Aas v Benham

Aas v Benham - [2011] WASCA 17 - WASCA 2015 case summary — Zoe

[310]

You accept, as I understand your case - in fact, you assert, as I understand your case, that Mr Brailey sent Mr Grammer and Mr Hanna to see you. Is that correct?---That was hearsay.

That was hearsay. You say from whom?---Well, I don't know. Grammer, I think.

Mr Grammer told you that Mr Brailey had sent him?---No, this was later on in the piece that Grammer had said they had been to see many brokers in town.

And that Mr Brailey had said go and have a chat with you?---Probably.

When do you say this was said to you?---Well, I can't recall that.

Pick a year?---99.

...

- - -?---It would have been in 99 or 2000.

So in 1999 or 2000 Mr Grammer told you that he had been to see Mr Brailey and Mr Brailey had recommended he come and see you?---Yes.

...

Can I show you a copy of the relevant pleadings in this case?---As at today?

...

Now it has always been your case, Mr Streeter, that the cause of Mr Grammer, Mr Hanna and Mr King meeting with you was the suggestion of Mr Brailey. Isn't that the case?---I think it was probably the suggestion of Mr Grammer because Mr Grammer was a friend of mine and whether Mr Brailey mentioned it to Grammer and Stewart I can't vouch for that. I wasn't at - - -

You positively assert in this case, and have since the earliest pleading, that Mr Brailey's suggestion occasioned the meeting in early to mid December that you had with Grammer, Hanna and King. That's your position. Do you accept that?---That was - I don't accept that Mr Brailey guided - well, I accept that Mr Brailey might have guided Hanna, Stewart and Grammer to my door but I can't say whether that happened or not. I wasn't there. I was only told that later, that they conveyed that was the case.

You've accepted that sufficiently for you to always run that as part of your pleaded case in these proceedings, haven't you? You know it to be true?---Yes, of course.

Thank you. It's your assertion, isn't it, that notwithstanding that you know it to be true, that at the first meeting you had with Grammer, Hanna and King they never mentioned Mr Brailey to you?---No, they didn't.

Could that be because you simply can't recollect the detail of that discussion?---No, they didn't mention Brailey.

[333]

And by the time of the second meeting, a few days after the first, you had had no discussion with Mr Streeter about this ANPC proposal at all, had you?---I believe I had.

You have got no recollection of having - - -?---No, I haven't got a recollection, that's correct, and I also believe I had discussions with Mr Cooper. This is not a lightweight thing; it's a very serious situation, as it was at the time.

But it's serious that you can't remember a single discussion with them, can you?---I can remember independent things outside but when you're in a broking firm which is in the middle of dotcom boom and you're being rattled all day - I'm dealing, researching, broking, trying to look after these people - it's a bit hard to remember all those things.

You were in the middle of a dotcom boom, weren't you?---Yes, absolutely.

This was the era when there was much activity on the stock market as regards companies which were investing in telecommunications and internet-based businesses, weren't they?---Yes, that's correct.

And you were heavily involved?---I was heavily involved, yes.

...

Right. Can I direct your attention to paragraph 3 at the top of page 2 [of the second witness statement]?---Yes. The top of the page, yes, I've got that.

Do you see the sentence beginning, 'The reasons for my belief'? Can you read that to yourself?---Yes. Yes, I've read that.

And the next sentence about time being of the essence?---Yes, I believe that.

It's the case, isn't it, that in this statement you say that you were excited by the proposal and that time was of the essence?---Yes, that's correct.

And that you always contacted Mr Streeter in relation to significant matters affecting WAE?---Well, we'd had an annual general meeting on the 29th of the 11th so I mean we were still very conscious of the company's position.

Yes, but you give those three reasons - excitement, time is the essence, always contact Streeter regarding significant matters?---Well, I'd have to because he was the - you know, I'd have to do that, yes.

You say because of those reasons although you can't recall you asked the court to find that you must have had many discussions with Mr Streeter about the ANPC proposals?---This is a supplementary witness statement and it's obvious I guess that many discussions took place.

But do you accept that that's the logic you're putting forward - the attempted logic?---Could you please repeat that?

Right?---Can you start with the reasons for my belief?

In this witness statement you cannot give evidence of an actual recollection of any communication with Mr Streeter about the ANPC proposal. Isn't that so?---I've stated that before, yes.

Yes. And so what you are doing is setting out to explain to the court why you believe some discussions must have occurred. Isn't that so?---Well, that's what this says. That's exactly right.

And the reasons you give are three, are they not - the three I have just drawn your attention to and summarised: 'excitement; time of the essence; usually contact Streeter on significant matters'?---Yes, that's correct.

And you say for those three reasons you would have had discussions with Streeter about the ANPC proposal in December and January?---That's what it says, yes, and that's what I have maintained all the way through.

In point of detail you have no recollection of any discussion with Mr Streeter between the first and the second meeting with the ANPC people in early December, do you?---Well, you've said that, but what I've always maintained is that there were a number of discussions going backwards and forwards during this period.

But you have no recollection of any discussion with Streeter between the two ANPC meetings, do you?---Between 30 November and 3 December?

Yes?---No, I've said that I didn't have a recollection. That's correct.

That's correct. And you have no recollection of ever seeking from Streeter information of a particular kind as to any aspect of the ANPC proposal?---Well, I could've given it to somebody else, I suppose.

But you can't recall discussing any particular aspect of it?---The thing that I do remember very clearly was a very active week and I'm sure I did speak to Mr Streeter, and that's what I'm saying.

You can't recall any particular aspect - - -?---Exact - I can't recall the exact details.

No, but you can't recall any detail of it being discussed, can you?---Well, there's a lot of trust at this stage of the game. You know, I'm ringing him up, 'Quickly, Terry' - quick discussions, and I mean these things are happening. This project is on.

[349]

Your sequence is what I'm interested in. The precise date we can work around from other evidence, Mr Hanna. So your sequence is that you went to meet with Mr Brailey. Can I put to you when you went to meet with Mr Brailey you must have been aware on or about 3 December that he was associated with Mr Streeter and Mr Cooper?---Well, as I said in my witness statement, which I should probably refer to for clarity, my recollection is there was some discussion on Western Areas Exploration, of some comment there on Western Areas Exploration. Mr Streeter, Mr Cooper, I don't recall being mentioned in that meeting.

You had known in advance from your diary at the time you wrote your diary entry on 1 December, hadn't you?---I had known there were two names there, correct.

...

But you didn't know who Mr Brailey was other than he was the man Stuart had worked with at Western Mining and was now a broker?---Stockbroker with D and D Tolhurst.

You didn't know anything about the name David Cooper, whether he was a Tolhurst person or what?---I don't recall.

Then there was discussion with Brailey at that meeting and you ended up with a negative impression of Tolhurst's involvement. That's all you can recollect of that, isn't it, a conversation you had with King in the lift?---As we got out of the lift.

At the bottom of the building?---We didn't see any real reason to pursue this interest. We had other irons in other fires that were more appealing.

Mr Brailey suggested, didn't he, that you should speak with Mr Streeter?---I don't recall that.

That could well have happened?---I don't recall anything of that - detail of that meeting. I just recall the discussion that Tim and I had at the end of it, the conclusion.

...

When you first saw this proposal from Mr Cooper on 8 December it refers to Western Areas Exploration, doesn't it?---It does, yes.

It didn't come as a surprise to you?---I don't recollect. I mean, this came through Terry Grammer. This did not come from me. I would just like to make that point quite clear. This was obviously a proposal or a model prepared by Mr Cooper and sent to Mr Grammer and subsequently sent to me.

I'm only asking you about your recollection?---My recollection is that I don't - - -

You didn't have any surprise at the name Western Areas Exploration?---You know, as I said I think in my witness statement, I think there had been discussion of a company Western Areas Exploration with Mr Brailey on 3 December.

...

You had gone - I suggest this is how it occurred: you had had the meeting with Mr Brailey and as a consequence of your meeting and Mr Grammer's meeting either [you] or Mr Grammer, perhaps Mr Grammer because he had some acquaintance, lined up a meeting with Mr Streeter that occurred in the period between 3 December and 8 December. Would you accept that is likely?---That is more my recollection.

[462]

The purpose of the attached Notice of Extraordinary Meeting is to discuss and pass the special resolution as described. This notice is to inform you of the reason for the Board requesting the passing of the resolution.

As you would be aware the Board has had a difficult time over the last few years in keeping the Company going because of financial constraints and, as has previously been advised, if it were not for the funds advanced to the Company through a board member's company, Mr TE Streeter, your Company would have been unable to remain viable.

At this stage the Company's only remaining asset is an application for mineral exploration licences over a tenement at Cue in WA. The application consists of three applications for licence[s] of which one has been granted and two are pending. When these are granted the Company will then have to raise funds to provide for anticipated exploration expenditure to maintain these licenses. To date the Company is indebted to Mr Streeter's company for approximately $60000 (The Balance Sheet showed $57000) at the 30th of June 1999.

The Board has now received an offer from a new mineral exploration company, Western Areas NL offering 1000000 fully paid ordinary shares in Western Areas NL on the following basis :-

A) Western Areas NL would take over Western Exploration NL's interest in the Cue licence applications and

B) Western Areas Exploration NL would change its name.

NOTE: Their offer is an overall offer for BOTH the above and is subject to acceptance of both items by Western Areas Exploration NL.

This offer is also subject to the successful float of Western Areas NL on the ASX and the shares offered may be subject to escrow for a predetermined period.

Should the attached Special Resolution be passed and the offer be accepted then sufficient of the shares received would be allocated to Mr Streeter's company at their par value to enable the Company to discharge its debt and the remainder held by the Company as an investment asset. Mr Streeter has in the past advanced sufficient funds to finance the company's day to day operations. These past loans have been converted to equity capital however Mr Streeter's interests now hold the maximum permissible shareholdings without making a full takeover offer for the company.

Because of Mr Streeter's and Mr Cooper's interests in Western Areas NL neither they nor their interests will be able to vote on this resolution so it is imperative that you exercise your voting rights (either in person or by proxy) so that your company can take advantage of this offer. (emphasis added)

[469]

How the document came into Mr Brailey's hands is not, however, of any great significance because the importance of the document lies in the clear intention which it reveals (having been prepared by Mr Cooper at Mr Streeter's request) of convening an EGM of the plaintiff to take up 1 million fully-paid ordinary shares in WANL on the basis that WANL would take over the plaintiff's interests in the Cue tenements and that the plaintiff would change its name, all subject to the successful float of WANL. Another point of significance in the draft notice is the final paragraph:

Because of Mr Streeter's and Mr Cooper's interests in WANL, neither they nor their interests will be able to vote on this resolution so it is imperative that you exercise your voting rights (either in person or by proxy) so that your company can take advantage of this offer.

This, even if only a draft, indicates that at least by February 2000 both Mr Streeter and Mr Cooper realised that there was an actual conflict of interest between themselves and the plaintiff arising out of their interest in WANL and their desire to transfer assets of the plaintiff, both the Cue tenements and its name, to WANL. The notice indicates a desire to obtain the informed consent of the shareholders of the plaintiff to the sale of the Cue tenements and the use of the name by WANL which, of necessity, involved disclosure of the fact that WANL would be promoting the ANPC proposal. The acceptance, by this notice, that neither Mr Streeter nor Mr Cooper, nor their associated companies could vote on the proposed resolution is an express admission of a conflict of interest. The proposed issue of 1 million shares in WANL to the plaintiff is also a recognition that some appropriate form of consideration should be received by the plaintiff for these proposed developments which, at 20 cents a share, amounted to $200,000, which was the figure then being attributed to the value of the entirety of the interests in the Cue tenement. (It was later reduced to $100,000 when the transaction occurred.)

[607]

The variations between more precise formulations of the principle governing the liability to account are largely the result of the fact that what is conveniently regarded as the one 'fundamental rule' embodies two themes. The first is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest. The second is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing his position for his personal advantage. Notwithstanding authoritative statements to the effect that the 'use of fiduciary position' doctrine is but an illustration or part of a wider 'conflict of interest and duty' doctrine (see, eg Phipps v Boardman [[1967] 2 AC, 123]; NZ Netherlands Society 'Oranje' Inc v Kuys [[1973] 1 WLR, 129]), the two themes, while overlapping, are distinct. Neither theme fully comprehends the other and a formulation of the principle by reference to one only of them will be incomplete. Stated comprehensively in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain (i) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain or (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it. Any such benefit or gain is held by the fiduciary as constructive trustee: see Keith Henry & Co Pty Ltd v Stuart Walker & Co Pty Ltd [(1958) [1958] HCA 33; 100 CLR 342, 350]. That constructive trust arises from the fact that a personal benefit or gain has been so obtained or received and it is immaterial that there was no absence of good faith or damage to the person to whom the fiduciary obligation was owed.

[617]

374 The language of 'conflict' between interest and duty was used by Lord Cairns in Parker v McKenna (1874) 10 Ch App 96. There the directors of a bank resolved to increase its capital by issuing 20,000 new £50 shares. The resolution to increase capital had, in substance, two components. One was a rights issue to existing shareholders whereby each shareholder would pay for each share a £25 premium, and £5 as a first call. The second was an agreement with a third party named Stock, to take up all the shares that were not taken by the existing shareholders at a premium of £30 per share, ie £5 more per share than on the rights issue. Under the agreement, Stock was to take up and pay for the shares not allotted to existing shareholders at the rate of 1,000 shares per month and was required to lodge a guarantee of £25,000 to secure his obligation. There was a shortfall of subscriptions in the rights issue, leaving 10,453 shares untaken. Of this amount, 9,778 shares were allotted to Stock, although he was then unable to pay more than £5 per share out of the £30 per share payable. The bank made a further arrangement with Stock to the effect that the certificates of the shares allotted to him should be held by the bank, that the bank should have a lien on the shares for the sum of £30 per share, and that no transfer from him to any purchaser should be registered until the bank received the sum of £30 per share on the shares so transferred. According to the directors of the bank, even after this arrangement, Stock was still anxious to relieve himself of the burden he had assumed, and requested the directors of the bank to take some of the shares allotted to him for themselves at £35 per share, being the sum of £30 premium, and £5 in respect of the first call. The directors between them acquired 4,300 shares from Stock in this way and sold the shares to subsequent purchasers for a profit. The bank received the £30 premium per share at the time when the shares were registered in the names of the purchasers to whom the directors sold the shares.

[618]

It is necessary at this point to observe what was the position of Stock in this matter. The contract at this point was clearly an executory contract. It was a contract of a very peculiar description, running over a considerable time. It was a contract with regard to the performance of which the interests of the bank required to be watched with the greatest jealousy and vigilance. There was the guarantee deposit to be maintained as a guarantee deposit to the end of the transaction; there were the stipulations as to the proportions in which the shares were to be taken up; there was the stipulation that no delivery was to be made until payment was made; there was the approval of the names of persons sent in for shares, which was to come from the directors; and there was the question, of very great importance in a speculation of this kind, how and at what times the calls should be made upon these shares by the directors. The essence, in fact, of the transaction as I view it, and of the bargain with Stock, was this, that Stock was to take all the risks of the market with regard to the disposal of these shares, and the object to be secured was the fixed payment of £30 a share to the bank. Now I ask the question, In the fulfilment and execution of this contract, who was to watch the interests of the bank? Undoubtedly the directors of the bank. They were the agents of the bank for this purpose. If they did not watch the fulfilment of the contract there was no person else to do it. Their agency would not come to an end with regard to these shares until the contract was completely fulfilled; and their agency at the date which I have referred to, namely, the allotment to Stock, not only had not come to an end, but was actually only in reality commencing.

Now that being the position of Stock and the position of the directors, I turn next to the narrative of what the directors, or the four Appellants who were directors, actually did in this matter, ... It is true that the transaction is throughout called by them a purchase of shares from Stock, but Stock had no complete property in any shares to sell. All that he could sell, and all that he did sell, appears to me to have been the right to stand in his place quoad these 4300 shares, which was the total amount of the shares taken by the four Appellants. It is true that Stock was not in any way released from the performance of his contract; but it may be asked how could the directors possibly enforce against Stock the performance of the contract quoad these 4300 shares, when the enforcing of the contract against Stock would, as to those shares, be really the enforcing of it against themselves; for as Stock would be liable to the bank, so these four Appellants would be liable each for his own shares to Stock.

...

Now, the rule of this Court, as I understand it, as to agents, is not a technical or arbitrary rule. It is a rule founded upon the highest and truest principles of morality. No man can in this Court, acting as an agent, be allowed to put himself into a position in which his interest and his duty will be in conflict. If Stock had bought these shares and paid for them, and become the absolute owner of them, the directors were as free as any person in the market to go to Stock and to become the purchasers from him of those shares. The agency in that case would have been over, and there would have been no longer any conflict between interest and duty. Here the agency had not terminated. The Court will not inquire, and is not in a position to ascertain, whether the bank has lost or not lost by the acts of the directors. All that the Court has to do is to examine whether a profit has been made by an agent, without the knowledge of his principal, in the course and execution of his agency, and the Court finds, in my opinion, that these agents in the course of their agency have made a profit, and for that profit they must, in my opinion, account to their principal (116 - 118).

[646]

A supposition which seems extremely improbable, but which is perhaps possible, is that [the client] made a gift to [the errant partner] of a share of the profits. But if this were the true character of the transaction, it can scarcely be differentiated from additional remuneration. Even if the actual object of such a gift was not to induce [the errant partner] to give to [the client's] business energy, time and care which ought to have been more equally distributed over the various concerns of the firm, its tendency would manifestly be to do so.

...

A partner, who is apparently performing the functions undertaken by the firm but is really advancing his separate interest, has a bias against the fair discharge of his duty to his partners. This alone might suffice to disable [the fiduciary partner] from secretly taking the gift supposed, and keeping it for himself. But in fact it is only a part, one aspect, of the considerations from which this consequence ensues. The thing given, a right to participate in the client's profits, was an advantage the pursuit of which fell within the scope of the partnership business. The inducement which the firm could hold out to a client in order to obtain this advantage on the joint account consisted in the promise or expectation of an expenditure upon his affairs of greater energy, time, care and enthusiasm. This is the very thing that the acquisition of such a right would tend to promote in the individual partner, whether he acquired it by gift, contract, or otherwise. Finally, the willingness of the client to divide the profits with one partner formed ground for thinking that he might be ready to make some profit-sharing agreement with the firm itself for their mutual advantage, and this was information which one partner could not suppress to forward his separate interest. These considerations combine to make it inconsistent with his fiduciary obligation to conceal the fact, and to take a separate interest without the partners' knowledge and consent (417 - 418).

[662]

The answer, however, to this claim is short and conclusive. It was no part of the business of H. Clarkson & Co to promote or reconstruct companies, nor to advise them how to improve the management of them. All such matters were quite foreign to the business of H Clarkson & Co. ... He never was in fact acting for his firm in this matter, nor did his partners ever suppose he was, or treat him as so acting. Nor is it true in fact that Mr Benham or the company for which he was acting ever derived any benefit from his connection with the firm of H Clarkson & Co. It is clear law that every partner must account to the firm for every benefit derived by him without the consent of his co-partners from any transaction concerning the partnership or from any use by him of the partnership property, name or business connection ... As regards the use by a partner of information obtained by him in the course of the transaction of partnership business, or by reason of his connection with the firm, the principle is that if he avails himself of it for any purpose which is within the scope of the partnership business, or of any competing business, the profits of which belong to the firm, he must account to the firm for any benefits which he may have derived from such information, but there is no principle or authority which entitles a firm to benefits derived by a partner from the use of information for purposes which are wholly without the scope of the firm's business ... By 'information which the partnership is entitled to' is meant information which can be used for the purposes of the partnership. It is not the source of the information, but the use to which it is applied, which is important in such matters. To hold that a partner can never derive any personal benefit from information which he obtains as a partner would be manifestly absurd. Suppose a partner to become, in the course of carrying on his business, well acquainted with a particular branch of science or trade, and suppose him to write and publish a book on the subject, could the firm obtain the profits thereby obtained? Obviously not, unless, by publishing the book, he in fact competed with the firm in their own line of business (255 - 256). (emphasis added)

[682]

The first matter that has to be considered is whether or not the defendant was in a fiduciary relationship with his principals, the plaintiffs. [Counsel for the defendant] argued that he was not because he received this information which was communicated to him privately. With respect, I think that argument is wrong. The defendant had one capacity and one capacity only in which he was carrying on business at that time. That capacity was as managing director of the plaintiffs. Information which came to him while he was managing director and which was of concern to the plaintiffs and was relevant for the plaintiffs to know, was information which it was his duty to pass on to the plaintiffs because between himself and the plaintiffs a fiduciary relationship existed ...

It seems to me plain that throughout the whole of May, June and July 1969 the defendant was in a fiduciary relationship with the plaintiffs. From the time he embarked upon his course of dealing with the [gas board], irrespective of anything which he did or he said to [his employer], he embarked on a deliberate policy and course of conduct which put his personal interest as a potential contracting party with the [gas board] in direct conflict with his pre-existing and continuing duty as managing director of the plaintiffs. ...

...

Therefore, I feel impelled to the conclusion that when the defendant embarked on this course of conduct of getting information on June 13, using that information and preparing those documents over the weekend of June 14/15 and sending them off on June 17, he was guilty of putting himself into the position in which his duty to his employers, the plaintiffs, and his own private interests conflicted and conflicted grievously. There being the fiduciary relationship I have described, it seems to me plain that it was his duty once he got this information to pass it to his employers and not to guard it for his own personal purposes and profit. He put himself into the position when his duty and his interests conflicted. As Lord Upjohn put it in Phipps v Boardman [[1967] 2 AC 46, 127]: 'It is only at this stage that any question of accountability arises' (451 - 453).

[767]

485 I recognise that there was a significant degree of commonality of interest between the personal interests of Mr Streeter, and the interests of WAE, in the sale of Cue to WANL. WAE had an interest in extracting as high a value for Cue as it could, and Mr Streeter, who had an exposure to WAE both as an investor as well as a creditor, also had an interest in WAE achieving a good outcome on the sale of its only asset. Nevertheless, their interests were not coterminous. The only consideration capable of moving from WANL was in the form of an allotment of its shares upon its listing. The judge found that the value attributed to Cue in the transaction reflected 'a massaging' of the values, to give Mr Streeter his desired 20% equity in WANL (reasons [201]), and that 'it was of little importance what the true value of the Cue tenements were' (reasons [202]). The finding that there was a 'massaging' of the value of Cue over the course of negotiations is correct insofar as it is a finding not as to purpose, but as to the process by which the value for the Cue asset ultimately came to be assigned in the transaction. In that regard, it reflects the inherent conflict in Mr Streeter's position at the time. Once he had embarked on the sale of Cue his duty to WAE (and Mr Cooper's) in the sale of WAE's only asset, was to secure the highest allotment of shares possible in exchange for the asset. His personal interest (and Mr Cooper's as Mr Streeter's adviser) was to obtain the best preferential treatment he could, in terms of the issue of shares at a discount price and options, for the provision of seed capital. There was competition, or at least a real substantial risk of competition between the two as there was, commercially, a limit to which WANL could issue shares to vendors of assets (ie to WAE for Cue) and give preferential treatment to seed capitalists (ie Mr Streeter), without compromising the overall attractiveness of the float to the market (Streeter ts 1173 - 1175, exhibit 57).

[893]

Within the constraints marked out by the nature of the appellate process, the appellate court is obliged to conduct a real review of the trial and, in cases where the trial was conducted before a judge sitting alone, of that judge's reasons. Appellate courts are not excused from the task of 'weighing conflicting evidence and drawing [their] own inferences and conclusions, though [they] should always bear in mind that [they have] neither seen nor heard the witnesses, and should make due allowance in this respect'. In Warren v Coombes, the majority of this court reiterated the rule that:

'[I]n general an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge. In deciding what is the proper inference to be drawn, the appellate court will give respect and weight to the conclusion of the trial judge but, once having reached its own conclusion, will not shrink from giving effect to it.'

As this Court there said, that approach was 'not only sound in law, but beneficial in ... operation'.

After Warren v Coombes, a series of cases was decided in which this Court reiterated its earlier statements concerning the need for appellate respect for the advantages of trial judges, and especially where their decisions might be affected by their impression about the credibility of witnesses whom the trial judge sees but the appellate court does not. Three important decisions in this regard were Jones v Hyde, Abalos v Australian Postal Commission and Devries v Australian National Railways Commission. This trilogy of cases did not constitute a departure from established doctrine. The decisions were simply a reminder of the limits under which appellate judges typically operate when compared with trial judges.

The continuing application of the corrective expressed in the trilogy of cases was not questioned in this appeal. The cases mentioned remain the instruction of this Court to appellate decision-making throughout Australia. However, that instruction did not, and could not, derogate from the obligation of courts of appeal, in accordance with legislation such as the Supreme Court Act applicable in this case, to perform the appellate function as established by Parliament. Such courts must conduct the appeal by way of rehearing. If, making proper allowance for the advantages of the trial judge, they conclude that an error has been shown, they are authorised, and obliged, to discharge their appellate duties in accordance with the statute.

Over more than a century, this Court, and courts like it, have given instruction on how to resolve the dichotomy between the foregoing appellate obligations and appellate restraint. From time to time, by reference to considerations particular to each case, different emphasis appears in such reasons. However, 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.

That this is so is demonstrated in several recent decisions of this Court. In some, quite rare, cases, although the facts fall short of being 'incontrovertible', an appellate conclusion may be reached that the decision at trial is 'glaringly improbable' or 'contrary to compelling inferences' in the case. In such circumstances, the appellate court is not relieved of its statutory functions by the fact that the trial judge has, expressly or implicitly, reached a conclusion influenced by an opinion concerning the credibility of witnesses. In such a case, making all due allowances for the advantages available to the trial judge, the appellate court must 'not shrink from giving effect to' its own conclusion. Finality in litigation is highly desirable. Litigation beyond a trial is costly and usually upsetting. But in every appeal by way of rehearing, a judgment of the appellate court is required both on the facts and the law. It is not forbidden (nor in the face of the statutory requirement could it be) by ritual incantation about witness credibility, nor by judicial reference to the desirability of finality in litigation or reminders of the general advantages of the trial over the appellate process.

It is true, as McHugh J has pointed out, that for a very long time judges in appellate courts have given as a reason for appellate deference to the decision of a trial judge, the assessment of the appearance of witnesses as they give their testimony that is possible at trial and normally impossible in an appellate court. However, it is equally true that, for almost as long, other judges have cautioned against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses. Thus, in 1924 Atkin LJ observed in Societe d'Avances Commerciales (Societe Anonyme Egyptienne) v Merchants' Marine Insurance Co (The 'Palitana'):

' ... I think that an ounce of intrinsic merit or demerit in the evidence, that is to say, the value of the comparison of evidence with known facts, is worth pounds of demeanour.'

Further, in recent years, judges have become more aware of scientific research that has cast doubt on the ability of judges (or anyone else) to tell truth from falsehood accurately on the basis of such appearances. Considerations such as these have encouraged judges, both at trial and on appeal, to limit their reliance on the appearances of witnesses and to reason to their conclusions, as far as possible, on the basis of contemporary materials, objectively established facts and the apparent logic of events. This does not eliminate the established principles about witness credibility; but it tends to reduce the occasions where those principles are seen as critical.

[901]

Mr Brailey, can I interrupt you because you are not responding to my question. My question concerns you in your witness statement, your evidence-in-chief, as regards this set of minutes not saying that as far as the minutes go they are wrong in any respect. You see you haven't said that. Sorry, you see that you make no criticism of the minutes as far as they go, don't you?---All I say is that they're not complete because there's no mention of the ANPC

Right. They are not complete but as far as they go they are not inaccurate in any respect, to the best of your recollection?---We talked about Vince Roberts. We talked about the corporate restructure possibilities. We talked about the Cue tenements, and I received this business proposal which I really do remember vividly. They said that it had a series of meetings with a mineral exploration - a group of people that wanted to start a new mineral exploration company and they were now prepared to offer 800,000 vendor shares for the Cue properties. I remember that very clearly. Absolutely.

Mr Brailey, you don't say that these minutes are wrong in any respect as far as they go, do you?---No, I don't say these four paragraphs are wrong, no.

One of the topics discussed under the heading Corporate Restructure was the question of bringing the number of shareholders in WAE below 15 so as to avoid the operation of the takeover provision, wasn't it?---I don't find that unusual because

I'm not asking you whether it's usual or unusual. I'm just trying to get the nature of the subject?---Yes. No, I'm happy that that was discussed. Yes.

Was the reason that was discussed so that the outstanding shares which were to come to Mr Streeter could be issued to him or his company if the number of shareholders could be reduced to 15?---No. I don't remember the detail of that. It was something left to Cooper and Thomas.

...

But you recall that there was an arrangement as regards 600,000 shares plus attached options?---Yes, I remember that.

And Mr Streeter had put in some capital which hadn't been able to be converted into equity because of the proportion of the capital he already held, which was too close to 20 per cent?---When he - yes, when he, Mr Streeter, first introduced the capital, the corporate management of the company was under Mr Higginson and others, and if Mr Streeter went over 20 per cent, I remember discussions from time to time of how long it would take to get an EGM together and get the shareholders' approval. I remember that.

There were two aspects to the outstanding issuance of shares to Mr Streeter's company, weren't there? There was the 600,000 shares and there was the remaining capital he had put in which hadn't yet been converted into equity?---Yes, that's correct. Yes.

And the item that's recorded as item 2 in the minutes of exhibit 77 is a discussion about what can be done to bring about the position where that can be remedied and the shares can be issued, wasn't it?---No, no, that was - that's not - that's completely incorrect.

Well, what do you say was the reason why you were discussing bringing the number of shareholders in the plaintiff below 15?---Not being a corporate wizard, all I know is that that particularly below - that item below 15 was part of the discussion. Now, I cannot tell you the exact reason but I did know that once Mr Streeter exceeded his 20 per cent, we'd have to go to a quick EGM to get it approved. That was a given.

So you don't recall the reason why you were discussing trying to bring the number of shareholders down below 15?---No, I don't. No. As a matter of fact - yes, I just simply don't remember discussing that part of it.

And you do recall there being a discussion about the sale of the Cue tenements?---Yes, I do. Yes.

And an opportunity was described to you?---Was - sorry, could say that again?

An opportunity to sell the tenements was described to you?---Yes, yes.

And following some discussion of that proposal, you consented to the proposed transaction of sale, didn't you?---No, that's totally wrong. How could I do that? All I would say is, 'Look, let's have a look at it. Let's discuss it. Let's see what we need to do.'

You see that the minutes conclude under item 4 with attributing a consent to you, don't you?---Yes, I do, and I've always denied that that happened, but I don't say that anywhere.

Well, you've already accepted that you don't criticise the minutes for accuracy as they go, Mr Brailey?---Okay. Well, let's get back to this paragraph 108, when I say, 'Above or partially consistent.' You're bringing my - you're certainly stimulating my memory now as I read this again. This document to me - I've always said from day one it's strange. The fact it was signed on the 24th of the 3rd, there's no minutes before this on the 14th of the 6th. It just got a little bit out of shape for me, and as far as I'm concerned, I say - I must say somewhere that I didn't agree that I had agreed to that deal being an acceptable deal.

Well, I can tell you you don't say that in your witness statement, Mr Brailey?---Well, then perhaps I should have.

You recall a discussion about Cue, don't you?---I said that, yes.

And you recall a discussion to the effect that there was an opportunity to sell the Cue tenements?---I remember that and I also remember my response was, 'Let's have a look at it,' because if we can lay off in our risk in that area and get somebody else to pay for it, well, then some vendor stock might be totally acceptable, but we'd like to see the deal.

And you don't recall any statement to Streeter or Cooper at the meeting of the 28th along the lines, 'Well, why would we be selling Cue if WAE is being floated with the ANPC proposal,' do you?---Well, I don't recall exactly, but Cue is a grassroots high risk gold tenement and now it focuses on nickel. So therefore it would be automatic for me to say, 'Well, if we can push that out of the portfolio, that's fine.'

Well, on your evidence you recall someone asking in early December that Wolzak get some information on Cue for Hanna, don't you?---That's correct, yes.

So on your evidence you had in mind that Cue might be included in a float with ANPC, don't you?---I had in mind that at that very early stage - nothing in particular apart from the fact that we had the Cue project inside WAE, and why would I suppose that ultimately if it was all developed the way I thought it was going to develop, it could be in there. Why not?

And what I'm suggesting to you is that come 28 January, when you meet him, you never said anything to Streeter and Cooper along the lines, 'Well, I thought this was going with ANPC into a float,' did you?---No, because things had moved on. It's a state of flux all the time.

And you never asked them - sorry, I withdraw that. Did you ask him at the 28 January meeting who the prospective buyer of Cue was?---No. Why would I? I was just - I was just - - -

It didn't occur to you - - -?---I was just told and I accepted - - -

- - - that that would be important to know?---I would say no, I didn't ask them. Just told me it was just a group that had approached them.

Do you see that in the description of item 4 it's recorded that in view of the fact that these tenement licences, if granted, would involve the company in ongoing exploration expenditure for which it did not have the funds, it was felt that this was a good opportunity for Western Areas to benefit from the Cue tenements?---It's bringing back a lot of memories but that's an area which I don't - I find great difficulty with in these minutes, I must admit.

Do you recall a discussion to that effect?---I recall a discussion that it would be acceptable to think about doing a deal with another group who had approached Streeter and Cooper expressing an interest in our Cue projects and may give us 800,000 vendor shares. So at that stage, in the knowledge that we have got this other thing going on, it would be totally natural for me to say, okay, let's have a look at it and look at the proposal. Had I been of the view that this was the last remaining straw in our pack or card in our pack, I wouldn't have adopted that attitude.

Mr Brailey, I suggest to you that you could not have participated in a discussion about the prospective sale of Cue for vendor shares in a new company without already knowing what the new company was proposed to be or without asking. Isn't that so?---No, I don't agree with that. There's a lot of trust in this game and if your directors say, 'Look, we have got a new group that's approached us,' you just take it.

You knew by 28 January, didn't you, that Streeter was interested in the ANPC proposal?---No. I thought that WAE was interested in the proposal.

And you knew by 28 January that ANPC had no interest whatsoever in WAE, didn't you?---No, I didn't know that.

As regards the Vince Roberts matter, it appears from the entry in exhibit 77 that you made a telephone call to someone and ascertained that it had been deferred until July 2000. Do you see that?---Is this the item 1 on the same document?

Yes?---I do. Which Christmas Eve?

The hearing had been deferred until July 2000. That's what you were told apparently?---That's correct, yes.

And you don't recall any discussion at this meeting on 28 January about seeking to resolve the matter before then, do you?---No, I don't recall any specific discussion.

And you don't recall any discussion at this meeting about taking steps to prepare WAE, Western Areas Exploration NL, for a possible float with the ANPC tenements, do you?---I don't make any specific mention of that but I thought that was a given.

But you don't recall any discussion about taking steps to prepare WAE for the float, do you?---It's not mentioned in this minute but I thought Tolhurst were going to be one of the lead brokers in the situation and by that stage I was waiting for the resolution of the Norgard Clohessy situation with King and it was just an ongoing work in progress as far as I was concerned.

An ongoing work in progress in which you have got no recollection of speaking to either Streeter or Cooper or anyone from ANPC about it after 3 December about the progress, do you?---This doesn't say it but there were discussions, that's for sure, and even though it's not documented, I would not have let that amount of time go past with such an important situation on the plate just letting it vaporise. I don't understand it.

But you've got no recollection of any discussions?---Not specific discussions, no.

[903]

And you didn't, at this meeting, tell him that the new group was ANPC?---It was obvious that that's who they were. Who else would it have been?

A new group?---Yes.

A gold group?---No, a nickel group.

They were buying a gold tenement?---Yes.

Why - you think he should have made the connection and thought 'That's a nickel group'?---Following general discussion of the proposal Mr Brailey gave his consent to the proposal.

Where does it say either you or Mr Cooper said 'It's ANPC'?---It doesn't.

That's because it was never said?---I can't answer that because it probably was said.

If it was said it would have been minuted by Mr Cooper because you needed to minute that, didn't you? That would have been important to minute?---Well, we didn't - I mean, this was the new company. It says 'A new group wishing to set up a mineral exploration company'.

As at 28 January the new company had been set up for a month, hadn't it?---Right.

In fact the day before this meeting you gave it its second lot of $10,000?---Right.

So why would you tell them they wished to set up a mineral exploration company? Why didn't you say, 'A new company has been established, Western Areas NL'?---I'm not sure of that answer.

You knew, didn't you, as a director of Jubilee, the concept of having a material personal interest, didn't you?---But when - yes.

Did you know that there was a concept of having a material personal interest?---Yes.

Did you know that relevantly in 2000 the relevant provisions of the Corporations Act was section 232? For public companies you are obliged to declare your interest, disqualify yourself from voting on a resolution or attending a meeting to discuss a proposal of which you have a material personal interest. It is now section 180, A184 or something. Did you know that?---No.

Did you not know that you should have declared, 'I've got an interest in the purchaser,' and had that minuted?---No.

That had never happened at Jubilee where somebody had to declare a personal interest, in 10 years?---Yes, of course it did.

Well, you knew then. Your experience as a director of a public company had taught you that, hadn't it?---Yes, it did.

But you didn't see fit to declare a personal interest in front of Mr Brailey that would have alerted him to your interest in the purchaser?---He probably already knew that I had a personal interest because he sent these people down to me in the first place.

That's your evidence, is it, on your oath?---Sorry?

Is that your evidence?---Yes.

He probably would have known?---Yes.

So you didn't need to tell him, he probably would have known?---Yes.

[1027]

Even if he had established, as he has not done, a constructive trust, then he would have been rightly met by reasoning similar to that with which the plaintiff was met in the case of Clegg v Edmondson, where we find Turner LJ, using these words - 'We have to deal in this case, not with a direct but with a constructive trust, not with property subject merely to the ordinary contingencies by which all property is affected, and maintained at a moderate and scarcely varying expense, but with mining property which is subject to extraordinary contingencies, and which can be rendered productive only by large and uncertain outlay. The authorities, I think, fully warrant us in saying that the rules which govern cases of direct trust, and apply to property of an ordinary character, are not equally applicable to cases of constructive trust, and to property of the description which we have here to deal with. It is said indeed, on the part of the plaintiffs, that these mines have been tried, and that there was no uncertainty attaching to the value of them, but I do not find from the evidence that they had been explored to any such extent as could render their values certain, and, on the contrary, the evidence shows that faults were met with in the workings under the new lease, and the expenses of the workings would of course depend upon the nature and extent of those faults. What expenditure they would occasion, or to what extent they would affect the value of the mines, could not of course be foreseen. If they had led to ruinous expenditure, and had rendered the mines unproductive, nothing would of course have been heard of this claim of the plaintiffs, and there would have been no claim against them. Are they then in justice entitled to reap the benefit when they could not have been made subject to the loss?' ... The plaintiff, if he has, or ever had, any equitable claim, has not been willing to come into equity to assert it. He has stood aloof while the other party, originally his co-owner in this lease, has been working the property, running all the risk, and, throughout the transaction, taking upon himself the whole of the burden which the plaintiff was never willing to undertake or share in any way whatever. Under these circumstances, that he should come to the Court and make this claim at this late stage is quite out of the question.

[1035]

648 The point was considered in the Court of Appeal in Lagunas Nitrate Co v Lagunas Syndicate [1899] 2 Ch 392. It is necessary first to outline the facts and the nature of the proceedings at first instance. A syndicate formed a company (syndicate company) to purchase nitrate deposits on 548 estacas of land in Chile, and certain associated plant and equipment, for the purpose of reselling portions of the property to companies to be promoted by the syndicate company. The syndicate company acquired the property in Chile and then formed another company (nitrate company) to purchase 200 of the 548 estacas and certain plant and equipment. The directors of the syndicate company became directors of the nitrate company and they and their nominees were the original shareholders of the nitrate company. The syndicate company prepared an agreement to sell the assets to the nitrate company, partly in consideration for receiving an allotment of shares in the nitrate company upon its listing. The syndicate company also prepared a prospectus for the nitrate company to issue for an IPO. The contract between the syndicate company and the nitrate company was executed, the nitrate company raised capital from the public upon the issue of the prospectus, and the syndicate company received its allotment of shares and subsequently resold them at a profit. The nitrate company subsequently worked the deposits acquired under the agreement profitably for a period of time and paid large dividends. The syndicate company, for its part, made considerable outlays in carrying out other provisions of the agreement under which it had sold the assets, including provisions requiring it to provide a water supply to the nitrate company. After approximately one year, the shareholders of the nitrate company believed that the nitrate company's assets had been purchased at an overvalue and several new independent directors were appointed to the board of the nitrate company. This led to the board ceasing to be under the control of the syndicate company directors. The nitrate company commenced proceedings approximately 18 months after the assets had first been acquired. There was no allegation of fraud at the time of trial. In the proceedings, the nitrate company sought to set aside the asset sale agreement against the syndicate company on the grounds:

[1144]

The circumstances in which it is just to order costs against a person who was not a party to the litigation will be both rare and exceptional: see Aiden Shipping Ltd v Interbulk Ltd (at 980) per Lord Goff of Chieveley. If the order for costs which is sought against a non-party is in lieu of, in substitution for or complementary to an order for costs against a party, the circumstances for making such an order will not arise unless there is some connection or association between the party to the litigation and the non-party against whom the order for costs is sought. The connection must be of a kind that makes it just to make an order for costs in that the connection must be material to the question of costs: see Bischof v Adams [1992] VicRp 61; [1992] 2 VR 198 at 205.

Whilst the circumstances to make an order for costs against a non-party will be both rare and exceptional such an order can be made without the moving party having to demonstrate any improper conduct of any kind on the part of the non-party. An order for costs against a non-party is not dependant upon any improper conduct on the part of any party. Of course in some cases improper conduct on the part of the non-party will be a relevant factor in the exercise of the discretion.

Whether it is just to make such an order involves the exercise of a discretion on the part of the trial judge: see Symphony Group plc v Hodgson [1994] QB 179 at 193. The discretion to make an order for costs against non-parties 'must be exercised judicially and in accordance with general legal principles pertaining to the law of costs': see Knight v FP Special Assets Ltd (at 192) per Mason CJ and Deane J.

It is not desirable to lay down any rules which would fetter the discretion of a trial judge to make such an order but some guidance as to the exercise of the discretion can be obtained from the decided cases.

In exercising the discretion regard would be had to whether the non-party could have been joined as a party earlier in the proceedings and thereby obtained the protection of the rules of court; whether the non-party has had any warning that an application for costs against that party would be made; whether, in those circumstances, the non-party could have applied to be joined in the proceedings and thereby had the capacity to influence the proceedings or the non-party could have protected itself by making an offer in accordance with the rules; whether if a warning had been given the non-party could have terminated the proceedings by discontinuance, negotiation, payment or otherwise; whether the party who would otherwise be usually liable for costs can meet an order for costs and if relevant the reason why that party cannot meet an order for costs; whether it was apparent at any earlier stage in the proceedings, and if so when, that the party could not meet costs; whether the moving party should have sought an order for security for costs; the relationship, if any, between the non-party and the party who would usually be liable for costs; whether the non-party has caused the proceedings; whether the non-party has funded the proceedings; whether the non-party stood to benefit by the litigation and if so how; whether the non-party had a direct or indirect financial interest in the litigation; and whether there has been any improper conduct on the part of the non-party.

None of the matters will necessarily be decisive. Indeed the presence of one or more of those matters does not inexorably lead to the conclusion that an order for costs should be made against a non-party. In Bischof v Adams the mere fact that a person may benefit from the litigation was not enough.

An order will be made against a non-party only if the justice of the case requires that an order be made (467 - 468).

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (1183 paragraphs)

STREETER -v- WESTERN AREAS EXPLORATION PTY LTD [No 2] [2011] WASCA 17 (9 February 2015)

WAE - incorporation 1996 to late 1997; shareholders (reasons [128] - [149])

Mr Streeter - background (reasons [147] - [148])

The nature and extent of Mr Streeter's investment in WAE, commencing in March 1998 (reasons [152] - [156], [161], [176])

WAE's April 1998 prospectus - its withdrawal and the abandonment of the proposed capital-raising (reasons [161] - [162])

WAE's assets, including the Cue tenements, its liabilities and its conditional solvency in the period to 30 June 1999 (reasons [14], [155], [165] - [166], [172] - [173], [176], [184] - [185])

The necessity to restructure WAE's share capital (reasons [179] - [183], [187])

WAE's directors and personnel July 1998 to 1999 (reasons [46], [73] - [75])

WAE's position as at 29 November 1999 (reasons [45])

*The judge'**s findings (reasons [235] - [236])*

Reasons in relation to the first group of grounds

Reasoning in relation to ground 8 - concealment

Reasoning in relation to ninth group of grounds

Parties

Legislation Cited (3)

Cases Cited (46)

Aas v Benham

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (1183 paragraphs)

STREETER -v- WESTERN AREAS EXPLORATION PTY LTD [No 2] [2011] WASCA 17 (9 February 2015)

WAE - incorporation 1996 to late 1997; shareholders (reasons [128] - [149])

Mr Streeter - background (reasons [147] - [148])

The nature and extent of Mr Streeter's investment in WAE, commencing in March 1998 (reasons [152] - [156], [161], [176])

WAE's April 1998 prospectus - its withdrawal and the abandonment of the proposed capital-raising (reasons [161] - [162])

WAE's assets, including the Cue tenements, its liabilities and its conditional solvency in the period to 30 June 1999 (reasons [14], [155], [165] - [166], [172] - [173], [176], [184] - [185])

The necessity to restructure WAE's share capital (reasons [179] - [183], [187])

WAE's directors and personnel July 1998 to 1999 (reasons [46], [73] - [75])

WAE's position as at 29 November 1999 (reasons [45])

The judge'****s findings (reasons [235] - [236])

Reasons in relation to the first group of grounds

Reasoning in relation to ground 8 - concealment

Reasoning in relation to ninth group of grounds

Parties

Legislation Cited (3)

Cases Cited (46)

*The judge'**s findings (reasons [235] - [236])*