ‘expertise’ actually discussed at the meeting.
A. Yes.
Q. What was said about expertise at the meeting.
A. Well, Alex explained to Geoff that he was a builder and had been in the industry for a long time.
Q. It, I think, follows from your –
HIS HONOUR
Q. Sorry, so it was in that context that the word ‘expertise’ was used, that context of him being a builder and bringing his skills as a builder to this project.
A. Yes, sorry.
[77] Trial Transcript 77.12-24.
In any event, this meeting occurred on 17 February 2015, in what appears to have been a discussion in the context of the Hillcrest property. However, discussions between Mr Zollo and Mr Polley had commenced well before then. As I have observed above, the trial judge found that the joint venture relationship, and the fiduciary obligations that this entailed, commenced on 24 November 2014. SADH was incorporated on 8 December 2014, in the context of pursuing the Whysall Road project.
Mr Polley’s evidence was that even prior to this, he had had discussions with Mr Zollo where Mr Zollo had described himself as a builder.[78] He also gave evidence of a further meeting where they discussed disabled housing, doing ‘some project houses’ so that Mr Polley could gain some experience and that Mr Polley would provide the finance and Mr Zollo would provide the expertise.[79] He further gave evidence that Mr Zollo had said that ‘we would set up a company between us and that we would do some small building projects to start with and that I was to learn the ropes’.[80] Mr Polley’s evidence was that the initial searches for properties, prior to finding Whysall Road, was to find a small building project.[81]
[78] Trial Transcript 53.4.
[79] Trial Transcript 57.8-22.
[80] Trial Transcript 59.38-60.2.
[81] Trial Transcript 60.19-29, 61.14-29.
There was ample evidence on which to conclude, as the trial judge did,[82] that the parties entered into the joint venture on the misleading premise, which Mr Zollo communicated to Mr Polley, that Mr Zollo would be providing his expertise as a builder and that the joint venture would be undertaking building projects on that basis.
[82] Polley & Anor v Zollo & Ors [2019] SADC 76 at [26]-[27], [31].
As I have noted, the appellants rely on minutes of the meeting of 17 February 2015, which record that the project the subject of that meeting would be sold ‘as a house and land package with the prospective buyer taking on the financial burden of construction’.[83] Contrary to the appellants’ submission, this evidence did not relate to ‘Zollo’s role in the joint venture from the outset’,[84] but rather to an exchange that occurred well after the joint venture had commenced.
[83] Written Submissions of the First, Second and Third Appellants at [84].
[84] Written Submissions of the First, Second and Third Appellants at [83].
Further to the evidence recounted above, the records and Mr Polley’s evidence indicated that the original intention with respect to the Whysall Road project was to build houses that were amenable to use by disabled people.[85] Mr Polley’s evidence was to a degree confused as to what he understood by Whysall Road being sold as a ‘house and land package’. However, his evidence was quite clear that he was led to believe that the joint venture was going to do the building[86] and that Mr Zollo was responsible for organising that building.[87]
[85] Trial Transcript 72.2-73.35.
[86] Trial Transcript 73.33.
[87] Trial Transcript 72.38.
Counsel for the appellants could not point to any part of the transcript where Mr Polley was cross-examined on this understanding or where Mr Zollo contradicted this evidence. Their submission was limited to asserting that this evidence was inconsistent with the evidence that no building was ever constructed, and that the trial judge should have disregarded the evidence of Mr Polley’s original understanding. Moreover, counsel conceded that there was evidence of an understanding that the joint venture would engage in building work. The submission was, rather, that this evidence did not ‘meet the standard of proof’.
I reject this submission. Where Mr Polley’s evidence was not contradicted at trial, it stands as given in chief. As far as the Whysall Road property was concerned, there was evidence that easily supported the trial judge’s conclusion that the parties agreed that Mr Zollo would organise for the house on the Whysall Road property to be demolished, that something would be built on it, and that Mr Zollo would organise all of that because it was part of his expertise.[88] That this did not eventuate, and the land was simply sold, is of no assistance in addressing Mr Polley’s unchallenged evidence of the initial discussions which provided the premise for the joint venture in the first place.
[88] Polley & Anor v Zollo & Ors [2019] SADC 76 at [62].
The finding that Mr Zollo misled Mr Polley by not disclosing the District Court undertaking related to the outset of the joint venture which, contrary to the submission of the appellants,[89] was well before February 2015 and even before they embarked on the Whysall Road project in December 2014. The judge found that if Mr Polley had known the truth at the outset, he would have broken off the relationship.[90] The appellants have offered no basis for disturbing that finding. Ground 3 is without merit.
[89] Written Submissions of the First, Second and Third Appellants at [83].
[90] Polley & Anor v Zollo & Ors [2019] SADC 76; Findings of Fact [4]-[5].
Causation
Ground 4 in the Second Notice of Appeal complains:
4. The learned trial judge erred in finding that any loss was caused by the conduct of the Appellants (Reasons at [4], [11], [37], [68], [69], [76]) where the evidence before the learned trial judge established that:
a.the Respondents relied on their own skill, judgment and advisors in electing to transfer an interest in the Muller Road land to the Appellants, and to pay an assignment fee to the Appellants in relation to the assignment of the Hillcrest land; and
b.further or in the alternative, the Respondents failed to take reasonable care of their own interests such that any conduct of the Appellants was not a relevant inducement, relied upon, or otherwise causative of any loss sustained by the Respondents.
The appellants relied largely on their written submissions in addressing this ground.
The essential submission advanced did not reflect the particulars of this ground. Rather, the appellants submitted that in the alternative to Ground 3, the change in course from building and construction to simply one of sale of house and land packages whereby the purchaser would bear the risk of construction, severed the chain of causation. Specifically:[91]
Zollo’s conduct cannot have caused Polley to suffer the ‘loss’ of the Assignment Fee and the Transfer, when by that time the joint venture was unequivocally not to build or construct.
[91] Written Submissions of the First, Second and Third Appellants at [95].
The reason for this was submitted to be that the possibility of Mr Zollo being directly involved in building or construction was not an inducement to Mr Polley entering into the assignment fee and transfer arrangements.[92]
[92] Written Submissions of the First, Second and Third Appellants at [97].
Whether or not that is so, it does not address the balance of the trial judge’s findings relevant to causation in respect of those two particular acts of depredation he found Mr Zollo to have committed. As I have already observed, the judge found that Mr Polley paid the assignment fees:[93]
on the understanding that this was part of the purchase price and relying upon statements by Mr Zollo that the value of the land was not less than $900,000 and he had purchased the land at a significant discount because of the indebtedness of the vendor.
[93] Polley & Anor v Zollo & Ors [2019] SADC 76; Findings of Fact [63].
As to the transfer of the 24 percent interest in Muller Road, the judge found that Mr Zollo and AZ Holdings did not bring the contents of the Buick document to Mr Polley’s attention:[94]
This failure was a material non-disclosure by a party owing a fiduciary duty of loyalty in a joint venture relationship and misleading conduct by Mr Zollo and AZ Holdings of [sic] Mr Polley who relied entirely upon the conduct of and statements of Mr Zollo and AZ Holdings, when deciding to enter into the transaction.
[94] Polley & Anor v Zollo & Ors [2019] SADC 76; Findings of Fact [100].
The appellants’ written submissions, limited as they were to the asserted consequences of Mr Zollo’s failure to disclose the District Court undertaking, simply did not engage with these findings. The appellants have offered no reason to disturb them.
Finally, the appellants submitted that the findings of the trial judge ‘as to causation’ ignored the evidence that by the time of the transfer and payment of the assignment fees, the joint venture was not pursuing building and construction, as Mr Polley had by then run out of funds.[95] Again, this fails to engage with the findings that Mr Polley was induced into paying the assignment fees and making the transfer because of the misrepresentations and misleading conduct of Mr Zollo in regard to those particular matters.
[95] Written Submissions of the First, Second and Third Appellants at [97]
As I have already observed, the written submissions of the appellants on this ground bore no apparent relationship to the particulars of Ground 4 in the Second Notice of Appeal, as set out above. They raised quite a different argument. This is unsatisfactory. It is opportune to revisit and emphasise the importance of the observations of Lander J when considering the requirements of the Supreme Court Rules 1987, which are no less applicable today:[96]
A notice of appeal must be drawn so as to give sufficient particularity to the proposed respondent and the Court of the matters which are to be raised on the appeal. The notice of appeal should include grounds of appeal which enable this court and the respondent to know what points are being relied upon to support each ground: r 95.01(1). It is not permissible to draw a notice of appeal in general terms so that the opposing party and the Court cannot understand the matters which are to be advanced. The notice of appeal ought to identify the particular error made by the trial judge and, if necessary, indicate how it is that the trial judge should have proceeded. Again, so as to ensure procedural fairness, care must be taken that the grounds of appeal unambiguously indicate the issues sought to be agitated on the appeal. Any order sought on appeal by the appellant must be included: r 95.02(1)(d).
Parties ought to understand that they will be bound by their notice of appeal and will not be allowed to advance arguments not raised in the notice unless they obtain leave to amend the notice of appeal.
[96] Rawcliffe v Bianco Hiring Services Pty Ltd [2002] SASC 430 at [42]-[43] (Lander J, Doyle CJ and Bleby J agreeing).
Ground 4 was barely addressed orally. The lack of any apparent relationship between the ground as articulated in the Second Notice of Appeal and the written (and very short oral) submissions did not receive attention at the hearing. Had the matter been raised, I would have refused permission to amend the Notice of Appeal, on the ground that the amendment necessary to support the eventual argument made would have been without merit.
To be clear, I have addressed the argument as put (largely in writing) at the hearing, rather than those announced by the particulars to Ground 4 in the Second Notice of Appeal. Those particulars not having been prosecuted at the hearing of the appeal, the appropriate course would have been to abandon them formally. It is not for this Court to explore them when counsel has declined to pursue them in submissions.
Ground 4 is without merit.
Conclusion
The appellants have not raised any argument of substance in support of any ground in the Second Notice of Appeal. I would dismiss the appeal.
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