Adrenalin International Powersports Pty Ltd v John Caines Management Pty Ltd

2. The proceeding be adjourned to a Mention at 10.00am on 26 April 2004. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

BETWEEN: ADRENALIN INTERNATIONAL POWERSPORTS PTY LTD (ACN 089 178 594)

AND: JOHN CAINES MANAGEMENT PTY LTD (ACN 006 050 666)

AND: JOHN CAINES MANAGEMENT PTY LTD (ACN 006 050 666)

REASONS FOR JUDGMENT 1 Melbourne is Australia's sporting capital. It boasts of its Spring Racing Carnival as being without peer in the country. It hosts the Australian Football League Grand Final, the Australian Open Tennis Tournament, numerous high ranking golf tournaments and many other major sporting events, including the Australian Formula One Grand Prix. In 1998 a group of friends and acquaintances were invited to a meeting to discuss a proposal to develop a world class dual speedway and jet boat racing facility on the outskirts of Melbourne. The project was to be known as "The Adrenalin Project" ("the project"). It was intended to add to Melbourne's world class sporting attractions. For reasons which will become apparent, that dream was not realised. 2 The issues before the Court are not ones involving glamorous sporting achievements but concern rather more mundane aspects of commercial law. Those issues are, inter alia, whether, in respect of two companies created for the purpose of the project: · there has been a conspiracy to defraud the shareholders of one of the two companies; · a constructive trust exists between the two companies; · misrepresentations have been made to shareholders of one of the two companies; · the directors of both companies have breached their fiduciary duties; · terms of an agreement entered into in respect of the project have been breached; · shareholders of one of the companies have been oppressed; and · statutory obligations have been breached.

BACKGROUND 3 Mr Colin Rosewarne was the original driving force behind the project. On 28 April 1998, Mr Rosewarne arranged for the sixth cross-claimant, Adrenalin International Powersports Centre Pty Ltd ("AIPC") to be incorporated. Mr Rosewarne was the original director and secretary of AIPC. 4 On 30 April 1998, Mr Rosewarne invited about twenty people, including the then Premier, Mr Kennett, to "a business presentation of the Adrenalin project". Including Mr Rosewarne, thirteen people attended the meeting. Amongst the attendees were the cross-respondents, Messrs Bruce Thomas, David Arnold and Ray Solomon as well as Messrs Peter Benson, John Caines, Jock Macneish and Liam Rossney. Mr Kennett did not attend. 5 Mr Rosewarne proposed, at the 30 April 1998 gathering, that a group be formed to be known as the "Wiseheads". It was anticipated that the Wiseheads would form a board of management of AIPC, which would undertake and develop the project. References to the 'Wiseheads' and the 'Board of Management of AIPC' are used interchangeably throughout these reasons. 6 A meeting of the Wiseheads was held on 5 June 1998. A discussion occurred about a site for the development of the project. The minutes of the meeting record the following discussion, in which the "Colin" referred to is Mr Rosewarne and the "Bruce", Mr Thomas: "Colin identified 11 blocks of land that had potential for the Adrenalin site. Of the eleven sites inspected 1 site named Foxley Lodge situated on Boundary Road, Laverton North stood out like a beacon. Foxley Lodge is located within the City of Brimbank, 11 minutes drive from the Casino and 15 minutes from the airport on a weekday. The 208 acres of land has a gentle gradient of approximately 10 metres from the high point at the western perimeter over a 1.8 km Boundary Road frontage to the eastern perimeter … ." 7 The Wiseheads next met on 9 July 1998. Further discussion ensued about the possible purchase of Foxley Lodge. References to "Foxley Lodge" and "the Land" are made interchangeably throughout these reasons. The minutes record the following far-sighted discussion: "David [Arnold] spoke of the finance being largely dependent on the correct zoning for the facility. The facility would apparently need an Industrial Zoning to attract finance. Candid discussion was entered into with a great deal of clarification required on this area. It was agreed that this area needs some sorting out."

8 A further meeting of the Wiseheads was held on 22 July 1998, at which discussion occurred about the purchase of Foxley Lodge. The minutes record that Mr Thomas reported that the then Minister for Sport and Recreation, the Hon T Reynolds "displayed a deal of scepticism having seen nine similar proposals over the last 13˝ years that all failed to materialize". 9 Other meetings of the Wiseheads were held on 28 July 1998, 18 August 1998, 15 September 1998, 26 November 1998, 26 January 1999, 9 February 1999, 23 February 1999, 9 March 1999, 15 March 1999, 30 March 1999 and 6 May 1999. Issues discussed at these meetings included, but were not limited to: · fund raising proposals for the project · the purchase of Foxley Lodge and rezoning issues · stadium design · reimbursement of expenses for directors · frustration with the lack of progress · lighting systems · turnover possibilities 10 Two items of interest raised during the meetings referred to in the previous paragraphs, having regard to how events developed, were: · the proposal on 9 March 1999 to "set up a formal entity to buy Foxley Lodge", and · Mr Caines' view, expressed on 15 March 1999, that "we should avoid buying the land and get some sort of lease/hire agreement going". 11 A "lock-in" meeting, including an overnight stay on Mr Thomas' rural property, was held on 18 May 1999. Discussions ensued on the topic of finance, including the possibility of obtaining a loan from Westpac Banking Corporation ("Westpac"). It was minuted that "(a)greement on the land purchase [is] almost finalised". The Wiseheads agreed on a structure whereby AIPC would be the trustee of a unit trust and the Wiseheads would form AIPC's Board of Management. The project would be run through the unit trust and the Wiseheads would be "equal unit trust holders on the Board of Management". It was decided that Mr Thomas and Mr Rosewarne would be the directors of AIPC. 12 In a Wiseheads meeting held on 26 June 1999 discussion occurred regarding the operation of the board of Adrenalin and the "need to have a commonsense approach" to: · the decision making processes, · roles, · responsibilities.

13 On 5 July 1999, Mr Arnold wrote to Kalus Kenny, solicitors then retained by AIPC, regarding the purchase of Foxley Lodge. Under a section headed "Trusts and Companies", Mr Arnold wrote: "The purchaser will remain the current company and in due course we will create another company which shall become the service company. I shall attend to the formation of the company and ask that you advise the cost of the creation of the appropriate trusts to accompany the companies." 14 At a Wiseheads meeting on 13 July 1999, discussion occurred concerning a budget and events program for the "next 3-5 years". At about this time it was agreed that the Wiseheads each contribute $2.50 as an initial sum representing each Wisehead's equal share in the project. 15 On 27 July 1999, Mr Thomas executed a terms contract on behalf of AIPC to purchase Foxley Lodge for $3.35 million. The contract required a $1 million deposit to be paid, with the balance payable over 3.5 years to enable the project to have time to procure a special use permit. A report of the purchase was made to a Wiseheads meeting held the next day. Also on 28 July 1999, the other Wiseheads gave Mr Arnold authority to represent them in instructing Kalus Kenny in relation to the purchase of Foxley Lodge by AIPC. 16 On 10 August 1999, the Wiseheads decided "that the name of the newly formed operating company be Adrenalin International Powersports Pty Ltd [AIP]." Mr Arnold was to take action to register the company. Consequently, AIP became incorporated on 20 August 1999, with Mr Rosewarne and Mr Thomas as directors and Mr Rosewarne holding all 12 shares in AIP. The incorporation of AIP was noted at the 21 August 1999 meeting of the Wiseheads. At a meeting held on 31 August 1999 it was still being stressed that AIP "will be our operating entity", as opposed to the land holding company, which at this stage was to be AIPC. 17 At the 2 November 1999 Wisehead's meeting a proposal to attract additional investors from outside the Wiseheads was considered. The minutes of that meeting record Mr Solomon as suggesting that a package be prepared which "would let the smaller investor in i.e. 1% less at $50,000 each or even a smaller package that still adds up to the same amount". This was the beginning of what came to be known as the "Groundbreakers" concept. At the 2 December 1999 meeting Mr Caines is recorded as having: "…reported that a number of interested parties had contacted him and were interested in becoming members at the set rate of $20,000 each." Mr Solomon referred to Mr Knight and his "lady", Ms Megan Evans, amongst others, as wanting to "talk about the deal with him next week", and said that he had also gained expression of interest from other friends and family. 18 The 2 December 1999 meeting also determined that the Groundbreakers would be "put through AIPC", meaning that the small investors would receive some acknowledgement within the "ownership" of AIPC. In the minutes of the 14 December 1999 meeting the following is recorded under the heading "Groundbreakers Club": "Ray [Solomon] expressed concerns about not really knowing what we were offering potential investors to join the Groundbreaker's Club. John [Caines] clarified the situation by explaining that in exchange for their $20,000, members will get 1% of the net assets of the complex. They are not entitled to 1% of the profits, just 1% of the dividends as defined by the Directors." An incomplete draft checklist was prepared for the issue of groundbreaker's certificates. The checklist was intended to be a list of matters put to prospective Groundbreakers. The third item read as follows, with the concluding words in brackets being in lighter type: "1.0% of the assets on the block of land (what does this mean?)." Mr Arnold gave evidence that the Groundbreakers were told that they were investing in a company that would acquire land and build a complex on it. 19 On 15 December 1999, Gabriel and Wendy Schoffer signed up for a Groundbreakers investment and were given a certificate, which read as follows: "THIS CERTIFICATE ENTITLES GABRIEL & WENDY SCHOFFER OF [address], UPON PAYMENT OF $20,000 TO ADRENALIN INTERNATIONAL POWERSPORTS CENTRE PTY LTD (A.C.N. 082 436 137) TO THE FOLLOWING: · 1.0% EQUITY IN ADRENALIN INTERNATIONAL POWERSPORTS CENTRE PTY LTD (ACN 082 436 137) · TWO GUARANTEED SEATS FOR FIVE YEARS IN THE EXCLUSIVE ADRENALIN CORPORATE SUIT 1 WITH FOOD AND DRINK AT COMPETITIVE RATES · VIP PARKING FOR ONE CAR FOR 5 YEARS · A CHOICE AFTER FIVE FULL YEARS OF ADRENALIN'S OPERATION TO HAVE: o $10,000 REFUNDED, OR o ANOTHER FIVE YEARS IN CORPORATE SUITE 1 AND VIP PARKING. · THE BENEFITS OF THIS CERTIFICATE ARE TRANSFERABLE NOTE There are risks associated with this investment. If the Adrenalin project does not gain a planning permit or the project does not mature to its full potential, investors may lose all or part of their initial investment. We have been advised that any such loss should be tax deductible as a capital loss." 20 The 11 January 2000 meeting reported that six Groundbreaker certificates had been issued with three more pending. The minutes also refer to a meeting with Westpac planned for 14 January 2000, at which Mr Arnold, Mr Thomas and Mr Rossney would attend. The minutes also record under the heading Land Valuations that Mr Rossney had been told that on current land sales, once the permit was granted the Land would be worth approximately $31,200,000. 21 The minutes of the 25 January 2000 meeting, under the heading "Westpac situation", state as follows: "David [Arnold] informed the meeting that Westpac are not interested in us at all. John [Caines] and David mentioned quite a few other financing organisations that they will contact." 22 At the 25 January 2000 meeting John Caines said that he now did not think the unit trust was required and that the Wiseheads should just issue shares in a company. 23 At the 15 February 2000 meeting, discussion occurred about setting up AIP and AIPC "with 1,000 shares each (with AIP being owned by AIPC) and distribute 100 shares to each Wise Head". Following the 15 February 2000 meeting Mr Rosewarne transferred his 100% shareholding in AIP to AIPC. 24 The 29 February 2000 meeting received a report that Mr Caines and Mr Arnold were "currently dealing with some fairly heavy-duty financiers and are getting results". The minutes of the meeting held on 21 March 2000 refer to Mr Arnold having discussions with "Suncorp Metway, Bankwest, ANZ and McQuarie (sic)". 25 There are minutes recording a meeting of the directors of AIPC on 9 March 2000, which Messrs Arnold, Thomas and Rosewarne attended. It is not clear why a meeting of directors of AIPC was held instead of an AIPC Board of Management meeting. The minutes simply record the resignation of Mr Rosewarne as a director of AIPC and the appointment of Mr Arnold in Mr Rosewarne's place. There are also minutes, of the same date, recording a meeting of directors of AIP, again noting the resignation of Mr Rosewarne and the appointment of Mr Arnold as a director. As Mr Rosewarne signed a resignation letter in respect of his directorship of AIP, it can be assumed that Mr Rosewarne was aware the change in directorship of AIP occurred. There is no evidence as to why there is not a similar letter, dated 9 March 2000, in which Mr Rosewarne resigned as a director of AIPC. 26 It is not clear why the change in directorships was made, or why the minutes of the Board of Management of AIPC do not indicate that a resolution was put to the Board of Management to appoint Mr Arnold as a Director of AIPC in Mr Rosewarne's place. The AIPC Board of Management minutes do not mention the alteration. Evidence was given by Mr Arnold that the change was made because Mr Rosewarne was concerned that a fraud investigation at his work might reflect badly on the project, and that there was a desire not to record this in the minutes. Mr Rosewarne disputed this reason. 27 At the 4 April 2000 meeting of the Wiseheads concern was expressed in respect of the limited amount of time the two accountants (David Arnold and John Caines) would be available over the following 7 weeks given the need to raise capital for the project. The minutes note that "John assured the meeting that this was not a problem". 28 At the meeting held on 3 May 2000, Mr Arnold pointed out that the value of the Land, if it was to be sub divided into industrial plots, would be higher and more attractive to the banks. Mr Arnold suggested that they commission finance brokers to find money as they had the requisite know-how and credibility with the banks. Mr Arnold said the next step was to approach the venture capitalists and "that our time to get the money basically runs out on 20/07/2000." 29 On 17 May 2000, at the next meeting of the Wiseheads, Mr Arnold said once again that the company had until 20 July 2000 to get the money for the Land and that $950,000 at least was needed to "sit on the block" and more if they wanted to do anything else. 30 At the meeting on 15 June 2000 Mr Arnold said that as of 20 July 2000 the company was entitled to a refund of $35,000 for the deposit on the Land, but all contractual arrangements with Mr Robinson (the vendor) would end. Finance to purchase the Land was discussed and the minutes note that it "was apparent from the discussions that a bit more thought be put into this area very soon". The meeting raised the names of several well known investors. It was noted that Mr Arnold "added that a company such as Lion Nathan would loan us the money to buy the block if we gave them a Directors Guarantee." 31 By July 2000 funding had not been arranged for the purchase of Foxley Lodge and it was necessary to request the vendor to extend the time to complete the contract of sale. At the Wiseheads meeting on 4 July 2000, Mr Rossney reported that Mr Robinson wanted $300,000 to extend the contract of sale. At the same meeting under the heading 'Private finance' it was noted that: "Bruce reported that Brian Scott has someone interested in financing 50.0% of the land purchase but under what conditions he has yet to be told. The $1.5 million could be used to pay the $1.0 million deposit and pay the first 2 years of land payments to Robinsons. Bruce told (sic) that most of the other investors have chilled off and are pretty well out of the picture now." 32 At the second of three meetings held in July, on 25 July 2000, under the heading 'Purchase of Foxley Lodge', the minutes record: "David [Arnold] informed the meeting that Robinson considered our initial offer of $2.2 million too low and we need to do some more thinking on what would be a fair and mutually acceptable price. David reiterated that we would need to put some form of Director's guarantees in place in order to get bank finance and that they (the banks) are seemingly not too interested in our project anyway. Liam added that we must strike the deal with Robinson within the next week or so to avoid a total collapse of negotiating and Robinson walking away from the deal." 33 An important meeting of the Wiseheads took place on 30 July 2000. It was attended by Mr Thomas, Mr Solomon, Mr Arnold and Mr Rossney. Mr Arnold prepared a proposal to be put to the meeting concerning the purchase of Foxley Lodge. 34 Mr Arnold's proposal was put in writing by him. He gave evidence that he "created the document and it was faxed or sent or handed to the board members". It was not distributed to the Groundbreakers. Mr Arnold considered that first it was important to reach agreement "as a Board" before going to the Groundbreakers. He considered that a "step by step approach" was required. When answering a question regarding whether the intention was to present the proposal to a meeting of the Groundbreakers, Mr Arnold said in evidence: "I didn't give consideration as to how we'd have it, whether we'd have a meeting with the Groundbreakers or whether we would do it in writing. Most of the Groundbreakers at this stage were Ray's [Solomon] family and it could have been done another way. May not have a (sic) been a meeting of all of the Groundbreakers - may have been a meeting one on one with Groundbreakers. So there were many ways but most of the Groundbreakers were Ray's family or friends, so really it was how we dealt with Groundbreakers was (sic) - probably have been more discussed with Ray as to what he would have thought was appropriate." 35 Mr Arnold considered that if his proposal was not agreed to, the project would fail. He observed in his 30 July 2000 document that "Adrenalin [AIPC] does not have sufficient funds to pay the deposit or secure the balance of funding required." Critically the document proposed that AIP "be used as the purchasing company and be made available to the purchasers. The shares in … AIP are currently held by [AIPC]". Much of Mr Arnold's proposal is set out below: "At this point the securing of the proposal site has been determined essential for the project to continue. If we fail to secure this site it will be impossible to continue the project. Accordingly we then are faced with 2 options 1. Let the current contract lapse as Adrenalin does not have sufficient funds to pay the deposit or secure the balance of funding required. We could try and negotiate with the vendor that whilst he proceeds to remarket his land, he permits us continue with our Special conditions permit. It is considered unlikely that the vendor will permit this. Thus the project will likely cease. 2. The Board members purchase the land. The purchase of the land would be in a separate legal entity with the participants putting up equal shares of security. This offer is open to all Board members initially then to other parties thereafter. The aim of the land purchasing consortium is to secure the land for Adrenalin and sell it back to Adrenalin in due course being less than 2 years from this date. Adrenalin will need to acquire the land in due course as the financiers will want the first mortgage on the title where all the construction and investment is being undertaken. In order to enable the project to proceed the following proposal is being put to the Board for their approval. Land Purchase Conditions "There are 3 Board members who are prepared to commit to the land purchase, these are Ray [Solomon], David [Arnold] and Bruce [Thomas] however they are hoping for at least a fourth and preferably a fifth or even more people to join them. Liam [Rossney] is determining his capacity to do so. John [Caines] and Peter [Benson] are awaiting further information to make a decision. Jock [McNeish] and Colin [Rosewarne] have stated that they will not be involved…." 36 After detailing the possible amount a financier is likely to lend against the property and the amount the land purchasers would need to inject in order to cover the deposit and stamp duty, Mr Arnold continued as follows: "The Land purchasers face the exposure that if Adrenalin fails to obtain a permit they will need to sell the land as they will be unlikely to fund the monthly interest cost for anything but a short period of time. In order to not loose (sic) any money they will need to recover the purchase price, stamp duty paid and selling costs estimated at $80,000 totalling $3,406,000 plus any interest cost. This represents an unacceptable risk to the purchasers. Accordingly the purchasers are asking Adrenalin to reduce their risk. This would be done by Adrenalin paying the costs of the purchase and holding costs being legal fees, rates, insurance and interest etc until the land is purchased by Adrenalin. The stamp duty is to be paid by the purchasers." 37 The proposal then sets out how the deposit, due on 28 August 2000, and the monthly interest payments from settlement, on 26 February 2001, will be met. Part was to come from the "land purchasers" and the rest via a loan of $200,000 from AIPC. The proposal set out the means for meeting further costs of the project by reducing the shareholdings of Wiseheads, who would not inject more money into the project, as follows: "Fundraising In order to enable the land purchase to be funded and the ongoing costs of the project up to $500,000 needs to be raised. Adrenalin has issued 1000 shares. Currently each Board Member hold 110 shares, 70 shares have been sold to Groundbreakers and a further 50 shares are held in trust by Bruce as Chairman. To obtain the required funding to enable the project to continue it is proposed each Board Member inject $30,000 by 22 August 2000. In the event the Board Member is unable to do so or does not wish to do so they will forfeit 50% of their shareholding, being 55 shares. Ray has already purchased a Groundbreaker however he is required to pay $30,000 as this requirement is a separate and subsequent issue. In the same way each land purchaser is also required to contribute $30,000. The forfeited shares will be transferred to the Chairman. A second round of Groundbreakers will be sought however the price will be $30,000 for 10 shares. Should any of the forfeited shares not be sold they will be available for purchase by the Board members. Entities It is proposed Adrenalin International Powersports Pty Ltd (AIP) be used as the purchasing company and be made available to the purchasers. The shares in this AIP are currently held by Adrenalin International Powersports Centre Pty Ltd. It is understood that this would minimize the cost to Adrenalin however, solicitors advice is pending." 38 The document concluded under the heading "Resolution" as follows: "On Sunday 30 July 2000 the Board met to discuss this matter however only Ray, Liam, David and Bruce attended. In order to adopt this proposal it is considered essential to have a response from each Board member. Please advise Bruce of whether or not the proposal is acceptable to you. Time is of the essence as if we do not execute the contract of sale in the next few days the vendor will undoubtedly terminate discussions and the proposed contract variations. Accordingly please advise your position by 1.00 pm Tuesday 1 August 2000." 39 At the foot of the document each Board member was required to indicate on his copy, to be faxed to Mr Thomas, whether the proposal was acceptable or unacceptable. Unsurprisingly, Mr Arnold advised his acceptance. Mr Solomon and Mr Thomas found the proposal acceptable as did Mr Rossney. Mr Macneish and Mr Caines found the proposal "unacceptable". No other response was received. 40 The minutes of the meeting refer to Mr Arnold's proposal as follows: "David outlined the proposal whereby individuals could purchase the land under a separate entity and Adrenalin [AIPC] can purchase or lease back when the permit has been obtained. Actions · Contact Robinson's [vendor's] Accountant and Solicitor tomorrow to progress negotiations. … · Draw up proposal and distribute to all Board Members for their approval before the contract could be signed." 41 On 2 August 2000, the land purchase contract was varied so that the balance of the deposit, $350,000 ($50,000 having been paid on 27 July 1999), was payable on 28 August 2000. The settlement under the contract was to occur on 26 February 2001, by which time further finance would be required to meet the balance of $2,800,000. 42 The minutes of the Board of Management meeting held on 10 August 2000, under the heading 'Finance', record: "David [Arnold] suggested that we have a formal Groundbreakers meeting within the next couple of weeks to bring them up to speed with what we are and have been doing since they became Ground Breakers Club members. Another meeting is to be arranged between Bruce [Thomas], Ray [Solomon] and David as stakeholders in the land and David and John to set out options ie. percentage offerings, etc for presentation at the [Groundbreakers] meeting." The 10 August 2000 Board of Management minutes also record the prospect of Foxley Lodge being zoned as "industrial" as likely to be a "formality". It was noted in the minutes that the rezoning would considerably increase the value of the Land. 43 On 17 August 2000, Mr Arnold wrote to Ms Deidre Young, Manager Private Clients, of Westpac, enclosing various documents relevant to AIP's application for funding of the Land. The letter referred to the necessity to "place this matter prior to the deposit balance payment on Monday the 28th of August 2000." 44 On 25 August 2000, a meeting of Mr Arnold and Mr Thomas, as the directors of AIPC, resolved to transfer AIPC's shares in AIP to Mr Thomas, Formula Speedway Promotions, a business associated with Mr Solomon, and Kelfire Pty Ltd, a company controlled by Mr Arnold. On the same day a meeting of Mr Arnold and Mr Thomas, as the directors of AIP, resolved to approve the transfer of AIP shares from AIPC. It is not clear if this was performed with the knowledge of all other Board of Management members. There was no resolution put to the Board of Management of AIPC that its shares in AIP be transferred. The only reference to the transfer of AIP shares was in an agenda for a meeting to be held on 19 September 2000. The note in the agenda appears to raise the share transfer for discussion or approval. In any case, whether or not it was raised on 19 September 2000 is of little consequence as by that time the transfer of shares had already been made. 45 There is a dispute between the parties as to whether any meeting of Wiseheads was held on 19 September 2000. No minutes of a meeting of that date were discovered. However, there is an agenda for a meeting of that date which was emailed by Mr Rosewarne to Mr Benson, Mr Thomas, Mr Arnold, Mr Caines and Mr Solomon. The agenda sets out the points of discussion from the minutes of the last meeting, in which the tenth agenda item was "Transfer of shares of AIPC held by AIP to Bruce [Thomas], David [Arnold] and Ray [Solomon]". 46 Mr Arnold was asked in cross examination what authority he had to transfer to himself one-third of the AIP shares. Mr Arnold responded: "I transferred it under my understanding of the agreement we had reached about transferring shares during the discussion of the proposals." Mr Arnold went on to say in cross examination that: "My understanding was that during the course of the two proposals which we had discussed, some elements had been agreed - although the proposals had not been accepted in total, it had been agreed that this could occur, and there would be other people on the board of management, all agreed to the transferring of the shares." 47 On 28 August 2000, Mr Thomas paid $300,000 and AIPC paid $50,000 to meet the balance of the deposit for the Land. Following an agreement at a Wiseheads meeting on 13 January 2001 the $50,000 provided by AIPC would later be identified as being made up of the two contributions of $30,000 to AIPC made by Mr Rossney and Mr Benson in late 2000. 48 In a letter to all Board of Management members dated 22 September 2000, Mr Caines referred to a meeting held "last Tuesday", possibly meaning a meeting on 19 September 2000 (a Tuesday), and the proposal to reduce the shareholdings of those who do not contribute a further $30,000 to AIPC. Mr Caines stated in the letter: "The initial distribution of equity was compensation as a success fee on the proviso that each member would contribute his time and expertise, without cost, for the success of the Project. It was always emphasised that no funds or guarantees would be provided. The basis element of this logic has not changed. To vary the initial shareholding, for whatever reason, makes the statement that some individuals are rewarded disproportionately to others for their efforts. This is a dangerous and controversial statement." 49 Mr Caines recommended that the equity proportions are not varied and made the following suggestion: "Times have changed where our members have been left with no alternative but to contribute funds, securities and guarantees, notwithstanding our initial philosophy. To compensate these contributions with any form of equity makes the statement that inevitably the person with the most money would hold the greatest proportion of equity, completely ignoring the unpaid contributions of other members. I have no problem with a reward mechanism to the contributions of cash, however as cash is contributed, so to should cash be returned as a reward to the contributor and not as a punishment to the non-contributor." 50 Mr Rosewarne sent an email, dated 24 September 2000, to Mr Caines, and in it stated: "…I will restate for the umpteenth time that I had no financial offering at all to offer and I think now, as I did then, that I have no right to tell anyone how, when or where to spend their money." Mr Rosewarne then said:

"I feel that the people who have put their money down to buy the block should be handsomely compensated for their risk but not at the direct expense of others." Mr Rosewarne concluded his email by saying:

"In closing, I feel that if a fair and equitable arrangement that does not discriminate but gives the land owners true security without going overboard is not found and implemented, my project is doomed to failure. If I had any idea that the greed, bullshit, chest beating and unadulterated back stabbing that is currently rife within our board was going to happen I guarantee THERE WOULD HAVE BEEN NO ADRENALIN."

51 At this point in time the greatest concern amongst members of the Board of Management was the proposal to decrease a member's AIPC shareholdings unless he provided a $30,000 cash injection into AIPC. There was a concern that this would alter the arrangement whereby the original members would share equally in the project. There is little or no discussion of the aspect of the proposal which would have Mr Arnold, Mr Thomas and Mr Solomon purchasing Foxley Lodge through a separate entity. 52 On 28 September 2000, a further meeting of the AIPC Board of Management was held. Mr Rosewarne sent his apologies. Mr Macneish and Mr Benson were overseas but the other Wiseheads attended. Discussion ensued at the meeting about Mr Arnold's proposal of 30 July 2000, and a revised form of the proposal presented by Mr Solomon. Mr Rossney once again expressed support. Mr Caines expressed opposition as, in his view, it penalised members of the Board of Management "who cannot or will not contribute any further money". The minutes records that "A satisfactory agreement could not be reached …". It was noted in the minutes that Mr Rosewarne had transferred his interest in AIPC to Mrs Penelope Rosewarne, his wife (the second respondent). 53 Mr Caines' emailed Mr Solomon on 2 October 2000 regarding Mr Solomon's draft proposal. Mr Benson was copied in. Mr Caines' gave his opinion concerning members having half of their shares transferred to a pool to be sold to Groundbreakers unless they contribute $30,000. He also made his position clear in respect of the Land, stating: "I have stated that I will not commit to participate in the purchase of the land." 54 In respect of the entity to purchase the Land, Mr Caines said: "I have already expressed my concern with respect to the purchasing entity without the prior agreement of all the shareholders, particularly the Ground Breakers. I find it difficult to accept that a bank will not permit seven, 1% shareholders to remain on the books, however I have seen sillier things from banks. A formal extra-ordinary shareholders meeting needs to be convened and a resolution formally put and resolved so that the land can be transferred from an entity in which individuals hold shares into an entity where those same individuals do not hold shares. I personally have no objections to the transfer, provided that there is a clear, simple buy-back agreement executed." 55 There was a further Wiseheads meeting on 17 October 2000. Only Mr Macneish and Mr Benson were absent. It was reported that the Brimbank City Council had granted the project its necessary land use permit, but that the matter may "end up at VCAT". 56 In November 2000, Mr Arnold renewed discussions with Westpac regarding finance for the project. During that month, the Board of Management met on 15 and 29 November. The minutes of the 29 November meeting record that Mr Arnold and Mr Thomas informed the meeting that Westpac was warming to the project. 57 A Board of Management meeting was held on 13 December 2000. A meeting of the directors of AIP, Mr Arnold and Mr Thomas, was also held on that day. There is no reference to the AIP meeting in the minutes of the AIPC Board of Management meeting. 58 Two documents signed by Mr Rosewarne confirm that Mr Rosewarne resigned as secretary of AIP and AIPC on 13 December 2000. These resignations are confirmed by minutes of meetings of the directors of AIP and AIPC. They are not referred to in any AIPC Board of Management meeting minutes. However, as Mr Rosewarne had transferred his interest to his wife in September 2000, there was no point in him holding an office. Also, on this date, Mr Solomon became Secretary of both AIPC and AIP. It is not clear why the changes to the office holders were made on this date, or whether the Board of Management was notified of these changes. 59 Mr Rossney, Mr Solomon, Mr Thomas, Mr Benson and Mr Arnold attended the meeting of the AIPC Board of Management held on 13 January 2001. Apologies were received from Mr Caines and Mr Rosewarne. Mr Rossney tabled a proxy vote from Mr Macneish. The minutes record that a proposal was tabled to enable Board of Management members to purchase additional shares in AIPC for $30,000, whilst retaining the current number of shares held by each member of the Board of Management and the 1% shareholding held by each Groundbreaker. This proposal was rejected because of: "…the administration requirements (including the need for emergency Shareholders meetings etc), to issue new shares and that the proposal does not retain the balance of equity currently enjoyed by members of the [Board of Management]…". 60 Instead, those present at the meeting agreed that amounts of $30,000, that had previously been paid pursuant to Mr Arnold's 30 July proposal would now form part of contributions to the Land purchase. The minutes record that: "It was agreed by Liam Rossney, Peter Benson, David Arnold and Bruce Thomas, that their monies paid previously ($30,000 on the basis of the arrangement proposed at the board meeting on the 30/06/00) would now form their contribution towards the land purchase. Ray Solomon agreed to contribute a further $30,000 under this arrangement. · In the case of Liam Rossney and Peter Benson, their share of the land would depend on the percentage of their contribution as part of the overall cash or equity requirements by the bank. · For example; if the amount required by the bank were $900,000, their $30,000 contribution would entitle them to a 3% share of the land."

It was agreed that AIPC would forward the two amounts of $30,000 provided by Mr Rossney and Mr Benson for the Land purchase. Mr Benson noted that this arrangement preserved the principle of maintaining the current balance in the level of each Board of Management member's shareholding in AIPC.

61 An annual return for AIPC, dated 16 January 2001, showed the shareholdings in AIPC as follows: Shareholder Number of ordinary shares

Raymond Tampion 5 Elizabeth Winter 5 Andrew and Sue Allcock 10 Rita Bray 10 Megan Evans 10 Gabriel and Wendy Schoffer 10 Michael and Linda Wilkins 10 Daytec Australia Pty Ltd 20 (a company owned by Peter Papos) John Caines Management Pty Ltd 55 (corrected to become110) (a company controlled by John Caines) Penelope Rosewarne 55 (corrected to become110) Strategic Images Pty Ltd 55 (corrected to become110) (a company controlled by Mr McNeish) Peter Benson 110 Kelfire Pty Ltd 110 Liam Rossney 110 Formula Speedway Promotions 120 (a company controlled by Mr Solomon) Bruce Thomas 305 (corrected to become 130) 62 In the copy of the annual report provided to the Court, "Bartletts" have been handwritten in as having 10 shares at the bottom of the list of shareholders. 63 By letter dated 2 February 2001, Westpac's Victorian subsidiary, the Bank of Melbourne, offered finance for the project at 50% of the purchase price or $1.6 million, whichever was lower. The Bank of Melbourne also required security including "unlimited joint and several guarantees from shareholders/directors". 64 On 12 February 2001, Mr Arnold wrote to Westpac requiring a further meeting to discuss, inter alia, the prospect of a large, non-recourse loan. By letter dated 20 February 2001, Mr Arnold sought assistance from a finance broker, Mr Guy Obeid, in obtaining a loan for $2.5 million, in the context of security for the loan being the increased value upon rezoning. 65 A very important meeting of the Wiseheads was held on 21 February 2001. The major issue for discussion was a letter from Kalus Kenny to each Board of Management member dated 13 February 2001. The most important aspect of the letter was that it sought confirmation from each Board of Management member that AIP would assume the obligations of AIPC under the contract to purchase Foxley Lodge, subject to a 12 month option for AIPC to purchase the Land from AIP for market value. Critically, the letter confirmed that the only persons with an interest in the Land would be Messrs Arnold, Thomas and Solomon. 66 The Kalus Kenny letter of 13 February 2001 is set out below: "The Director

As you know I have been acting on behalf of Adrenalin International Powersports Centre Pty Ltd ("AIPC") in relation to the purchase of the property known as "Foxley Lodge". Pursuant to your instructions in writing dated 28 July 1999 I have taken instructions largely from David Arnold although in recent months I have had little involvement in this matter.

I have received instructions from David Arnold that:-

1. Settlement of the Contract to purchase the above property is due on 26 February 2001.

3. As a number of you will not provide personal guarantees in relation to Westpac's finance it is proposed that a different company, Adrenalin International Powersports Pty Ltd A.C.N. 089 178 594 ("AIP") be utilised to complete the acquisition of the property.

4. To achieve this, either AIPC will nominate AIP as Purchaser or the AIPC Contract with the Vendors will be cancelled, and a new contract entered into with AIP, and all moneys paid under the AIPC Contract will be applied towards partial satisfaction of AIP'S obligations under its new Contract with the Vendor.

5. Each of you have agreed that the acquisition will be completed by AIP even though the only shareholders/participants in API (sic) are David Arnold, Bruce Thomas (Colin Rosewarne crossed out) and Ray Solomen (sic). This will mean that a number of you will have no interest in the property.

6. That AIP will grant an option to AIPC to enable AIPC to purchase the property from AIP any time within 12 months of settlement at a price to [be] determined by valuation at the time of the exercise of the option. In order to progress this matter I require confirmation from each of you that I am to proceed to complete settlement on behalf of AIP on the basis set out in this letter and in accordance with instructions received from David Arnold on the same basis as is set out in your authorities to me dated 28 July 1999. Please understand that I am not providing advice to any of you in relation to this matter, nor have I in the past other than in respect of advice which I provided to AIPC in relation to the acquisition of the property and possible corporate and trust structuring. I have not been instructed as to the commercial involvement of each of you in this project, nor have I been asked to provide advice to any of you individually and accordingly I am not in a position to advise you whether your interests are properly protected or what steps should be taken to protect your interests. In all these circumstances you should each obtain independent legal and financial advice. However, if any of you have any queries in relation to this matter, please do not hesitate to contact me. I confirm that in order for me to continue to proceed to settle the purchase on behalf of AIP, I require the enclosed copy letter to be signed and returned, whereby your signature confirms that I am authorised and instructed to act on behalf of AIP in relation to this matter on the basis set out in this letter and to continue to take instructions in relation to the acquisition of Foxley Lodge from David Arnold without further reference to you. Yours Faithfully KALUS KENNY Henry Kalus" 67 The minutes of the 21 February meeting include the following in respect of the Land purchase: "A Broker has been engaged to arrange a loan via the Commonwealth bank. Settlement is 5pm on Monday the 26th of February. Issues arising include; 1. Concerns regarding the 14-day period after settlement day (default on settlement). 2. Change of purchaser. AIP ILO of AIPC. 3. Bruce indicated his unavailability next Monday the 26th. 4. Who can be signatories to the land settlement?" In respect of the Kalus Kenny letter, the minutes record: "This letter authorises and instructed KK to act on behalf of AIP in relation to this matter on the basis set out in this letter and to continue to take instructions in relation to the acquisition of Foxley Lodge from David Arnold without further reference to the [Board of Management]. All members present signed the letter, however most members questioned the need for such a letter." 68 Each of Messrs Caines, Rosewarne, Rossney and Benson countersigned his individual copy of the Kalus Kenny letter at the meeting and handed it back to Mr Thomas. Copies of this letter were also signed by: · Mr Thomas, · Mr Solomon, · Mr Macneish, · Ms Megan Evans, · Mr Ray Tampian, · Mr and Mrs Allcock, · Mr and Mrs Wilkins, · Ms Rita Bray and · Mr P Papos Given the list of shareholders recorded in the annual report, dated 16 January 2001, it is not known why signatures were not obtained from Gabriel and Wendy Schoffer, Robert and Robyn Bartlett or Elizabeth Winter. 69 In cross-examination Mr Arnold confirmed that agreement to the proposal had not been sought from the Groundbreakers until Mr Solomon arranged for the Kalus Kenny letter to be signed by them near the end of February. Mr Arnold gave evidence in explanation, saying: "Well, the Groundbreakers you refer to of course was essentially six of them - if my memory's correct - five of whom Ray had organised and one of which Colin had organised. These groundbreakers, of course, included Ray's mum, Ray's brother-in-law and his sister and two of his work colleagues and Megan Evans and I think that - there might be seven. The groundbreakers when we talked to Ray about it was a constant source of concern because we had other people's money but Ray said - well, he felt confident that if he'd get a reasonable proposal we could put it to them. After all they had mostly invested in this project to see it get done, to get motor racing going, and they were interested in, most importantly, a cash return. They weren't interested in getting a capital asset." 70 On 28 February 2001, AIPC nominated AIP as the purchaser of Foxley Lodge in substitution for AIPC. Mr Arnold signed the relevant form on behalf of both AIPC and AIP. The vendor of Foxley Lodge served a rescission notice on AIPC, also on 28 February 2001, given that the balance of the monies owing under the contract ($2.8 million) had not been paid by 26 February 2001. 71 On 1 March 2001, the Commonwealth Bank of Australia ("CBA") offered AIP a loan of $2.46 million on the basis of "Joint and Several Guarantees (unlimited as to amount) by Bruce Vivian Thomas, Raymond John Solomon and David Anthony Arnold". On 2 March 2001, the Solomon Family Superannuation Fund lent AIP $92,610.69 in order to assist in the purchase of Foxley Lodge. 72 On 8 March 2001, Kalus Kenny wrote to Mr Arnold advising him that settlement would occur on 9 March 2001, with CBA providing $2.46 million, and the balance of $367,098.89 being made up by Ray Solomon. 73 On 9 March 2001, an option agreement was purportedly entered into between AIP and AIPC. Purportedly is used deliberately because the correct seals of the respective companies were not appropriately placed on the document. This was later rectified on some date shortly after 21 May 2001. Under the option agreement AIP granted AIPC an irrevocable option requiring AIP to sell Foxley Lodge to AIPC, if AIPC wished to exercise the option, within 12 months of the date of the agreement. 74 On 20 March 2001, as a consequence of a contribution of $50,000 by Mr Knight to AIP, Mr Solomon emailed Mr Knight a letter of that date. The letter provided that: "Re: Shares in Adrenalin International Powersports Pty Ltd Dear Jim, The Board of Management of Adrenalin International Powersports Pty Ltd welcomes you as a shareholder of the company. Please consider this letter as your official receipt for your payment of $50,000. This payment being the purchase price for 133 fully paid up shares of which there are a total of 10,000 shares issued. On the basis that the share price is $375,000 each, the cost of your 133 shares total $49,875. Given that, a refund of $125 will be returned to you. We seek your advice as to which entity the 133 shares are to be issued. On the basis of your advice, share script will be issued and copies forwarded to you. Yours Sincerely ADRENALIN INTERNATIONAL POWERSPORTS PTY LTD Raymond Solomon Secretary"

75 On 28 March 2001, AIP became registered as the sole proprietor of the estate fee simple constituted by Foxley Lodge. 76 The next AIPC Board of Management meeting was held on 28 March 2001, followed by meetings on 26 April 2001 and 6 May 2001. The minutes from these meetings do not reveal any discussions in respect of the purchase of Foxley Lodge. It is unclear whether there was a meeting on 29 May 2001, as there is an Agenda for a meeting on that day, but no minutes of that meeting (if it occurred) were tendered in evidence. 77 At a meeting of the AIPC Board of Management held on 19 July 2001, Mr Thomas and Mr Arnold discussed the issue of a further valuation of Foxley Lodge to enable AIP to refinance its commitments and allow some repayments to them and to Mr Solomon. The repayments related to the sums contributed by those three men at the time of the settlement of the Land. 78 On 31 July 2001, Mr Caines wrote to Mr Thomas in Mr Thomas' capacity as "Chairman" of AIPC. In the letter Mr Caines queried whether Mr Benson and Mr Rossney were also involved in the ownership of the Land, whilst acknowledging that Mr Thomas "stated at the last meeting that there were only three landowners". 79 On 1 August 2001, Mr Thomas replied to Mr Caines. Mr Thomas relevantly responded to the issue of land interests as follows: "Due to your opposition to diminution of equity in A.I.P.C., on which I supported you, Peter and Liam chose to put $30k each into the land purchase to support the cash and personal assets that Ray, David and myself put up to purchase the land, that you so strongly advised me stay away from. We were still $60k short to make up the deposit and Ray asked Jim Knight to contribute, which he did. So the real situation is that Ray, David & myself have each put up in cash and assets $350k each and taken on a debt of $3,750,000. Peter and Liam have contributed $30k each and Jim Knight $60k and of course hold a commensurate equity in A.I.P. The logic of this is that without any of the above I wouldn't be writing this letter." 80 Mr Thomas further stated: "I would also point out that you, with the rest of us are signatories to a document which enabled A.I.P. to buy the land and put on offer to A.I.P.C. the opportunity to purchase said land from AIP. At market value, within twelve months from settlement."

81 A Wiseheads meeting occurred on 2 August 2001. Mr Rossney reported to the meeting that the Victorian Civil and Administrative Tribunal had approved the planning permit on 31 July 2001, with Ministerial and Council approval expected by 14 August 2001. It was anticipated that re-zoning would follow. A discussion occurred about obtaining a further land valuation and about finishing a new business plan for the project. 82 On 9 August 2001, Mr Solomon emailed a letter to Mr Knight in which he again confirmed that Mr Knight was a shareholder in AIP to the value of 133 shares out of 10,000 shares in AIP. The letter was in similar terms as the letter from Mr Solomon to Mr Knight, dated 20 March 2001. 83 On 13 August 2001, FPD Savills (Valuers) valued Foxley Lodge at $5.5 million. The documentation supporting the valuation referred to "imminent re-zoning to Industrial 2". 84 At a meeting of the AIPC Board on 22 August 2001 a discussion ensued, led by Mr Arnold, about prospects for funding of the project, including an offer from Rothschilds to contribute $10m in exchange for some form of stake-holding in the project. Amongst other topics discussed was a possible role for International Management Group of America Pty Limited ("IMG") as a manager of the project. 85 The next AIPC Board of Management meeting occurred on 12 September 2001. Mr Arnold reported that CBA was likely to agree to the new land valuation of $5.5m. He also said that CBA is likely to approve "AIP's re-financing" in the "next couple of days" at 60% of the estimated value, and that AIP will advance the funds to AIPC which would "enter, into a debenture with interest charges". 86 On 14 September 2001, the Brimbank City Council issued a planning permit for Foxley Lodge which would allow: "[t]he development and use of a Major Sports and Recreation Facility including a motor racing track, education and hospitality training facilities, event retailing centre, convention centre, motel administration, car parking facilities and associated shop, restaurants/food and drink premises and maintenance facilities."

87 Further AIPC Board meetings were held on 10 October and 15 November 2001. Discussions occurred about possible refinancing of the Land, financing for the project, a new business plan and re-zoning, amongst other issues. 88 By letter dated 15 November 2001, addressed to Mr Thomas, as Chairman of "Adrenalin International Powersports", Mr Macneish resigned from "the Board of the Adrenalin Project". The middle paragraph of the letter stated that: "I would still like to see the project go ahead, and wish you all every success, but feel that I can no longer contribute in a significant way to its progress. I have never been willing to commit any capital towards the proposal and believe that my shareholding should be held by someone who is prepared to make a greater commitment."

89 At a meeting of the AIPC Board on 12 December 2001 further discussions occurred, inter alia, about refinancing the Land, re-zoning and a business plan. There was also discussion about further options for the "structure and relationship of AIPC and AIP", including its possible relationship with IMG, but no decision was made. The minutes do not make it clear whether the relationship of AIPC and AIP that was discussed simply concerned merging the two companies, or related to the desire that AIPC obtain ownership of the Land. 90 During December 2001 the Board members of AIPC attempted to draft an agreed document dealing with "Funding Strategy and Options". Mr Arnold's draft document on that topic was circulated to other Board members and included the following at the second paragraph: "The land is owned by [AIP] and [AIPC] holds an option to acquire the site at market value." (emphasis supplied) Mr Caines sent a revised version of the document back to Mr Arnold, which replaced this statement with the following: "All the assets are and will be owned by [AIP]. [AIPC] is a wholly owned subsidiary of AIP and will be the operator of the Project. All operations of AIPC will be directed by International Marketing Group (IMG) under a formal management agreement." 91 On 11 February 2002, Knight Frank Valuations valued Foxley Lodge at $6 million. 92 On 18 February 2002, an information pack about the project was circulated in order to attract funding in Mr Arnold's words to "proceed with the acquisition by AIPC of the land and development thereon of the powersports centre". A sum of $56 million was sought to be raised, $6 million of which would relate to the Land. A budget prepared by Mr Caines estimated pre-tax earnings of $14.168 million for the project in 2007-2008 financial year. 93 The AIPC Board met again on 20 February 2002. The authorised minutes, signed by Mr Thomas on 27 March 2002 following acceptance of them at the meeting on that date, contain the following: "AIPC Shares. David advised that the share registration with the ASC has been corrected. Discussion regarding the share allocation of AIP. Discussions regarding the arrangements between AIPC and AIP."

The minutes note that Mr Arnold was "to investigate the methods and arrangements by which AIPC shareholder (sic) may be transferred into AIP".

94 Although Mr Solomon's version of the minutes were not authorised by the Board of Management and were not signed by Mr Thomas, they reveal Mr Solomon's understanding of what was discussed at the meeting. Mr Solomon's minutes record in greater detail the discussion referred to in the previous paragraph: "David advised that the share registration of AIP has also been corrected to reflect 4 shares each to Bruce Thomas, David Arnold and Ray Solomon. Discussions regarding the arrangements between AIPC and AIP. John expressed the view that the sale price of the land to AIPC was $6 million. Ray expressed the view that it was CMV at the time of sale. It was acknowledged by Liam and David that the $6 million was a nominal amountbased on the value of the land at the time of the last meeting. John indicated his believe (sic) that AIPC and AIP had merged under the arrangements discussed at the last meeting. Ray indicated that this was not the case. AIP is a stand alone company with the intended share structure being 10,000 shares to be issued to Bruce, David, Ray, Liam, Peter and Jim Knight. This share distribution was acknowledged by Bruce, David and Liam. The future arrangements as to how AIPC and AIP may merge has not been agreed." 95 On 9 March 2002, depending on one's view of the incorrect use of appropriate seals on 9 March 2001, referred to at [73] above, the option agreement expired without AIPC exercising its right to buy Foxley Lodge. A resolution was never put to a Board of Management meeting whether the option should be exercised; although AIPC was not in funds to do so at any stage in the relevant 12 month period or at any time up to the end of May 2002 or later. 96 At a meeting of AIPC held on 27 March 2002 the Board continued to discuss financing for the project. Mr Solomon requested that the relationship between AIPC and AIP be "clarified". Mr Arnold and Mr Caines were to "meet and develop a methodology of merging AIPC and AIP". 97 On 15 April 2002, Mr Solomon wrote to Mr Benson and Mr Rossney, asking to which entity they wished to have their 81 shares in AIP issued. 98 A further meeting of the AIPC Board was held on 17 April 2002. The imminent re-financing package for the Land, to be provided by HGR Finance, was discussed. No reference is made in the minutes of that meeting to the concerns surrounding the shareholdings of AIP, the relationship between AIP and AIPC, or the meeting between Messrs Arnold and Caines to discuss merging the two entities. 99 On 19 April 2002, the mortgage in favour of CBA was discharged, with HGR Finance advancing a loan amount of $3.85 million to AIP. On 7 May 2002, HGR Finance registered a mortgage over Foxley Lodge. 100 At an AIPC Board meeting on 3 July 2002 the following was discussed and recorded at item 5 in the minutes: "5. AIP funding strategy, Grove-CMFC David David and Liam (on behalf of AIP) met with Grove Construction with the view establishing a traditional business model whereby AIPC will be the venue operator and AIP will be the Land and buildings owner and a commercial lease arrangement will exist between the two entities. Under this arrangement, Grove has agreed to take equity in AIP for a cash payment and will be appointed by AIP as the builder. The benefits of this model is that; 1. The current Shareholding's in AIPC will be maintained (100% equity). 2. AIP will provide AIPC with the initial operating capital. The negatives for AIP is that the current shareholders would need to leave their current level of investment in AIP and that AIP will be required to provide Directors guarantees."

101 In August 2002, Mr Knight requested that his AIP shares be held in the name of "Jim Knight Investments". 102 Another AIPC Board meeting took place on 28 August 2002. Reference is made in the minutes to the 'AIP-AIPC Lease & IP Agreement', noting that the agreement is substantially completed, other than the dollar amounts that would not be able to be included until the building finance arrangements were confirmed. 103 An AIPC annual return, dated 28 October 2002, showed the shareholdings in AIPC at that point in time as follows: Shareholder Number of ordinary shares

Formula Speedway Promotions 115 (a company controlled by Mr Solomon) Peter Benson 105

JWPM Pty Ltd 105 (a company controlled by John Caines) Kelfire Pty Ltd 105

Strategic Images Pty Ltd 105 (a company controlled by Mr McNeish)

Daytec Australia Pty Ltd 20 (a company owned by Peter Papos) Mellomere 20 (a company owned by Bruce Thomas) AIP 10

Peter Papos Superannuation Fund 10 (a company owned by Peter Papos)

Ray T.Arp Superannuation Fund 10 (Raymond Tampion's Superannuation fund)

Robert and Robyn Bartlett 10 Solomon Family Superannuation Fund 10 TOTAL 990

104 There were 20 additional unallocated shares available for Groundbreakers. 105 An Australian Securities and Investments Commission Historical Extract, dated 26 February 2003, recorded the shareholdings in AIPC a little differently. A number of shareholders have a slightly greater number of shares than set out above, and a total of 1010 shares are issued. However, the difference does not directly impact on any issue for the Court to determine. 106 What is revealed when trying to determine who were shareholders in AIPC, and when, is that those matters are difficult to establish, as AIPC's records do not provide a clear paper trail. Some annual returns for AIPC appear to be pieces of fiction. A 1999 annual return, dated 7 September 1999, appears to record people as shareholders before they have even been introduced to the project. 107 The AIPC Board met on 30 October 2002. This was an important meeting as discussions regarding the relationship between AIP and AIPC came to a head. There were two versions of the minutes to this meeting provided by Mr Solomon and Mr Rosewarne, which were not accepted by the Board at the next meeting on 7 November 2002. Mr Benson was asked to prepare minutes based on the two rejected versions. His version has an air of objectivity about it and the Court will therefore have regard to that version. 108 The discussion recorded under the heading 'AIP/AIPC Relationship' is revealing: "There was considerable debate over the issue of the company relationships between AIP and AIPC. The key points debated were: · The roll-up of AIPC into AIP · The issue of profit retention by AIP of the increase in value of the land · The option for AIPC to purchase the land from AIP · The Guarantor positions (and thus the risk) taken by the Directors and Secretary of AIP on the purchase of the land. Peter and John suggested that there was an intention to merge the two companies and that Minutes of AIPC meetings confirmed this intention. Bruce, Ray and David suggested that the merger was only ever to be considered in the context of a total buy-out of the project by C-Bus and that a final decision had not been made. Liam said that generally we were all the same people and that the project would work better if there was a merging of the two companies. On the matter of profit retention from the increase in land value, Bruce Ray and David stated that any increase in value should be retained by the shareholders in AIP because they had taken the risk on the land purchase. John raised the point that this had been discussed some 12 months ago and he felt that a cap on the land value had been agreed at $6 Million. The option granted to AIPC to purchase the land was raised. David tabled documents about AIP's ability to purchase the land and a document that Groundbreakers had signed stating that the purchase of the land was to be effected by AIP. David stated that AIPC had an option to purchase the land and that option had expired in March this year. Another option would need to be drawn-up. Liam said that he thought the option was provided in the context that the Centre would have been operating by that time and there would be sufficient cash to purchase the land. Peter indicated that the minutes did not show that AIPC had formally considered the option to purchase before it expired and that such an important decision needed proper consideration and perhaps shareholder involvement. Peter also indicated that because of the conflict of interest position of the Directors of AIP and AIPC (Bruce, David and Ray) the decision needed a formal approach and a specific decision either to take or not take up the option. Bruce and David stated that their role in guaranteeing the loan funds for the purchase and subsequent capital borrowings against the value of the land were onerous. Liam advised that he may be able to solve that problem in part by introducing another person who could support the guarantees. Liam advised the meeting that he could not provide the name until later this week and further discussions were held with that person. Liam also raised the matter of a payment made to each Director and the Secretary of AIP in the last 6 months (on advice from Ray) which may have been associated with the repayment of loans to AIP by Directors. Peter advised that payments need to [be] made transparently. Peter then advised that because of the common Directorships in the companies there was a substantial risk of conflicts of interest and that shareholder involvement in the process was probably required. Because of these conflicts of interest transparent processes were required including establishing a register of declared conflicts of interest." 109 Mr Caines presented a letter at the meeting requesting that a shareholders meeting to be held and also requested a copy of AIPC's memorandum and articles of association. 110 The Board of AIPC next met on 7 November 2002. There was no agreement on the minutes of the previous meeting. It was apparent at this stage that the relationship between Messrs Arnold, Solomon and Thomas on the one hand and the other Board members was becoming strained. Mr Arnold presented Mr Caines a copy of the memorandum and articles of association. 111 The minutes record that Mr Solomon said "that he explained the share allocation in AIP to [John Caines] at a previous AIPC meeting held at his office on the 20/2/02 (i.e. 10,000 shares are to be issued to [Mr Thomas], [Mr Solomon], [Mr Arnold], [Mr Rossney], [Mr Benson] and [Mr Knight])." Mr Caines responded "yes, and I left the meeting and told [Mr Thomas] to fix it." 112 Mr Caines said he believed AIP had an agreement with AIPC that the companies would be rolled up into AIP. Mr Arnold discussed the proposition that AIPC lease the Land from AIP. At the end of the minutes of meeting there is a 'without prejudice' note that Mr Thomas suggested that AIPC purchase the Land from AIP at its current market value of $11 million. Mr Caines suggested $6 million. There was no resolution of any of these issues. 113 A meeting of AIP was held on 15 November 2002. Consequently Mr Caines and Mr Rosewarne were not present. Following a query about the transfer of shares between AIP and AIPC the minutes note that Mr Arnold "outlined initial lending process and tabled loan/guarantee documents. Initial lender indicated that shares had to be in [Mr Solomon, Mr Arnold and Mr Thomas'] name and that they were individually and severally (sic) liable for the debt." 114 Those at the meeting went through Mr Caines' proposals for merging AIP and AIPC and various other proposals, such as granting a further option for AIPC to purchase the land in the first 5 years of operation of the project. Discussion in respect of the proposals continued at the 18 November 2002 meeting, without agreement being reached on any particular proposal. The discussion reveals there was some preparedness to extend the option to AIPC to buy the Land, albeit that it had expired: "[Mr Thomas] outlined the option where by AIP would grant AIPC an option to purchase the venue and a cash payout if the venue does not proceed." It can also be seen from the following exchange that the basis for the dispute was taking form: "General discussion followed regarding interest in the land by AIPC/[Groundbreakers] [Mr Benson's] view still was that AIP[C] had an interest in the land. [Mr Solomon] rejecting this and said he can't understand how AIP has a formal agreement with the members of AIPC and yet now they still have an interest in the land. [Mr Benson] agreed that it may be [a] philosophical right to the land [Mr Arnold] indicated that the land was held for AIPC for 12 months at market value [Mr Arnold] went on to say this Option provides protection for the [Groundbreakers] and that it was a good deal. [Mr Knight] suggested that we put the option to AIPC and stop mucking around. [Mr Thomas] suggested a simple solution whereby John, Colin, Jock could purchase a share at $1000 per share. [Mr Thomas] questioned why AIPC had any interest in the land at all [Mr Rossney] said that he had argued that he used to be of the view now he has changed and that the land was purchased for AIPC." 115 By letter dated 25 November 2002, Mr Moses, a solicitor acting for John Caines Management Pty Ltd ("JCM"), and Mrs Rosewarne wrote to Mr Solomon as Secretary of AIP. The letter threatened legal action in respect of JCM and Mrs Rosewarne being "unlawfully deprived of their respective interests in the land owned by AIPC". The letter alleged that Messrs Arnold, Solomon and Thomas "have committed and continue to commit serious offences under the Corporations Act 2001 …". 116 On 8 December 2002, Mr Moses wrote to Mr Arnold again threatening the issue of proceedings against him, Mr Thomas and Mr Solomon. By email on 11 December 2002,Mr Moses warned Mr Arnold of the imminent issuing of legal proceedings. 117 Mr Kuperholz, a solicitor, wrote to Mr Moses on 13 December 2002 advising that he acted for Messrs Arnold, Thomas and Solomon. A dialogue then occurred between the two solicitors which resulted in several pieces of correspondence passing between them without resolution of the dispute between their respective clients. The dialogue collapsed on 20 December 2002. 118 On 23 December 2002, JCM lodged a caveat over Foxley Lodge in which it claimed an "equitable interest in fee simple", pursuant to "an express or implied trust". On 7 January 2003, AIP commenced a process designed to lead to the withdrawal of the caveat. The caveat subsequently lapsed on 27 February 2003. In the interim, AIP was involved in attempts to sell the Land, whilst Mr Moses asserted an interest on behalf of his clients in AIPC. 119 On 18 March 2003, AIP and Westpac entered into a Call Option Deed, whereby AIP granted Westpac an option to purchase Foxley Lodge for $20.6 million. The option involved the payment of a $200,000 non-refundable fee by Westpac, with the option being required to be exercised by 28 March 2003. 120 On 27 March 2003, Mr Moses threatened proceedings against Westpac if it exercised the option without reference to him. The option was not exercised and lapsed on 28 March 2003. 121 On 3 April 2003, AIP issued this proceeding pursuant to the Trade Practices Act 1974 (Cth) ("the TP Act"). It sought damages and injunctions against JCM, Mrs Rosewarne and Messrs Rossney, Benson and Knight. AIP sought interlocutory relief against the respondents. On 7 April 2003, Finkelstein J made orders by consent in which he noted the undertakings of counsel for the respondents, inter alia, not to seek to interfere with the sale of Foxley Lodge or represent that they have any interest in the Land, other than in this proceeding. 122 Counsel for AIP undertook that AIP would not sell the Land for less than $18 million and that if the Land was sold, after deducting payments not exceeding $5.5 million, the balance of the proceeds of any sale would be lodged in an interest bearing account. AIP also undertook not to encumber the Land for more than $5.5 million. 123 On 11 April 2003, the respondents and cross claimants filed a defence and cross claim. The pleadings foreshadowed that leave would be sought to commence the cross claim pursuant to ss 236 and 237 of the Corporations Act 2001 ("the Act"), insofar as it concerns AIPC on behalf of AIPC. The following claims are made in the cross claim: · Messrs Arnold, Solomon and Thomas conspired to injure AIPC and its shareholders · AIP acted in breach of trust in respect of AIPC and its shareholders · Messrs Arnold, Solomon and Thomas acted in breach of their duties as directors of AIPC and oppressed minority shareholders. 124 The proceeding was listed for hearing on 5 and 6 June 2003. It soon became apparent that the time allowed was not sufficient to conclude the matter. In total the matter occupied some fifteen days of hearing time, with final submissions being completed on 22 October 2003. The oral submissions were supplemented by detailed written submissions supplied by the parties.

statement of claim and Findings of fact 125 There are a number of facts in relation to events referred to in the background above that are in dispute. Several important factual disputes are covered in the issues raised in the applicant's Statement of Claim. In light of the findings set out in the background above I now turn to those issues raised in the Statement of Claim. All other factual disputes are dealt with elsewhere in the consideration of the cross claims below. 126 In its statement of claim, AIP contended that its issued capital is constituted by twelve issued shares held, as to four each, by Messrs Arnold, Solomon and Thomas. In their cross claim, the respondents accepted: (a) Mr Arnold

• has since March 2000 been a director of AIP and AIPC
• holds 4 ordinary shares in AIP · holds 110 ordinary shares in AIPC through Kelfire Pty Ltd.

(b) Mr Solomon

• has since 13 December 2000 been the company secretary of AIP and AIPC
• holds 4 ordinary shares in AIP · holds 120 ordinary shares in AIPC through Formula Speedway Promotions.

(c) Mr Thomas

• has since 23 July 1999 been a director of AIPC
• has since 20 August 1999 been a director of AIP · holds 4 ordinary shares in AIP · holds 140 ordinary shares in AIPC of which 10 ordinary shares are held beneficially in trust for the Wiseheads. 127 Despite this concession, the respondents and cross claimants contended that the issued capital of AIP is and was from 25 August 2000 held on constructive trust for the benefit of AIPC. The claim that the shares in AIP and/or Foxley Lodge was held on constructive trust for the benefit of AIPC is dealt with below. 128 On 25 August 2000, Messrs Arnold, Solomon and Thomas became the holders of four shares each in AIP. AIP contended that Messrs Rossney, Benson and Knight made contributions to the purchase of the Land in the following amounts: · $30,000 each by Mr Rossney and Mr Benson,

entitling Mr Rossney and Mr Benson to be issued with 0.81% of its issued shares and Mr Knight with 1.33%. AIP said that the funds advanced by Messrs Rossney, Benson and Knight were expressly stated to be for the purpose of acquiring shares in AIP. They called in aid letters from AIP to Messrs Rossney and Benson each dated 15 April 2002 and to Mr Knight dated 20 March 2001. AIP contended that the other respondents, having made no contribution to AIP, are not entitled to any of its issued shares. 129 In response, the respondents submitted that Messrs Rossney and Benson advanced loan funds of $30,000 each to AIPC, "which funds were later paid over to AIP". They said that Mr Knight advanced $50,000 in loan funds to AIP. They denied every other contention set out in the preceding paragraph and reiterated that the twelve issued shares in AIP are held on a constructive trust for AIPC. 130 The correct characterisation of the payments made by Messrs Rossney, Benson and Knight, referred to in the three previous paragraphs is revealed in the minutes of Board of Management meeting of 13 January 2001. The relevant passage is reproduced above at [60] and below at [303]. 131 Messrs Benson and Rossney remained of the view that, despite the decision at the meeting of 13 January 2001, contributions for the purchase of the Land were loan funds and that Foxley Lodge is held on constructive trust for AIPC. The question of whether AIP shares were held on constructive trust is dealt with below. 132 In paragraph 4 of its statement of claim AIP contended that the first to fourth respondents agreed to and acknowledged four key points contained in the Kalus Kenny letter of 13 February 2001. Those key points were:

• Messrs Arnold, Thomas and Solomon were the only shareholders and participants in AIP;
• AIP was to be the purchaser of Foxley Lodge;
• AIPC was to have an option to purchase the Land at market value within twelve months of the settlement;
• the first to the fourth respondents were to have no interest in the Land. 133 The Court finds that the Kalus Kenny letter was signed by Messrs Caines, Rosewarne, Rossney and Benson at the 21 February 2001 meeting, and shortly after by each of the Groundbreakers to whom it was addressed. Further, Mr Benson had advance knowledge of the letter and had suggested corrections to it prior to the meeting. The Court finds that the first to fourth respondents, and those Groundbreakers, by signing the Kalus Kenny letter of 13 February 2001, agreed to and acknowledged the four key points listed above. 134 I do not consider that it was necessary for members of AIPC to be given independent legal advice before signing the Kalus Kenny letter. Although the letter did advise the reader to obtain legal advice, the facts contained in the letter did not require legal interpretation and were clear on their face. 135 In their defence, the respondents contended that the first to fourth respondents signed the Kalus Kenny letter as a result of a representation made to them by Mr Thomas. Whether the consent of the first to fourth respondents to the key points in the Kalus Kenny letter was obtained as a result of breaches of fiduciary duties by the cross respondents, and on the basis of false representations made to Messrs Caines, Rosewarne, Rossney and Benson by Mr Thomas at the 21 February 2001 meeting, is dealt with below. 136 At paragraph 5 of the statement of claim, AIP contended: "On or about 9 March 2001 AIP entered into an option agreement with AIPC to sell the land to AIPC at market value which option might be exercised at any time prior to 9 March 2002."

137 In response, the respondents submitted that they were not informed that Arnold and Thomas, as directors of AIP and AIPC, had executed the option on 9 March 2001. They said that the first time they knew of the existence of the option was at an AIPC Board of Management meeting held on 30 October 2002. They said that that was the first time they saw the option agreement, when it was produced by Mr Arnold, and that they did not know until then that the option could have been exercised at any time prior to 9 March 2002 or it would lapse. 138 The Court agrees with the contentions made by AIP that:

• the option was expressly referred to in the Kalus Kenny letter;
• in the letter dated 1 August 2001 from Mr Thomas to Mr Caines, specific reference was made to the option;
• in an email, dated 20 December 2001, from Mr Arnold to Mr Caines and Mr Benson a draft business plan was provided which contained the following words: "The land is owned by [AIP] and [AIPC] holds an option to acquire the site at market value";
• in an email, dated 17 January 2002, from Mr Caines to Mr Arnold (and forwarded to Mr Benson and Mr Solomon), Mr Caines "proposed a revision to the words of the draft business plan dealing with the AIPC option …". 139 The Court finds that the respondents knew of the existence of the option before its expiry, or at least reasonably ought to have known of its existence at such time. 140 AIPC failed to exercise the option at any time prior to 9 March 2002 or late May 2002. The respondents contended in their amended defence that AIPC would have exercised the option prior to that time, if: · they had known it was executed on 9 March 2001;

· they had known it would expire on 9 March 2002; and

• they had known of the terms of the option they would have called a meeting of members of AIPC and resolved to exercise it. 141 In response, AIP contended in its amended reply that at no time prior to 9 March 2002: · did any of the respondents offer to provide personal guarantees to secure any borrowings by AIPC to fund the purchase price of Foxley Lodge so as to be able to exercise the AIPC option and to acquire it at market value;

· did AIPC have the assets or funds with which to pay for the purchase;

• was AIPC able to obtain loan moneys to fund 100% of the purchase. 142 AIP contended further that the unsuccessful attempts by AIPC to fund the project generally are set out in a document dated 16 December 2002, which summarised the potential lenders approach by AIPC; a list said to be inexhaustive, in that it did not list all persons approached by Messrs Thomas or Caines. 143 No evidence has been produced to the Court to determine whether AIPC could have exercised the option prior to its expiry. In any event, that issue is a false one. The issue for the Court to determine is whether the respondents were aware of, or at least reasonably ought to have been aware of, the essential terms of the option, in particular, the expiry date of the option. The Court finds that the respondents were aware, and believed, that the option would expire in 12 months from March 2001. Even if the respondents did not know the exact date of the expiry of the option, I find that this was information that any Board of Management member could have requested, if they were so interested. 144 The question of whether the cross respondents breached fiduciary duties when both entering the option and when they failed to exercise the option is dealt with below. 145 The statement of claim made additional allegations with respect to what might loosely be described as the respondents' spoiling tactics with respect to attempts made by AIP to sell Foxley Lodge. It will only be necessary to briefly refer to these issues in canvassing possible options for relief, depending on further factual findings made in these reasons.

Issues arising from the cross claim 146 The cross claimants are:

• JCM
• Mrs Rosewarne
• Mr Rossney
• Mr Benson
• Mr Knight, and
• AIPC 147 The cross claimants (other than AIPC) sought leave of the Court to bring the cross claim pursuant to ss 236 and 237 of the Act, insofar as the cross claim concerns the rights of AIPC and AIPC shareholders. 148 The fifth cross claimant, Mr Knight, is not entitled to bring proceedings on behalf of AIPC because he is not a member, former member or person entitled to be registered as a member of AIPC or of any related body corporate. The cross respondents submitted that JCM was not eligible to join any application under s 236, because it is not a member of AIPC. Mr Caines' interest in AIPC is through shares held in the name of another company he controls, JWPM Pty Ltd, the trustee of the Caines Superannuation Fund. However, JCM is a former member of AIPC, and is thereby entitled to seek leave to bring the cross claim on behalf of AIPC. 149 Under s 237(2) of the Act, the Court must grant the application for leave if it is satisfied of five cumulative criteria, which are: "(a) it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and (b) the applicant is acting in good faith; and (c) it is in the best interests of the company that the applicant be granted leave; and (b) if the applicant is applying for leave to bring proceedings - there is a serious question to be tried; and (c) either: (i) at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or (ii) it is appropriate to grant leave even though subparagraph (i) is not satisfied." 150 The cross respondents (Messrs Arnold, Solomon and Thomas) contended, in their defence to cross claim, that: · the cross claimants do not seek leave in good faith · it is not in the interests of AIPC for such leave to be granted · there is no serious issue to be tried that AIPC has any interest in Foxley Lodge or the shares of AIP · AIP is entitled to rely on the presumption contained in s 237(3) of the Act. 151 The Court will only deal with whether leave should be granted, if necessary, once it has dealt with all other parts of the cross claim.

Conspiracy to defraud claim 152 At paragraphs 57 to 72 inclusive, in the cross claim, the cross claimants deal with their case on the topic of "conspiracy to defraud". The cross claimants alleged at paragraph 57 of the cross claim that: "In or about March 2000 Arnold, Solomon and Thomas wrongfully and maliciously conspired and combined amongst themselves to defraud and to injure AIPC and its shareholders by conspiring to:

(a) Procure AIPC to nominate AIP as purchaser of the land

(b) Deprive AIP and its shareholders of the benefit of the contract of sale to purchase the land;

(c) Procure AIPC to acquire the land solely for the benefit of Arnold, Solomon and Thomas."

153 The cross claimants alleged that the cross respondent took certain specified action in furtherance of a conspiracy. Those alleged acts are: "(a) Obtaining control of AIPC by procuring Rosewarne to resign as a director on 9 March 2000 and adopting Arnold in his place; (b) Procuring the resignation of Rosewarne as company secretary on 13 December 2000 and appointing Solomon in his place; (c) Obtaining control of the Board of Directors of AIPC since 9 March 2000 by procuring the appointment of Thomas and Arnold as the 2 directors of AIPC; (d) Obtaining control of AIP by procuring the resignation of Rosewarne as a director on 9 March 2000 and appointing Arnold in his place; (e) Procuring the resignation of Rosewarne as company secretary on 13 December 2000 and appointing Solomon in his place; (f) By transferring from Rosewarne the whole of the issued capital of AIP being 12 issued shares as follows: (i) Arnold - 4 ordinary shares; (ii) Solomon - 4ordinary shares; (iii) Thomas - 4 ordinary shares; (g) Obtaining control of the board of directors of AIP and each of the 12 ordinary shares being the entire issued capital of AIP." 154 The Court will deal with the claim of conspiracy once it has dealt with the conduct of the cross respondents that is alleged to have been in furtherance of the conspiracy. The conspiracy is said to have been furthered by false representations made by Mr Thomas and breaches of fiduciary duties by both Mr Thomas and Mr Arnold. These aspects of the conspiracy claims are dealt with separately below.

Representations 155 At paragraph 59 of the cross claim, the cross claimants allege that Thomas (acting for all cross respondents) made certain representations at the 21 February 2001 meeting. It is contended that these representations were untrue and were relied upon by the other Wiseheads to their detriment. It is also alleged that the representations were in furtherance of a conspiracy, separately pleaded, and represented breaches of fiduciary duty by Messrs Arnold and Thomas owed to AIPC, also separately pleaded. The Court first addresses the issue of whether Mr Thomas made untrue representations at the 21 February meeting. 156 The first alleged representation was that: "The [CBA] would not provide funds to AIPC to enable it to complete the purchase of [Foxley Lodge] unless each shareholder of AIPC provided a personal guarantee." 157 Mr Thomas gave evidence that it had been decided prior to 21 February 2001 that AIP would purchase the Land. He said that it had previously been made clear by Board members other than Messrs Solomon and Arnold and himself, that they would not be putting up personal guarantees with respect to loans to purchase Foxley Lodge. Mr Thomas gave evidence that he told the 21 February 2001 meeting that a preliminary approach had been made to the CBA, but he said that: "… all banks in my experience normally and usually require such guarantees given the speculative nature of land development." 158 Mr Thomas specifically denied saying to those present at the meeting that the CBA would not advance funds unless each shareholder provided a guarantee. When the proposition was put to him in cross-examination, he said: "No, each borrower provided a guarantee. It wasn't relating to shareholding". 159 He said that the borrowers were himself, Mr Arnold and Mr Thomas, and the company purchasing the Land was not AIPC, but AIP. 160 Additionally, when the question was put to Mr Thomas in the context of the alleged first misrepresentation, the question was not specific to AIPC shareholders, but just "shareholders". Thus the pleaded misrepresentation was not, in terms, put to the person allegedly making the misrepresentation. It must also be recalled that at this stage AIP was to be nominated by AIPC as the purchaser of the Land, so that it would make no commercial sense for the CBA to require personal guarantees from persons who were not shareholders in AIP in order to secure AIP's loan. 161 Mr Solomon was present at the 21 February 2001 meeting but it was not put to him that Mr Thomas had represented that CBA would not provide funds to AIPC to enable it to complete the purchase of the Land unless each shareholder of AIPC provided a personal guarantee. It was within no-one's contemplation at this stage that AIPC would purchase the Land. The first alleged misrepresentation is without substance. No such representation was made. 162 The second alleged misrepresentation was that: "[CBA] required the guarantors to be the sole (sic) shareholders of the company which was to purchase [Foxley Lodge]" 163 Mr Thomas gave evidence, which I accept, that CBA required the shareholders of the land purchasing company to give personal guarantees. The second alleged misrepresentation is also devoid of substance. 164 The third alleged misrepresentation was: "The only way in which the purchase of the land could be completed was if AIPC nominated AIP as purchaser under the contract of sale and Arnold, Solomon and Thomas being the sole shareholders of AIP gave personal guarantees." 165 It was never put to Mr Thomas in cross-examination that he made any such representations. It is not accepted that he did made such representations. 166 The fourth alleged misrepresentation was that Mr Thomas said at the 21 February 2001 meeting that: "[CBA] would not advance funds to enable the purchase of the land unless each of the Wiseheads signed forthwith a letter of acknowledgment prepared by Kalus Kenny …" 167 Mr Thomas gave evidence that he required those at the meeting to sign the Kalus Kenny letters as otherwise the project would collapse, and that he did not say that the CBA would not advance funds unless the letters were signed. The reality was that only Messrs Arnold, Thomas and Solomon were prepared to advance funds to purchase the Land and only those gentlemen were shareholders in AIP. Mr Thomas required the protection that the Kalus Kenny letter would give him and his fellow shareholders in AIP, as a result of being the only ones prepared to put their assets on the line so that the project would not die there and then, but could continue. The issue was not about the CBA advancing funds. It was about whether AIP shareholders could commit to the CBA loan without agreement to the Kalus Kenny letter. 168 The fourth alleged misrepresentation is also not made out. 169 In the context of considering whether the alleged misrepresentations were made, the Court has examined a draft shareholder's report dated 14 November 2002, which was relied upon by the cross claimants to support their position on this issue. The relevant passage states: "February 2001 - Bank advises loan would not proceed unless shares in personal name of Bruce, David and Ray and that they jointly and severally guarantee the loan …" 170 The notation in the report does not prove that Mr Thomas said what he was alleged to have said on 21 February 2001. Second, the notation is capable of being explained by reference to the fact that CBA knew AIP was to be the purchasing company, knew who the shareholders were and required them to provide personal guarantees. 171 An email from Mr Arnold to Mr Guy Obeid, dated 21 November 2002, was also relied upon, as in it Mr Arnold states: "…the CBA asked for the shares to be in the individual names of Ray, Bruce and I." 172 This does not prove Mr Thomas made this representation at the 21 February 2001 meeting. In any case, the response from Mr Obeid is instructive. After saying it was unlikely the bank would make such a request, he states: "This may have been discussed between you & I in relation [to] shareholders providing guarantees and the simplicity of having those shares held in personal names to avoid having to provide additional info on and (sic) the guarantee corporate shareholders." 173 Mr Obeid was recalling that a number of the shareholders in AIP were companies owned by either Mr Thomas, Mr Arnold and Mr Solomon and that this was changed as it was easier, in the context of the information required, if the guarantors were individuals. 174 None of the alleged representations referred to at paragraph 59 of the cross claim were made by Mr Thomas. No breach of fiduciary duty is made out in respect of any of them. 175 The cross claimants submitted that the Court should prefer the evidence of Mr Caines to that of Mr Thomas concerning what was said at the 21 February meeting. On observing Mr Thomas to give evidence, I considered him to be forthright person who gave his answers unhesitatingly, in a frank and honest way. 176 I do not have the same view of Mr Caines' evidence. Mr Caines was hesitant when cross-examined and ultimately gave viva voce evidence about what Mr Thomas allegedly said at the 21 February 2001 meeting, which varied considerably with the account he gave in his affidavit filed in the proceeding. In the event of conflict in the evidence, Mr Thomas' evidence should be preferred, given Mr Caines' inconsistent evidence. 177 At paragraph 28 of Mr Caines' affidavit, Mr Caines said: "On 21 February 2001 a meeting was held of the Wiseheads to discuss the acquisition by AIPC of the Land. At the meeting Thomas produced multiple copies of a letter from Kalus Kenny solicitors who were acting on behalf of AIPC in relation to the purchase of the Land. Thomas said at this meeting that each of Rossney, Rosewarne, Caines and Benson has to sign the letter at that meeting otherwise the whole of the Adrenalin Project would collapse as Arnold needed to be able to provide instructions to Kalus Kenny in relation to the purchase of the Land and in order to obtain finance from the Commonwealth Bank. Thomas said to those present at the meeting that the Commonwealth Bank would not provide funds unless each shareholder provided a guarantee. Thomas said that as some of the Groundbreakers and shareholders in AIPC had said that they would not provide a personal guarantee then the Land must be purchased by AIP. Thomas said that the Bank would not provide funds to purchase the Land unless guarantees were provided by each shareholder. Thomas said the Bank would only provide funds to AIP if each Thomas, Arnold and Solomon gave guarantees and if they were the only shareholders in AIP. Thomas said at this meeting that it was imperative that AIP meet this condition imposed by the Bank in order to obtain the funds, and if it did not then the whole Adrenalin Project would fail as the Land could not be purchased. Thomas said that this compelled each of the Wiseheads to immediately sign the Kalus Kenny letter dated 13 February 2001, copies of which Thomas presented at the meeting. Thomas demanded that each of the Wiseheads sign there and then the Kalus Kenny letter dated 13 February 2001. Thomas said the equity which each of the Wiseheads had in the Land would be protected because AIP would grant an option to AIPC to enable AIPC to purchase the Land back from AIP at any time within 12 months of the settlement at a price to be determined by valuation at the time of the exercise of the option. Thomas said that this would protect AIPC's interest in the Land and therefore the Wisehead's interest in the Land through their equity holding in AIPC. I read the Kalus Kenny letter dated 13 April 2001 at the meeting. I did not have the opportunity to obtain legal advice in relation to the matters raised in that letter. It was made perfectly clear to me and the other Wiseheads present at the meeting that if we did not sign the letter there and then the Adrenalin Project would fail. On the basis of what Thomas had represented to me was the effect of these new arrangements I signed the Kalus Kenny letter dated 13 February 2001." 178 In his oral evidence Mr Caines said that the Kalus Kenny letter was signed "to placate a bank but not to be otherwise taken seriously and it was exactly the presentation produced by Mr Thomas to all those people." This alleged account of what Mr Thomas was supposed to have said on 21 February is not contained in Mr Caines' affidavit and was not put to Mr Thomas in cross-examination, largely because it was a recent invention of Mr Caines in the witness box, under pressure. 179 Under cross examination all Mr Caines was certain of was that Mr Thomas had said at the meeting was that CBA required "the shareholders" to give guarantees. It was evident from the Kalus Kenny letter that the shareholders would be the shareholders in AIP. 180 When it was put to Mr Caines that it would be a matter of indifference to him about whether guarantees would be required, as he was not a shareholder in AIP, Mr Caines responded in a manner which showed he was indifferent to the truth in pursuit of a favourable result in the proceeding, he said: "… the only reason why the nomination form was going to AIP … and giving those three gentlemen the sole rights on that land was because he told us that the bank would only lend the money on those grounds." 181 It would make no commercial sense, or for that matter common sense, for a bank to be interested in the identity of particular shareholders. Its sole concern was to have recourse to individuals standing behind the land purchasing company. Once AIP was that company, it was natural that its shareholders be requested to provide guarantees. I consider Mr Caines' evidence on this issue to be so far fetched that it is reasonable to consider that it is a concoction. The manner in which the evidence was given only confirms that view. 182 In his affidavit (at paragraph 26) Mr Rosewarne said that: "I have read the Caines affidavit and say that the matters deposed to regarding the BoM meeting on 21 February 2001 in paragraphs 27 and 28 are to my knowledge true and correct." 183 Mr Rosewarne also said in his affidavit that Mr Thomas displayed a hostile attitude to him at the 21 February meeting. 184 In cross-examination, Mr Rosewarne initially said he remembered the meeting and thereafter that Mr Thomas was at the meeting, but later he could not recall whether that was so. Mr Rosewarne said that "Bruce Thomas got us all to sign a piece of paper which generated a bit of discussion." He then said that Mr Thomas had said: "we had to … sign it because the banks wouldn't give him the money if we didn't sign it … I think it was the Commonwealth … I am not very clear which bank." 185 I consider Mr Rosewarne's evidence on this topic to be so vague and indefinite, and inconsistent with what he adopted at paragraph 28 of Mr Caines' affidavit, to be of no probative value on this issue. The same can be said of his adoption of Mr Caines' evidence. 186 At paragraph 21 of Mr Rossney's affidavit he attributed various statements to Mr Thomas as having been said at the 21 February meeting. At p 8 of that affidavit Mr Rossney said: "Thomas said at this meeting that the Commonwealth Bank would not provide funds to AIPC to enable it to complete the purchase of the Land unless each shareholder of AIPC provided a personal guarantee. Thomas said the Commonwealth Bank required the guarantors to be the sole shareholders of the company that was to purchase the Land. Thomas said to those present at the meeting that as some of the Wiseheads and the Groundbreakers who were shareholders in AIPC had said that they would not provide a personal guarantee that the only way in which the purchase of the Land could be completed was if a new purchaser, AIP, was nominated by AIPC as purchaser under the contract of sale having Arnold, Solomon and Thomas as the sole shareholders of AIP to give personal guarantees in order to satisfy the Bank's requirement. Thomas said at this meeting that it was urgent that AIP obtained funds from the Commonwealth Bank and if it did not then the whole Adrenalin Project would fail as the Land could not be purchased. Thomas said that the Commonwealth Bank would not advance funds to enable the purchase of the Land unless each of the Wiseheads signed and handed over to Thomas at that meting the Kalus Kenny letter of acknowledgment dated 13 February 2001. Thomas said that the equity that each of the Wiseheads had in the Land would be protected because AIP would grant an option to AIPC to enable AIPC to purchase the Land back from AIP at any time within 12 months of the settlement at a price to be determined by valuation at the time of the exercise of the option. Thomas said that this would protect AIPC's interest in the Land and therefore the Wiseheads and the Groundbreakers interest in the Land through their equity holding in AIPC. Thomas said during the course of this meeting on 21 February 2001 that the purchase of the Land by AIP would not in substance change anything as between AIPC and AIP and AIPC's shareholders. Thomas said that the important thing was to get the funds from the Commonwealth Bank to enable the purchase of the Land to be completed so that the Adrenalin Project could go forward. I had expended considerable time and effort to advance the Adrenalin Project to the stage it was at. Whilst I first read the Kalus Kenny letter dated 13 February 2001 at the meeting of 21 February 2001, I took what Thomas had said during the course of this meeting at face value and signed the letter as Thomas had insisted." 187 It is noticeable that Mr Rossney's account of the 21 February meeting in his affidavit is, in several respects, practically identical to the account given in Mr Caines' affidavit at paragraph 28. 188 However, under cross-examination Mr Rossney recalled being at the meeting but said that he "didn't know anything about the funding from the Commonwealth Bank". He later said that he knew that CBA was being pursued for finance and that he was happy Mr Thomas, Mr Solomon and Mr Arnold were providing guarantees. Mr Rossney's lack of knowledge about the CBA position was in stark contrast to what he asserted fulsomely in his affidavit evidence. 189 Mr Benson gave evidence in his affidavit at paragraph 55ff about the 21 February meeting. He said that he was present and referred to, and adopted, the affidavit evidence of Mr Caines (at paragraphs 28 and 29), Mr Rossney (at paragraphs 21-25) and Mr Rosewarne (who in turn at paragraph 26 had adopted Mr Caines' evidence). 190 At paragraph 27 Mr Benson asserted that six "representations" were made by Mr Thomas at the meeting. The first four were in materially identical terms to those alleged at paragraph 59 of the cross claim. The fifth and sixth representations were allied to the first four. 191 Under cross-examination Mr Benson said that he recalled Mr Thomas saying that CBA had been approached to provide finance, but that it had not yet indicated when finance would be forthcoming. He then said: "I recall Bruce Thomas talking about the fact that [CBA] required them - that's Bruce Ray and David - the shareholders. I don't recall his precise words." 192 He later said that the CBA required Mr Arnold, Thomas and Solomon to provide guarantees and "to be the shareholders". However, the above quote suggests Mr Benson already knew these men were the shareholders. 193 Mr Benson was generally vague in his oral evidence about what Mr Thomas said on 21 February 2001, but did say that he trusted Mr Thomas and would have signed any document Mr Thomas had put before him. 194 In summary I consider that the oral evidence of Messrs Caines, Rosewarne, Benson and Rossney about what Mr Thomas said at the 21 February meeting to vague, uncertain and unconvincing. I prefer Mr Thomas' forthright evidence about what he said at the meeting. I also note that the absence of direct puttage by counsel for the cross claimants to Mr Thomas of the constituent points of the alleged misrepresentations. Further, the minutes of the meeting, or any subsequent meetings, do not contain any reference to any alleged misrepresentations associated with CBA funding.

Fiduciary duties 195 In the course of dealing with the conspiracy to defraud, the cross claimants raised the issue of breach of fiduciary duties. It is first raised in paragraph 60B of the cross claim where it is said that certain representations made by Mr Arnold and Mr Thomas were untrue and "breached the Fiduciary Duties which they owed to AIPC …". 196 The cross claimants contended that Messrs Arnold and Thomas, since becoming directors of AIPC, owed fiduciary duties to AIPC. The cross-claimants alleged that Mr Arnold and Mr Thomas, as directors of AIPC, acted in breach of fiduciary duties owed to AIPC. They claimed that Mr Solomon was a knowing participant in those breaches: see Barnes v Addy (1874) LR 9 Ch App 244. 197 The cross claimants set out the fiduciary duties owed to AIPC by Messrs Arnold and Thomas, as directors, at paragraph 43A of the cross claim: "(i) to act honestly in the exercise of their powers and the discharge of their duties as directors of AIPC;

(ii) to act in good faith and fairness towards AIPC;

(iv) not to allow their personal interests to conflict with the fiduciary duties which they owed to AIPC;

(v) not to improperly use their position[s] as directors of AIPC to obtain directly or indirectly an advantage for themselves and/or to cause prejudice or detriment to AIPC."

198 The cross respondents said that Messrs Arnold and Thomas owed duties as directors of AIPC pursuant to Div 1 of Pt 2D.1 of the Act, but not otherwise. Such a claim makes little difference as the fiduciary duties listed by the cross claimants effectively replicate the duties imposed under Div 1 of Pt 2D.1 of the Act. 199 I do not consider that the claims of breach of fiduciary duty have been made out. The alleged breaches of fiduciary duty by Messrs Arnold and Thomas include:

· making dishonest representations to the other Board of Management members;

· failing to inform AIPC members of the existence of the option;

· failing to exercise the option on behalf of AIPC;

· refinancing AIP's borrowings in respect of the Land;

· failure to account to AIPC in relation to the purchase of Foxley Lodge; and

· failure to produce for inspection by AIPC, the financial records and books of account of both AIPC and AIP.

200 Each of these alleged breaches of fiduciary duty are dealt with below. The cross claimants also claim that as a result of the constructive trust in which AIPC was a beneficiary of the Land held by AIP, Messrs Arnold and Thomas breached fiduciary duties as the directors of AIP. Any such fiduciary duties will be dealt with below. I will address the alleged breaches of fiduciary duty in respect of AIPC first by looking at Messrs Arnold and Thomas' fiduciary duties in a broad sense. 201 Whether or not the scope of directors' fiduciary duties are as wide as that characterised by the cross claimants, it is clear directors cannot obtain for themselves a benefit or property which it is their duty to acquire for the company. In this respect, two fundamental fiduciary duties that arise are, the duty to avoid a conflict and the duty not to make a profit from position within the company. These duties are set out by Deane J in Chan v Zacharia (1984) 154 CLR 178 at 198 as follows: "…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 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." 202 A director of a company must avoid situations where there is a "real and sensible" possibility of conflict between his personal interest and the company's interests: see Boardman v Phipps [1967] 2 AC 47. Both conflicts of interest and duty, and conflicts of duty and duty, can arise. In the current case, Messrs Thomas and Arnold were placed in a position in which not only did their duty and interests potentially conflicted, but also their duty to AIPC and duty to AIP. 203 By becoming directors of both AIPC and AIP Messrs Arnold and Thomas were placed in a position where they could take advantage of the conflict, particularly when facilitating the transaction between AIP and AIPC, which transferred the interest in Foxley Lodge to AIP. The potential for exploiting that conflict continued to exist up to and after the expiry of the option permitting AIPC to purchase Foxley Lodge. 204 If a director wishes to enter into a transaction, which would otherwise amount to a breach of his or her fiduciary duties, the director must make full disclosure to the persons to whom the duty is owed of all relevant facts and obtain consent from those persons, to avoid liability. In other words, the directors must obtain fully informed consent. In Woolworths Ltd v Kelly (1991) 22 NSWLR 189 at 207, Mahoney JA held at 228:

"In such a case as this, a director may avoid the consequences of his fiduciary obligations and so derive a benefit from his dealings with the company in two ways: by obtaining the fully informed consent or approval of the company to what is proposed or has been done; or by such means as are provided in this regard by the company's constitutive documents, in this case, the articles of association." 205 Where the conflict concerns the diversion of a corporate opportunity, the disclosure required to be given is generally a declaration by the director, or directors, of the nature and extent of the director's interest in the transaction. The amount of detail required will depend in each case on the nature of the transaction and the context in which it arises: see Gray v New Augarita Porcupine Mines Ltd [1952] 3 DLR 1 at 14. 206 Before moving on to the level of disclosure, and also the type of consent, required to establish fully informed consent, it is worth addressing whether Messrs Arnold and Thomas actually met the statutory requirements in Div 2 of Pt 2D.1 of the Act, entitled 'Disclosure of, and Voting on Matters Involving Material Personal Interests'. 207 Section 191(1), in Division 2 provides: "A director of a company who has a material personal interest in a matter that relates to the affairs of the company must give the other directors notice of the interest …" 208 Section 194 provides: "If a director of a proprietary company has a material personal interest in a matter that relates to the affairs of the company and: (a) under section 191 the director discloses the nature and extent of the interest and its relation to the affairs of the company at a meeting of the directors; or (b) the interest is one that does not need to be disclosed under section 191; then (c) the director may vote on matters that relate to the interest; and (d) any transactions that relate to the interest may proceed; and (e) the director may retain benefits under the transaction even though the director has the interest; and (f) the company cannot avoid the transaction merely because of the existence of the interest. If disclosure is required under section 191, paragraphs (e) and (f) apply only if the disclosure is made before the transaction in entered into." 209 Section 191(3) provides: "The notice required by subsection (1) must: (a) give details of: (i) the nature and extent of the interest; and (ii) the relation of the interest to the affairs of the company; and (b) be given at a directors' meeting as soon as practicable after the director becomes aware of their interest in the matter. The detail must be recorded in the minutes of the meeting." 210 A relevant AIPC director's meeting was not held. However, as Messrs Arnold and Thomas were the only two directors, it would hardly have been necessary, or sufficient, for them to notify each other of their conflict. Where the only two directors of the company are both accused of taking advantage of the conflict and profiting from their position, it would be perverse that they could authorise their own breach pursuant to powers in the constitution. Where the company is managed by a board of management rather than a board of directors, I will assume that the question should be whether the AIPC Board of Management was given the notice required under s 191(3). 211 The transaction to transfer the interest in Foxley Lodge to AIP had been discussed at a number of Board of Management meetings, including the 21 February 2001 meeting. Disclosure of the conflict that existed in respect of such a transaction and the dual directorships of Messrs Arnold and Thomas was not formally put and minuted at an AIPC Board of Management meeting. Instead, a letter that set out the details of the arrangement for purchasing Foxley Lodge was distributed at the Board of Management meeting on 13 February 2001 and the minutes directly refer to the discussion concerning the letter and records that those present at the meeting all signed the letter. The letter does not expressly identify the arrangement as involving a "conflict of interest", but makes it clear who would purchase Foxley Lodge. The members of the Board of Management knew that Messrs Arnold and Thomas were directors of AIPC. They also knew that these men were directors of AIP. It was unnecessary for the letter to state explicitly that a conflict existed as the nature of the conflict was known to members of the Board of Management. 212 I find that Messrs Arnold and Thomas met the requirements of giving notice under s 191(1) and (2). However, if I am incorrect in that regard, I find that Messrs Arnold and Thomas could successfully rely on s 191(2), which provides that a director does not need to give notice of an interest under subsection (1) if: "(b) the company is a proprietary company and the other directors are aware of the nature and extent of the interest and its relation to the affairs of the company;" 213 Although Messrs Arnold and Thomas were the only directors of AIPC, I find that all members of the AIPC Board of Management were aware of the nature and extent of the interest that Messrs Arnold and Thomas had in the transaction transferring the contract of sale for Foxley Lodge from AIPC to AIP, and understood the relevance of that interest when they signed the Kenny Kalus letter agreeing to the transaction. The members of the Board of Management knew that Messrs Arnold and Thomas were directors of AIPC. They also knew that these men were directors of AIP. 214 I now return to whether Messrs Arnold and Thomas were able to avoid liability in respect of their fiduciary duties by providing fully informed consent, and note that s 193 of the Act provides: "Sections 191 and 192 have effect in addition to, and not in derogation of: (a) any general rule about conflicts of interest; and (b) any provision in a company's constitution (if any) that restricts a director from: (i) having a material personal interest in a matter; or (ii) holding an office or possessing property; involving duties or interests that conflict with their duties or interests as a director." 215 The requirements for establishing fully informed consent is a question of fact in all the circumstances of each case: see RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane's, Equity Doctrines and Remedies, 4th edition, Butterworths Lexis Nexis, Australia, 2002, p179. However, generally, it is insufficient to obtain such consent from the remaining disinterested directors and would need to be obtained by an ordinary resolution at a general meeting: see Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378 and Furs Limited v Tomkies (1936) 54 CLR 583.

216 However, the requirement that members of the company approve the transaction is qualified where the company's constitution provides otherwise: see Furs Limited v Tomkies supra. As noted by the cross respondents, Sammuels JA said in Woolworths Ltd supra at 207:

"A provision in the articles may validate a contract which would otherwise be voidable under the general law, but to obtain its protection the director must strictly comply with any conditions laid down in the provision: Imperial Mercantile Credit Association (Liquidators) v J Coleman (1873) LR 6 HL 189 at 205 per Lord Cairns (on appeal to the House of Lords); Toms v Cinema Trust Co, Ltd [1915] WN 29. The director bears the onus of proving that he has complied with the provision: Gray v New Augarita Porcupine Mines Ltd [1952] 3 DLR 1 at 14." 217 The powers and duties of Messrs Arnold and Thomas are set out in AIPC's memorandum and articles of association and include the following at clause 69: "The business of the Company shall be managed by the Directors, who may pay all expenses incurred in promoting and registering the Company, and may exercise all such powers of the Company as are not by Law or by the Regulations, required to be exercised by the Company in general meeting, subject nevertheless, to any of these regulations, to the provisions of the Law, and to such regulations, being not inconsistent with the aforesaid regulations or provisions, as may be prescribed by the Company in general meeting; but no regulation made by the Company in general meeting shall invalidate any prior act of the directors which would have been valid if the regulations had not been made." 218 The cross respondents point out that clause 77 also empowers a director of AIPC to both vote upon contracts, and sign any contract on behalf of the company, in which he or she is interested. 219 Under the part entitled 'Appointment Removal and Remuneration of Directors' the memorandum and articles of association provide at clause 68: "A. No director shall be disqualified by his office (sic) from contracting or entering into any arrangements with the Company either as vendor purchaser or otherwise nor shall any such contract or arrangement entered into by or on behalf of the Company in which any director shall be in any way interested be avoided nor shall any director so contracting or being so interested by (sic) liable to account to the company for any profit realised by any such contract or arrangement by a reason of such director holding that office or of the fiduciary relation thereby established but every director shall observe the provision of Section 231 of the Law relating to the declaring of the interest of the directors in contracts or proposed contracts with the Company or of any office or property held by the directors which might create duties or interests in conflict with their duties or interest as directors. B. A director may hold any other office or place of profit under the Company (except that of Auditor) in conjunction with his office of Director and on such terms as to remuneration and otherwise as the Board may arrange. A director may be or become a director of or hold any other office or place of office under any Company promoted by or associated with this Company or in which it may be interested whether as a vendor, shareholder or otherwise and no such director shall be accountable for any benefits received as a director or member of or holder of any other office or place of profit under such Company. C. If a director is an interested party in any contract, arrangement or transaction to which the Company is a party or in which it is involved he shall nevertheless not be disqualified either from voting upon any resolution relating to such contract arrangement or transaction or from being the person or one of the persons in whose presence the seal of the Company is affixed to any agreement contract transfer or other document what so ever relating hereto." 220 Although poorly drafted, the intention of these clauses in AIPC's memorandum and articles of association is to relax the general rule, allowing a director to act despite having a conflict of interest or conflicting duties, provided the requirements of disclosure under the Act are met. As noted above, to rely upon the clauses, the relevant provisions of the Act must have been strictly complied with. The statutory duty of disclosure, referred to in clause 68A, was previously set out at ss 231(1) and 231(1A) of the old Corporations Law. The duty of disclosure for directors of a proprietary company interested in a contract is now set out in similar terms at s 191 and s 194 of the Act. The Court has found that Messrs Arnold and Thomas did meet this statutory duty of disclosure. 221 Even if it was assumed Messrs Arnold and Thomas failed to act in accordance with AIPC's memorandum and articles of association with the degree of strictness required, the Court is satisfied that fully informed consent for the conflict was obtained from the members of the company. Although the general requirement is that the consent from the company's members is obtained by ordinary resolution at a general meeting, in the circumstances of the instant case, the Court finds that a general meeting of shareholders was not necessary. 222 In Queensland Mines Ltd v Hudson (1978) 18 ALR 1, the managing director of Queensland Mines, Mr Hudson, had taken up an opportunity that the company was financially unable to take up. Lord Scarman, delivering judgment on behalf of their Lordships of the Privy Council, said at 8 that the trial judge was correct to find that Mr Hudson had profited from his position and therefore, he was required to: "…account to the company unless he could show that, fully informed as to the circumstances, Queensland Mines renounced its interest and assented to Mr Hudson "going it alone", ie at his own risk and expense and for his own benefit." 223 At a meeting held on 13 February 1962, the minutes recorded that Mr Hudson gave a lengthy report on the negotiations that had taken place with the Tasmanian Government in respect of iron ore deposits and that it was agreed "…that in view of all the explanations and the large amount of cash that would be required to finance to project, nothing could be gained by pursuing the matter any further." In construing the events that led up to the Queensland Mines board meeting of 13 February, their Lordships said at 9 and 10: "The board of the company knew the facts, decided to renounce the company's interest, whatever it was, in the Tasmanian iron ore venture, and assented to Mr Hudson doing what he could with the licenses at his own risk and for his own benefit." Their Lordships said that following 13 February the position could be put in one of two ways. First, that from 13 February the venture was outside the scope of agency created by director and company. Second, and more relevantly to the instant case, their Lordships said at 10 that: "…on that date Queensland Mines gave their fully informed consent to pursue the matter no further and to leave Mr Hudson to do what he wished or could with the licenses. In their Lordships' opinion it does not matter how it is put. Liability to account must, as Lord Cohen said in Phipps v Boardman, supra ([1967] 2 AC at 103) "depend on the facts of the case"." 224 In the present case the need for an alternative purchaser for Foxley Lodge only arose because AIPC was unable to raise funds to complete the purchase and that the Land was purchased by AIP, at least in part, for the benefit of AIPC. The 12 month option to purchase the Land at market value, in effect, gave AIPC a 12 month extension to its right to purchase the Land, which it would not otherwise have had. It was not unreasonable for Messrs Arnold, Thomas and Solomon to refuse to put up the money for Foxley Lodge and provide guarantees on behalf of AIPC, but instead require that it be held by a company owned by them. Also, if AIP did not exercise the right to purchase the Land, that right would have lapsed, the project would have lost the opportunity to use the property and AIPC would have lost its deposit. 225 The members of AIPC's Board of Management and the Groundbreakers knew the facts surrounding the purchase of Foxley Lodge and consented to another entity, AIP, purchasing the Land at its own risk. It was no secret that Messrs Arnold and Thomas were directors of both AIPC and AIP. All but three members of the company signed the Kalus Kenny letter consenting to the arrangement whereby AIP would purchase the Land. The practice of AIPC was that the Wiseheads made all the decisions after consultation at Board of Management meetings. The Groundbreakers were friends and acquaintances of Board of Management members. If a general meeting were to be held, it would be fair to say that either a number of Groundbreakers would not have attended or that Mr Solomon would have held the majority of their proxy votes. 226 The Court is aware that it is no answer to a breach of fiduciary duty that the company could not take up the opportunity: see Warman International Ltd v Dwyer (1995) 182 CLR 544 at 558. If directors can justify their actions on the basis that the company was financially unable to take up an opportunity, they may be tempted to refrain from exercising their best efforts on behalf of the company: see Regal Hastings supra. Further, directors cannot argue that the transaction from which they benefited was fair to the company. A fiduciary's liability does not require there to be actual fraud, dishonesty or bad faith:see Regal Hastings supra. These rules ensure that directors make impartial decisions in the company's interests. However, the facts in this case go to show the level of understanding amongst the Board of Management members of AIPC's situation in respect of the purchase of the Land. 227 Instead of a general meeting, Messrs Arnold and Thomas, with the assistance of Mr Solomon, ensured that nearly all members of the company signed the Kalus Kenny letter. It may have been preferable that AIPC held a general meeting to make an ordinary resolution authorising the transfer of the right to purchase Foxley Lodge to AIP. However, in the circumstances, and in the context of the events leading up to the 21 February 2001 meeting, and given the nature of the company and its past practices, the Court finds that the various Board of Management meetings and the Kalus Kenny letter were sufficient for the purpose of obtaining the relevant fully informed consent. 228 Below each allegation of breach of fiduciary duty made in the cross claim, by reference to the relevant paragraph of the cross claim is examined.

Representations 229 At paragraph 60B of the cross claim, it is alleged that Messrs Arnold and Thomas breached their fiduciary duties by making false and untrue representations. The Court has earlier in the reasons for judgment at [155] to [194] rejected the claims that Messrs Arnold and Thomas made false or untrue representations. Consequently, it rejects the claim that they breached their fiduciary duties in this respect.

Nomination of AIP as purchaser 230 The next alleged breach of fiduciary duty arises in respect of Mr Arnold's execution of a real estate nomination form in which AIPC nominated AIP as he purchaser of the Land. This alleged breach of fiduciary duty is at paragraph 61 of the cross claim. The cross claim does not say how the execution of the nomination form involved Mr Arnold in a breach of a fiduciary duty. The immediate reaction of an impartial observer to the execution of the nomination form is that it was action consequent upon the agreement by the Wiseheads reflected in the Kalus Kenny letter. 231 In their written submissions counsel for the cross claimants submit that the events after 21 February 2001, including settlement of the land purchase on 9 March 2001 and registration of AIP's legal title on 28 March 2001, are all tainted by breach of fiduciary duties by Thomas and Arnold, with the knowing participation of Solomon. In the absence of any other breaches of fiduciary duty being established, no breach of fiduciary duty is made out in respect of the 28 February 2001 execution of the real estate nomination form, replacing AIPC with AIP as the purchaser of the Land. The claim in paragraph 61 of the cross claim, insofar as it relates to breach of fiduciary duty, is not made out.

Existence of Option 232 At paragraph 63 of the cross claim it is alleged that Arnold and Thomas breached their fiduciary duties by not disclosing to other "Wiseheads" that the option agreement was executed, or when it would expire. That claim is without foundation. It is contradicted by the following evidence:

• the existence of the option was referred to in the Kalus Kenny letter,
• in a letter to Mr Caines and Mr Benson dated 1 April 2001, Mr Thomas said, under the heading "para 8" as follows: "I would also point out to you, with the rest of us are signatories (sic) to a document which enabled A.I.P to buy the land and put an offer to A.I.P.C the opportunity to purchase such land from AIP. At market value within twelve months from settlement."
• In a draft business plan emailed by Mr Arnold to Mr Caines and Mr Benson, Mr Arnold wrote: "The land is owned by [AIP] and [AIPC] holds an option to acquire the site at market value." 233 At no time did Mr Caines and Mr Benson say to the cross respondents, "what option?" or "what are you talking about?" The existence of the option for 12 months on and from settlement was part and parcel of what was agreed to in the Kalus Kenny letter by those who signed it. No breach of fiduciary duty is established with reference to paragraph 63 of the cross claim.

Exercise of Option 234 At paragraph 68 of the cross claim it is alleged that Mr Arnold and Mr Thomas acted in breach of their fiduciary duties as directors of AIPC when as the directors of AIP they:

• procured AIPC not to exercise the option or failed to exercise it while it existed so that the Land would exist solely to benefit themselves and Mr Solomon;
• failed to inform the other "Wiseheads" that the option had been executed at the time of its expiry. 235 The second dot point in the previous paragraph has already been dealt with. I will now deal with the first dot point. 236 Messrs Arnold and Thomas had a clear conflict of interest as directors of both the company that owned the Land and the company holding the option. Just as Messrs Arnold and Thomas obtained consent for their conflict of interest in respect of the transaction between AIP and AIPC at the meeting on 21 February 2001, consent was also given for the conflict that arose in respect of the option between those two parties. 237 Messrs Arnold and Thomas could be found to have breached their duty that they not make a profit from their position within AIPC if they procured AIPC not to exercise the option. I am prepared to assume that AIPC's failure to exercise the option would profit Messrs Arnold and Thomas, as the rezoning of the Land had been approved and the Land had been increasing in value during 2001. However, the question of whether Messrs Arnold and Thomas were responsible for the failure to exercise the option is much more doubtful. 238 Where a director holds a special power or influence, the director is under a duty to actively protect the company's interests. 239 In my view, Messrs Arnold and Thomas did not breach their fiduciary duty not to profit from their position and did protect AIPC's interests. AIPC was not, on the evidence before the Court, ever in a financial position to exercise the option. After the expiry of the option Messrs Arnold and Thomas expressed a preparedness to extend the option in the event finance was obtained and also engaged in discussions on options for merging AIP and AIPC. In those circumstances it is bizarre to suggest that Mr Arnold and Mr Thomas procured AIPC not to exercise it. 240 A consequence of the failure to exercise the option was that the Land remained in AIP's hands. However the evidence does not support the view that the option was not exercised solely to benefit AIP's shareholders. It was not exercised because AIPC did not have the funds to call on the option. This remained the case even after the option's expiry, depending on one's view of when the option expired, ie. March or May, depending on the effect of the irregularity in the affixing of the seal, referred to at [73] above. 241 The cross claimants referred to the fact that the option agreement was not tabled at any AIPC Board meeting or shown to any Board members other than the cross respondents. Although it is reasonable to expect the option to be tabled at a Board of Management meeting, failure to do so does not constitute a breach of fiduciary duty. The Court is satisfied that the existence of the option, and its general terms, was not hidden from any member of AIPC and most likely known to all members of the Board of Management and those Groundbreakers who signed the Kalus Kenny letter. Although members of the Board of Management may not have known the commencement date of the option agreement, and therefore the exact date of its expiry, they were aware that it was a 12 month option. 242 The cross claimants also submitted that it is not to be put that AIPC would not have had the financial resources to pay the market value of the Land in early 2002. They contended that a company officer cannot obtain for himself a benefit which is his duty to acquire for the company. 243 These submissions defy reality. The reality of the situation was that AIPC was not in any position to exercise the option. What, one may ask rhetorically, were the cross respondents supposed to do in that circumstance? Although AIPC does not necessarily have to prove that it had the money to purchase the Land from AIP where a breach of fiduciary duty is found, AIPC's inability to purchase the Land is a factual issue going to whether Messrs Arnold and Thomas actually abused their position as directors. 244 In the circumstances, it was not necessary for a general meeting of shareholders to decide not to exercise the option. The Board of Management was well aware of its opportunity to exercise the option, but was simply not in a position to do so. 245 The cross claimants' submissions on this aspect of their case are unmeritorious. Indeed as the cross respondents point out in their written submissions: p42 para 112 "… it was in fact in the interests of AIP and the cross respondents if AIPC could exercise the option. By February 2002 the land had been valued at $6 million [ACB 1310] and was known to the respondents [Rossney T 977] and this sum had been identified in fund flow budgets for the project [AUB 292]. Had the option been capable of being exercised, then the risks to AIP and the cross-respondents would have been capped, the guarantees of Arnold, Thomas and Solomon could be discharged and as the principal shareholders in AIP they would each enjoy a substantial profit on the Land transaction."

Refinancing 246 At paragraph 69 of the cross claim, it is alleged that between April 2002 and May 2003, Mr Arnold and Mr Thomas, in breach of their fiduciary duties, procured AIP to:

• refinance its borrowings from CBA with a private financier, H G and R Finance Limited ("HGR")
• borrow further funds from HGR to enable some moneys to be paid to each of them and to Mr Solomon thereby further encumbering the Land, preferring their own interests to that of AIPC. 247 There is no substance in that allegation. By April 2002 it was clear that AIPC was not in a position to purchase the Land. The refinancing of the Land did not in any way impact on AIPC.

Failure to account to company and produce financial records and books 248 In paragraph 70 of the cross claim, it is contended that Mr Arnold and Mr Thomas breached their fiduciary duties by wrongfully failing and refusing to account to AIPC in relation to the purchase of the Land or to produce for inspection the financial records and books of account of AIPC and AIP. That contention appears not to have been pressed in final submissions. It is difficult to see any basis upon which AIP or Messrs Arnold and Thomas are bound to account to AIPC in respect of the purchase of the Land, particularly in light of the Court's findings above. 249 It is also difficult to see any basis upon which AIP or Messrs Arnold and Thomas are required to produce financial records and books of account of AIP to any of the cross claimants, given those cross claimants are not members of AIP. The same can be said in respect of AIPC in light of the absence of a request for them. There is no evidence of any application for orders under Part 2F.3 of the Act, entitled 'Inspection of Books', by any member of AIPC. Further, the Court is also not aware of any request by a member of AIPC pursuant to s 246G(1) of the Act. 250 AIPC's memorandum and articles of association at clause 93 provide: "The directors shall cause proper accounting and other records to be kept and shall distribute copies of the balance sheets as required by the Law and shall from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the accounting and other records of the Company or any of them shall be open to the inspection of members not being directors, and no member (not being a director) shall have any right of inspecting any account or books or paper of the Company except as conferred by statute or authorised by the directors or by the Company in general meeting." 251 There is no evidence that Messrs Arnold and Thomas breached their obligations under the Act or AIPC's memorandum and articles of association in respect of the inspection of books of the company.

Conclusion 252 I reject each and every allegation made by the cross claimants against the cross respondents on the topic of breach of fiduciary duties. Whatever be the content of that duty, and assuming for the purposes of the argument that fiduciary duty is as is alleged by the cross claimants at paragraph 43A of the cross claim, no breach of fiduciary duty has been established. On the contrary, the cross respondents acted honestly and appropriately to secure Foxley Lodge for the project so that the project may have a prospect of being brought to fruition. 253 There is no evidence to suggest that Messrs Arnold and Thomas: · did not act honestly in the exercise of their powers and the discharge of their duties as directors of AIPC;

· did not act in good faith and fairness towards AIPC;

· allowed their personal interests to conflict with the fiduciary duties which they owed to AIPC; or

· improperly used their position[s] as directors of AIPC to obtain directly or indirectly an advantage for themselves and/or to cause prejudice or detriment to AIPC.

254 As the Court has found that Messrs Arnold and Thomas have not breached their fiduciary duties as directors of AIPC, the claim that Solomon was knowingly concerned in, and a party to, the breaches falls away.

Conspiracy to defraud 255 The cross claimants alleged that Messrs Arnold, Solomon and Thomas, "wrongfully and maliciously conspired and combined amongst themselves to deprive and injure AIPC". 256 The cross-claimants asserted that the conspiracy to procure AIP as purchaser of Foxley Lodge was pursued through the wrongful conduct of Messrs Arnold and Thomas, in breach of their fiduciary duties, beginning and continuing from 25 August 2000. It is alleged that the making of false representations by Mr Thomas, referred to above, were also acts constituting the conspiracy.

257 The conspiracy was said to also be furthered by:

· Mr Arnold executing a real estate nomination form in which AIPC nominated AIP as purchaser of Foxley Lodge. · Messrs Arnold and Thomas' failure to disclose to the other Wiseheads that the option agreement was executed on 9 March 2001 (or alternatively on 21 May 2001, when the correct seals were affixed) or that the option period would expire on 9 March 2002 (or alternatively 21 May 2002). · Mr Arnold and Mr Thomas procuring AIPC not to exercise the option, failing to inform the other Wiseheads that the option agreement had been executed or when the option would expire and ensuring that the increased value of the Land would benefit AIP and its shareholders solely. 258 The alleged breaches of fiduciary duty by Messrs Arnold and Thomas in respect of AIP's refinancing of its borrowings, its failure to account to AIPC in relation to the purchase of Foxley Lodge and its failure to produce for inspection by AIPC, the financial records and books of account of both AIPC and AIP are alleged as being performed in furtherance of the conspiracy by them to: "(a) Deprive AIPC of the benefit of the increased value in the land;

(d) To obtain for themselves the whole of the benefit of the increased value of the land;

(e) To exclude contrary to the terms of the Adrenalin Project Agreement the Wiseheads from participating equally in the assets of AIP which includes the land." 259 Mr Solomon, as AIPC company secretary since 13 December 2000, is said to have been knowingly concerned in, and a party to, the conspiracy, including the breaches of fiduciary duties by Messrs Arnold and Thomas. 260 All claims of conspiracy to defraud are denied by the cross respondents. 261 To establish conspiracy to defraud it is necessary to identify the form of an agreement or combination constituting the conspiracy. An intention to injure should normally exist. Also, although the offence has been defined in broad terms, there should be proof that the conspirators acted fraudulently or dishonestly. 262 It has been alleged by the cross claimants that the cross respondents acted in combination to gain control of AIP and get the other members of the Board of Management to sign the Kalus Kenny letter in order to exclude the other Wiseheads from an interest in the Land. The conspiracy was alleged to have been furthered by breaches of fiduciary duty, misrepresentations and, it can be presumed, general acts of dishonesty. 263 The Court does not find that the cross respondent's acted dishonestly, or fraudulently. Such is reflected in the findings of fact set out above, and by the fact that the Court has preferred the evidence given by the cross respondent's to that given by the cross claimants. Given the claims concerning misrepresentation and breach of fiduciary duty have been dismissed, it follows that the allied claims of conspiracy are also dismissed. Once AIP became the owner of the Land in March 2001, it was entitled to use that Land as it saw fit, subject to the law. 264 The Court rejects the contentions of conspiracy to defraud made in respect of the alleged representations referred to at paragraph 59 of the cross claim, which I have found were not made by Mr Thomas. The Court also rejects the conspiracy to defraud allegations arising from the signing of the real estate nomination form referred to at paragraph 51 of the cross claim. The same applies to the alleged conspiracy insofar as it relates to the option agreement as referred to in paragraphs 63 and 68 of the cross claim and the accounting to AIPC and provision of records as referred to at paragraph 70. The Board of Management was aware of the option. The Court rejects the contention that Messrs Arnold, Thomas and Solomon conspired to prevent the option from being exercised. 265 The allegation that the cross respondents set out to deprive AIPC of the benefit of the increased value of the Land and desired to keep it for themselves is without foundation. The allegation that in some way the cross respondents gained control of AIPC and AIP by procuring Mr Rosewarne to resign from various offices in each company is baseless. Mr Rosewarne resigned willingly and voluntarily as a director of AIP and AIPC. His resignation was not controversial until the filing of the counter claim. Further, at least as at 21 February 2001, there was no term of the project agreement which bound each "Wisehead" to participate equally in the assets of AIP. That concept is totally at odds with what was agreed to in signing the Kalus Kenny letter. 266 Further, it is extremely difficult for the Court to accept that the cross respondents conspired to defraud AIPC in circumstances when it was never suggested to Mr Solomon or Mr Thomas, when cross-examined, that either of them had dishonestly set out to perpetrate a fraud. 267 The allegations of conspiracy to defraud are baseless. The events that occurred in connection with AIP's role as a purchaser of the Land were agreed to in writing by the vast majority of AIPC members, by their acceptance of the terms laid down in the Kalus Kenny letter.

Adrenalin agreement and constructive trust 268 At paragraphs 73 and 74 of the cross claim, the cross claimants alleged that AIP holds the Land on constructive trust for AIPC and as such owed fiduciary duties to AIPC. 269 The breach of trust and constructive trust claim is based upon the acceptance of the allegations raised at paragraphs 44 to 56 inclusive, concerning the existence of an agreement between the Wiseheads as to how the project would operate. The alleged terms of the agreement, set out at paragraph 48 of the cross claim, included the term: "Each of the Wiseheads would have an equal share in the assets of the company or companies which would undertake the development and operation of the dual purpose motorsport facility which was the Adrenalin project." The cross-claimants further alleged that another part of the agreement was that: "Any funds advanced by the Wiseheads for the purposes of the Adrenalin Project were to be treated as loan funds." 270 The cross claimants said that as a result of the agreement AIP holds the Land in constructive trust for AIPC and, consequently, owed fiduciary duties to AIPC. 271 The allegations concerning the existence of an agreement and the constructive trust are denied by the cross respondents. In any event, the cross respondents said that the basis upon which the project was to be conducted was varied by agreement at a meeting held on 21 February 2001 and by the Kalus Kenny letter of 13 February 2001. 272 Even accepting the existence of the agreement in the terms alleged, I consider that the events of 21 February 2001 resulted in there being broad agreement amongst the Wiseheads to change the basis upon which the project would proceed. This change was made to ensure that the project went ahead. The Kalus Kenny letter and the changes in the direction of the project were agreed to at the "Wiseheads" meeting on 21 February 2001. 273 A constructive trust arises by operation of law rather than from the intention of the parties, express or implied. It is imposed as a result of the conduct of the trustee. A constructive trust may be imposed to prevent fraud which would otherwise arise if a person was deprived of property that the person is entitled to, or that the denial of the trust would be unconscionable. It is also used to make persons accountable for property where justice would require that they be accountable and where there has been unjust enrichment. 274 The existence of a constructive trust has not been established either as a result of any agreement that existed between the Wiseheads, or as a result of fraud or other unconscionable conduct. The Court has found that the cross respondents have not acted fraudulently, unconscionably or been unjustly enriched. 275 Constructive trusts are, in certain situations, remedial. A constructive trust may be declared where the directors of AIPC were personally liable to account for gains obtained as a result of a breach of fiduciary duty. As Messrs Arnold and Thomas have not been found to have breached any fiduciary duties as directors of AIPC, a remedial constructive trust does not arise. 276 The Court rejects the cross claimant's contention that the issued capital of AIP is held on constructive trust for AIPC. The cross respondents hold their shares in AIP in their own right. AIP has been the registered owner of Foxley Lodge since 28 March 2001. The cross respondents each hold 4 of the 12 issued shares in AIP. AIPC has no interest in the Land or in any proceeds from the sale of it. 277 Related claims are made in respect of Messrs Arnold, Thomas and Solomon as being knowingly concerned in breaches of AIP's trustee duties. At paragraph 77 of the cross claim, the cross claimants alleged they knew of and participated in the breaches of trustee's duties committed by AIP. As the Court has found that AIP did not hold the Land on constructive trust for AIPC, Messrs Arnold, Thomas and Solomon cannot be said to have known of and participated in breaches of trust that did not happen.

Statutory Duties 278 At paragraph 79 of the cross claim the cross claimants allege that the cross respondents, as officers of AIPC, owed duties to AIPC under the Actwhich they have breached, resulting in contraventions of ss 180 to 183 of the Act. These claims are denied by the cross respondents. 279 The statutory duties, in essence, replicate common law fiduciary duties as characterised by the cross claimants. Section 180(1) provides: "A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they: (a) were a director or officer of a corporation in the corporation's circumstances; and (b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer. 280 Section 181(1) provides: "A director or other officer of a corporation must exercise their powers and discharge their duties: (a) in good faith in the best interests of the corporation; and (b) for a proper purpose." 281 Section 182(1) provides: "A director, secretary, other officer or employee of a corporation must not improperly use their position to: (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation." 282 Section 183(1) provides: "A person who obtains information because they are, or have been, a director or other officer or employee of a corporation must not improperly use the information to: (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation." 283 The allegations said to constitute the breach of those obligations are ones which have already been elsewhere rejected by the Court: see [195] to [254]above. No separate or independent basis was advanced for the alleged breaches. This aspect of the cross claim is also without substance.

Oppression 284 The cross claimants allegation concerning oppressive conduct under Part 2F.1 of the Actreferred to much of the conduct set out in each of the other cross claims dealt with above. At paragraph 84 of the cross claim, the cross claimants applied for an order under s 233 of the Act on the basis that Messrs Arnold, Thomas and Solomon, as directors and officers of AIPC, have conducted the affairs of AIPC in a manner which is contrary to the interests of members of AIPC and oppressive to, unfairly prejudicial to and unfairly discriminatory against each other member of AIPC. 285 Section 232 provides that the Court may make an order under s 233 in respect of oppression in the form conduct of the company's affairs, an actual or proposed act or omission by or on behalf of a company ora resolution, or proposed resolution, of members or a class of members of the company. An application under s 233 can be made by a member of the company. 286 The claim of oppression is denied by the cross respondents. The cross respondents point out that the cross claimants do not constitute a minority of AIPC and, consequently, are not in a position to oppress anyone. However, they say that if they are liable to the cross claimants for any default or breach in their capacity as AIPC officers they maintain that they always acted honestly and ought fairly be excused from any alleged liability in accordance with s 1318 of the Act. 287 The provisions in Part 2F.1 of the Act, where ss 232 and 233 are found, are interpreted broadly and in a flexible manner, particularly in respect of small closely held companies, as they do not necessarily have the additional protections found in the regulation of large public companies. Alleged unfair conduct is to be looked upon as a question of commercial fairness judged objectively from the point of view of a commercial bystander: see Dynasty Pty Ltd v Coombs (1995) 13 ACLC 1290 at 1296. If the conduct is that of a director, the bystander is taken to be a director: Wayde v New South Wales Rugby League Ltd (1985) 61 ALR 225. 288 Importantly, the Court will look at fairness in context and may undertake a balancing exercise in assessing conduct: see HA Ford, RP Austin and IM Ramsay, Fords Principles of Corporations Law, 11th edition, Butterworths Lexis Nexis, Australia 2003, at p 615. The conduct of the directors may have an overriding positive result for both the company as a whole, and members as individuals. 289 The Court rejects the cross claimants submissions based on findings made above. There is no evidence of any overbearing and oppressive conduct, or omissions, contrary to the interests of members, which would establish a basis for the cross claimants seeking relief for oppression. There is also no evidence of unfairly prejudicial or discriminatory conduct, or omissions. 290 Although Messrs Arnold, Thomas and Solomon diverted an opportunity away from AIPC to AIP, the transaction was in the interests of AIPC, in that it kept the project alive, and was performed with the approval of the members of AIPC. 291 The Court finds that Messrs Arnold, Thomas and Solomon acted honestly and appropriately to secure the Land for the project, in the absence of which the project would not have survived beyond early 2001. Despite allegations that Mr Thomas made misrepresentations, there is no evidence of conduct by the cross respondents at AIPC Board of Management meetings that would be considered oppressive, for the purposes of s 232 of the Act. In any event, those allegations have been found to lack substance. 292 In respect of the AIPC directors' meetings on 9 March 2000, 25 August 2000 and 13 December 2000, no evidence has been provided to the Court to show why, at the time those meetings were held or once members of AIPC had read the Kalus Kenny letter, those directors meetings were oppressive for the purposes of s 232 of the Act. The minutes for the 9 March 2000 meeting indicate Mr Rosewarne was in attendance. Consequently, it should have been no secret that the meeting occurred. There was nothing that occurred at the 25 August 2000 and 13 December 2000 meetings that impacted on AIPC members. In August 2000, AIP was a company without a bank account. AIP and its ownership only became relevant after AIPC members had signed the Kalus Kenney letter setting out the transaction between AIPC and AIP. 293 The Court finds that all conduct, alleged by the cross claimants to have been a breach of fiduciary duty, is not conduct which could be characterised as oppressive under Part 2F.1 of the Act. Messrs Arnold, Thomas and Solomon did not:

· procure the Wiseheads to sign the Kalus Kenny letter;

· fail to exercise the option on behalf of AIPC; and

· refinance AIP's borrowings in respect of the Land,

in a way that was contrary to the interests, or oppressive to, or unfairly discriminatory against, a member or members of AIPC.

The leave to proceed issue 294 As all the claims made by the cross claimants, including AIPC, have been rejected, there is no need to consider whether the Court should grant leave for the cross claim to be brought on behalf of AIPC under ss 236 and 237 of the Act.

Other issues 295 The cross claim is dismissed. 296 To the extent that any other submissions have been reused in support of the cross claim, but do not bear on any pleading in the cross claim, the Court is of the view that such a matter is not properly before it. Senior counsel for the cross claimants was explicitly content to rest on the cross claim as pleaded. The Court should not embark on issues which are not strictly before it. 297 It is also unnecessary to deal with certain matters raised in the cross respondents' defence to the cross claim, given that the cross claim has wholly failed. Those issues include the matters raised as follows:

• abandonment of interests in the Land (paragraph 55 );
• estoppel by conduct (paragraph 57 to 60);
• estoppel by convention (paragraph 61 - 62);
• relief from liability under s 1318 of the Act (paragraph 63).

The applicant's claim 298 Having rejected every contention raised by the cross claim, the Court finds that the cross respondents hold their shares in AIP in their own right. AIP has been the registered owner of Foxley Lodge since 28 March 2001. AIPC has no interest in the land of in any proceeds from the sale of it. 299 In respect of AIP shareholdings, AIP submitted that Mr Rossney, Mr Benson and Mr Knight are entitled to the benefit of contributions made to the company. The respondents contended that those men contributed money to AIP rather than contribute funds for the settlement of the Land purchase. 300 The respondent's contentions about the option agreement, raised in the defence, essentially mirror those which were made by the cross claimants and rejected by the Court. 301 The respondents, who include Mr Rossney, Mr Benson and Mr Knight contended that they loaned money variously to AIPC and/or AIP but did not contribute to AIP in a way which would entitle them to have equity in AIP. Their submissions in that regard stem from their primary position that the issued shares in AIP are held on constructive trust for AIPC. I have rejected that primary submission. 302 The AIP draft shareholders report dated 14 November 2002 sets out the share allocation. The arrangement allocates $1,170,000 to each of Messrs Arnold, Thomas and Solomon as "Funds for shares", despite the fact they only contributed $300,000, $350,000 and $350,000 respectively. On the other hand, Mr Rossney and Mr Benson were each allocated $30,000 as "Funds for shares", for the $30,000 they contributed, and Mr Knight $50,000 "Funds for shares", for his $50,000. Presumably, such an allocation has been made because Messrs Arnold, Thomas and Solomon provided the guarantees for the CBA loan. However, it is not clear when, and by whom, such an allocation was decided upon or whether it accords with the decision made at the Board of Management meeting held on 13 January 2001. 303 It is worth reproducing the relevant part of the minutes of the 13 January 2001 meeting, which state: "It was agreed by Liam Rossney, Peter Benson, David Arnold and Bruce Thomas, that their monies paid previously ($30,000 on the basis of the arrangement proposed at the board meeting on the 30/06/00) would now form their contribution towards the land purchase. Ray Solomon agreed to contribute a further $30,000 under this arrangement. · In the case of Liam Rossney and Peter Benson, their share of the land would depend on the percentage of their contribution as part of the overall cash or equity requirements by the bank. · For example; if the amount required by the bank were $900,000, their $30,000 contribution would entitle them to a 3% share of the land." 304 The fairest course that commends itself to the Court is to allow the respondents to make further submissions to the Court on the question of the entitlements of Messrs Rossney, Benson and Knight, if any, to the share capital of AIP. This can be addressed as part of the brief submissions of the parties on the question of the appropriate orders to be made as a consequence of these reasons for judgment. 305 Otherwise, it is sufficient to note that I consider that the claims made in the statement of claim on the material issues arising in the case have been established, save what I might describe as issues going to the "spoiling tactics" of the respondents with respect to AIP's attempts to sell the Land. The issues arising therefrom (ie at paragraphs 11 ff of the statement of claim) do not appear to have any continuing relevance.

orders 306 The parties are required to send in minutes of the orders they contend the Court should make, together with brief accompanying submissions consistent with these reasons by 31 March 2004. A Mention will be held at 10.00am on 26 April 2004 in an effort to overcome any dispute about appropriate orders. In the event the parties are in agreement as to orders, the Mention will be abandoned. I certify that the preceding three hundred and six (306) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Marshall.

Dated: 10 March 2004 Counsel for the Applicant: Mr M Dreyfus QC with Mr M Robins

Counsel for the Respondents: Mr J Gilmour QC with Mr S Anderson

Date of Hearing: 5, 6,16 and 17 June; 8, 9, 10, 11, 12, 15, 16, 17, 18 and 19 September; 22 October 2003