HEARD : 27 NOVEMBER 2013, 2 DECEMBER 2013, 10 DECEMBER 2013, 16 DECEMBER 2013, 30 - 31 JANUARY 2014 & FINAL WRITTEN SUBMISSION ON 19 FEBRUARY 2014

Equity - Fiduciary duties - Whether mere existence of conflict is actionable - Whether a breach of conflict rule requires a fiduciary actually to act in a position of conflict and pursue or prefer a personal interest - Judgment pars [263] - [275]

Equity - Fiduciary duties - Whether a clause of a constitution of a trustee company can exclude all fiduciary duties - Consistency with s 601FC Corporations Act 2001 (Cth) - Effect on fiduciary duties owed by directors to the company - Judgment pars [276] - [284]

Equity - Equitable compensation - Where fiduciary duties owed by directors to a company - Whether the company can sue its directors for loss if contract entered into at an undervalue by trustee company on behalf of beneficiaries - Misleading to ask whether fiduciary duties are owed to the company 'in its own right' or 'as trustee' - Irrelevance to the award of compensation of whether the trustee will hold any recovery on trust for beneficiaries - Judgment pars [300] - [331]

Equity - Equitable compensation - Difference between substitutive compensation and reparative compensation - When substitutive compensation is available - Judgment pars [333] - [385]

Equity - Equitable compensation - Causation - 'Common sense' test of causation - Scope of liability for consequences - Need to identify precisely the scope of duty owed - Judgment pars [390] - [399]

Corporations - Meaning of 'compensation' and causation requirements in s 1317H of the Corporations Act - Judgment pars [434] - [452]

Corporations - Effect of deregistration of a registered scheme on 'compensation' in s 1317H of the Corporations Act - Judgment pars [453] - [461]

Corporations - Meaning of 'knowingly concerned in' in s 79(c) of the Corporations Act - Requirement of 'practical connection' with at least one element of the contravention - Judgment pars [285] - [298]

Limitation of actions - Application of limitation period by analogy - Limitation period for breach of equitable duty of care and skill by analogy with breach of common law duty of care and skill and by analogy with s 180 of Corporations Act - Judgment pars [206] - [213]

Corporations Act 2001 (Cth)

Limitation Act 1935 (WA)

Claim dismissed in part; further consequential submissions required

Allsop J 'Causation in Commercial Law' in Degeling S, Edelman J and Goudkamp J (eds) Torts in Commercial Law (2011)

Blackstone W, The Commentaries on the laws of England, RM Kerr (ed) (7th edn, Book III, 1775)

Elliott S, 'Compensation Claims against Trustees' DPhil thesis, University of Oxford (2002)

Elliott, S & Mitchell, C 'Remedies for Dishonest Assistance' (2004) 67 MLR 16

Getzler J 'Duty of Care' in Birks P and Pretto A Breach of Trust (2002)

Glister J 'Equitable Compensation' in Glister J and Ridge P Fault Lines in Equity (2012)

Gummow W 'Compensation for Breach of Fiduciary Duty' in T G Youdan (ed) Equity, Fiduciaries and Trusts (1989)

Heydon J D 'Are the duties of company directors to exercise care and skill fiduciary?' in Degeling S and Edelman J, Equity in Commercial Law (2005)

Heydon J D, 'Causal relationships between a fiduciary's default and the principal's loss' (1994) 110 LQR 328

Hoffmann, L 'Causation' (2005) 121 LQR 592

Lewin T A Practical Treatise on the Law of Trusts and Trustees (1837)

Meagher R, Heydon J D, Leeming M, Meagher Gummow and Lehane's Equity Doctrines and Remedies (4th ed, 2002)

Millett P 'Equity's place in the law of commerce' (1998) 114 LQR 214

Mitchell C, 'Equitable Compensation for breach of fiduciary duty' (2013) 66 CLP 307

Rickett C, 'Equitable Compensation: Towards a Blueprint?' [2003] SydLawRw 3; (2003) 25 Sydney L Rev 31

Smith L, 'The measurement of compensation claims against trustees and fiduciaries' in Bant E and Harding M (eds) Exploring Private Law (2010)

Stapleton J, 'Reflections on Common Sense Causation in Australia' in Degeling S, Edelman J and Goudkamp J (eds) Torts in Commercial Law (2011)

1 This case involved a number of factual disputes and an array of legal issues. Some of the many legal issues raised in this case are as follows.

(i) The nature of duties owed by a director to a company which is a corporate trustee and responsible entity: [300] [331].

(ii) The scope of a claim for breach of fiduciary duty based on a potential conflict of duty and duty: [263] [275].

(iii) The exclusion of fiduciary duties: [276] [284].

(iv) The meanings of 'equitable compensation': [333] [359].

(v) Principles of substitutive compensation in relation to company directors: [363] [375].

(vi) The operation of principles of causation in equity: [390] [399].

(vii) The effect in equity of new intervening acts: [421] [430].

(viii) The meaning of 'concerned in' for the requirement of 'knowingly concerned in' in s 79(c) of the Corporations Act 2001 (Cth): [285] [298].

(ix) The operation of causation principles in relation to s 1317H of the Corporations Act: [439] [452].

(x) The effect of deregistration of a registered scheme on a claim for compensation under s 1317 of the Corporations Act: [453] [461].

(xi) The operation of principles of limitation by analogy: [206] [213].

2 The plaintiff, Agricultural, is the responsible entity (and trustee) of a managed investment scheme. The first and second defendants, Messrs Jackson and Goff, are directors of Agricultural. The third defendant, Bunbury Centro, is a related party to Agricultural.

3 On 24 June 2002, Bunbury Centro sold a property in Kalgoorlie to Agricultural. That Contract, which I capitalise for clarity, was at the heart of the trial. The sale price was $2,250,000. An additional amount, based on calculation of various costs, but to a maximum of $1,665,051, was payable for a nonexclusive Licence (which I also capitalise for emphasis) to use 'all of the information and know how in the possession' of Bunbury Centro necessary for development of the property as a hotel.

4 Messrs Jackson and Goff signed the Contract on behalf of Bunbury Centro (as vendor). They also signed on behalf of Agricultural (as purchaser). As Messrs Jackson and Goff were aware, Agricultural planned to develop the Kalgoorlie Property into a hotel.

5 The development of the Kalgoorlie Property was a failure. Agricultural entered an allinclusive 'turnkey' contract, described as a Project Management Agreement, for the development of the Kalgoorlie Property at a cost of $18.5 million. But the hotel was sold on 21 June 2007 for $10.15 million.

6 There were years of delay before this action in relation to the 2002 Contract was brought on 4 June 2008. Further delay ensued before the matter was admitted to the Commercial and Managed Cases list in 2012. The pleadings were inherited by the current solicitors and counsel for Agricultural. Some of the amendments that they made to the pleadings involved matters which were timebarred. The timebarred matters included new allegations that Messrs Jackson and Goff breached their duties by entering into the 'turnkey' contract for the development which was alleged to have only marginal and speculative profitability.

7 A vast number of breaches were pleaded. The focus of many of them was upon the entry into the Contract and the value which Agricultural received in exchange for the purchase price and Licence fee. The process of analysing the statement of claim has been like battling the Lernaean Hydra. As soon as consideration of a breach is completed, another alleged breach, sometimes nearly identical, appears to rise from the same facts. A further difficulty is that many facts asserted in submissions relied upon documents which, by consent of the parties or by ruling, were not admitted for proof of the truth of their contents.[1]

8 My consideration of the myriad of alleged breaches by each of the defendants leads to the conclusion that Messrs Jackson and Goff, directors of Agricultural, breached the following duties:

(i) Duties under the Corporations Act ss 180, 601FD(1)(f)(i) and 601FD(1)(f)(iv) were breached by Messrs Jackson and Goff by their failure to take all steps that a reasonable person would take, if he or she were in the officer's position, to ensure that Agricultural complied with the Corporations Act related party provisions, and the scheme's compliance plan.

(ii) Messrs Jackson and Goff also breached their fiduciary duties to Agricultural to avoid placing themselves in a position in which their duties to Agricultural conflicted with duties to another principal (Bunbury Centro).

9 Bunbury Centro was knowingly concerned, within s 79(c) of the Corporations Act, in each of the contraventions of the Corporations Act by Messrs Jackson and Goff.

10 Despite these findings of breach, Agricultural's claim for compensation, either in equity or under the Corporations Act, must fail. Agricultural failed to prove that the purchase price or Licence fee under the Contract were at an undervalue. Rather, the expert evidence from the only expert to give evidence establishes that the purchase price paid by Agricultural was substantially less than the value of the Kalgoorlie Property. The significant gaps in the evidence mean that the value of the Licence is impossible to determine.

11 Agricultural has also failed to prove that any of the defendants profited from the transaction.

2.1 The plaintiff: Agricultural Land Management (as responsible entity)

12 The plaintiff in this case, Agricultural Land Management Ltd, was previously known as Westralia Property Management Ltd and Kareelya Investments Ltd.[2] For clarity, in these reasons I will refer to the plaintiff consistently as Agricultural even if, at various times, it had one of these other names.

(ii) the responsible entity of the Kalgoorlie Apartment Hotel Syndicate; and

(iii) the responsible entity of the Agricultural Land Trust (formerly the Westralia Property Trust).[3]

14 From May 2002 until early January 2004 Agricultural had four directors: Mr Jackson, Mr Goff, Mr Anderson, and Mr Hinton.[4]

15 Agricultural sues in its capacity as the Responsible Entity of the Kalgoorlie Apartment Hotel Syndicate. This 'Kalgoorlie Scheme' had only one unit holder. The unit holder was Agricultural in its capacity as Agricultural Land Trust.

2.2 The Kalgoorlie Apartment Hotel Syndicate (the Kalgoorlie Scheme)

16 From 7 September 2000 to 23 July 2006 the Kalgoorlie Apartment Hotel Syndicate was a registered managed investment scheme pursuant to Part 5C of the Corporations Act.[5]

2.3 The first and second defendants: Messrs Jackson and Goff

(i) from 15 February 1996 until 14 April 2005, was a director of Agricultural;

(ii) from 15 February 1996 to 11 December 2002, was company secretary of Agricultural; and

(iii) from at least 2001 onwards was, and is, a director of Bunbury Centro.

(i) from 16 February 1999 to 14 April 2005, was a director of Agricultural;

(ii) between September 2000 and April 2005, was the compliance officer of the Kalgoorlie Scheme; and

(iii) from at least 2001 onwards was, and is, the company secretary of Bunbury Centro.

19 The third defendant is Bunbury Centro Pty Ltd. Its previous names were Kalgoorlie Chambers Pty Ltd and also National Hospitality Solutions Pty Ltd. For convenience, I will refer to the third defendant at all times as Bunbury Centro.

20 At all material times, Bunbury Centro was a related party of Agricultural and the Kalgoorlie Scheme pursuant to s 208 of the Corporations Act as modified by s 601CA of the Corporations Act.[8] The relationship between the parties can be seen in the diagram at Appendix 1.

21 Appendix 1 to these reasons is an aide memoire produced by Agricultural which shows the relationship between Bunbury Centro and Agricultural. This appendix was common ground between the parties.[9] In broad summary, Bunbury Centro and Agricultural have the same parent company, Kareelya Ltd.[10] Mr Jackson and Mr Goff are both directors of Bunbury Centro and also of Agricultural. And Mr Jackson is also a director of Broadwater Hospitality Pty Ltd which was the proposed operator of the hotel.[11]

3. The facts: acquisition and development of the Kalgoorlie Property

22 The trial was almost entirely documentary. The only oral evidence was given by a valuer, Mr Catlin. Additional affidavit evidence, which added little to Agricultural's case, was given by Mr Nuttall.

23 The following are my findings of the essential facts relevant to the matter in issue.

24 In 1999, Bunbury Centro purchased the Kalgoorlie Property at Lot 4, 21 Davidson Street, Kalgoorlie.[12] In closing written submissions,[13] Agricultural referred to a statement in a report on 29 April 2002 by Mr Catlin of Ray White & Co that '[w]e are aware that the proponents purchased the subject site for $750,000 in July 1999'.[14] This was not an admitted fact, nor does this 'awareness' amount to evidence of the purchase price.

25 On 22 August 2000 (with a typographical error on the document of 2002),[15] Agricultural adopted a Constitution which established it as a Syndicate for a principal purpose which was 'acquiring, developing and holding the Kalgoorlie Property'.[16] Unless otherwise provided in the Constitution, the Syndicate was to endure for 10 years from the date of acquisition of the Kalgoorlie Property.[17]

26 On 31 January 2002, a meeting of the directors of Agricultural was held. Mr Jackson was in the chair and Mr Goff attended as a director and compliance officer.

27 Mr Jackson advised the meeting that the success of the Syndicate was dependent upon construction of the hotel as a whole.[18]

28 Mr Jackson explained that the introduction of the Goods and Services Tax in June 2000 effectively increased the purchase price by 10% which made it difficult to achieve the yield required to attract strata titled investors. Mr Jackson tabled an alternative proposal by which the Syndicate would become a Managed Investment Scheme to acquire the hotel which would have Goods and Services Tax advantages.

29 Mr Jackson advised that if the land and work in progress could be transferred into the Syndicate prior to construction, and the Syndicate undertook the construction, then a significant saving in stamp duty could be achieved.

30 On 29 March 2002, a further meeting of Agricultural was held with Mr Jackson and Mr Goff in attendance.[19] Mr Goff advised the meeting that an offer of mezzanine funding had been received. The lender would be Hawaiian Investments Ltd with terms of an annual interest rate of 16% and a $90,000 application fee. Mr Jackson said that although this was expensive, it would see the project started and the project was costing more while it was sitting idle. He said that it was the developer's profit which would be reduced.

31 On 19 April 2002, Mr Gary Catlin of Ray White & Co provided a valuation of the Kalgoorlie Property under instructions from the Kalgoorlie Scheme.[20] Mr Catlin's report and his oral evidence are considered in detail separately below.

32 On 20 May 2002, Agricultural established, by its deed poll, a constitution for the Kalgoorlie Apartments Hotel Syndicate Managed Investment Scheme.[21] On the same day Agricultural also established a replacement compliance plan for the Kalgoorlie Apartment Hotel Syndicate.[22] Both the constitution and the replacement compliance plan were adopted at a meeting of the directors of Agricultural, including Messrs Jackson and Goff, on 22 May 2002.[23]

33 The constitution for the Managed Investment Scheme again provided that the Syndicate was established for purposes including 'acquiring, developing and holding the Kalgoorlie Property'.[24] It was to continue in operation for 10 years after the date of acquisition of the Kalgoorlie Property.[25]

34 The constitution provided that Agricultural, as responsible entity, was entitled to receive a fee of up to 5% of the on completion value of the Kalgoorlie Property at the date that Agricultural acquires the Kalgoorlie Property.[26]

35 The replacement compliance plan established various compliance procedures including the following:[27]

(i) The responsible entity must conduct due diligence on any proposal to buy or sell any real property of the Syndicate during the term of the Syndicate.

(ii) Any proposal to buy or sell any real property at any time during the term of the Syndicate must be tabled at a directors' meeting with a due diligence report prepared by the Trust Manager.

(iii) The due diligence report must also be tabled at a compliance committee meeting for review. The compliance committee is to report to the responsible entity on any objections to the purchase or sale.

(iv) Notwithstanding the above procedure, if the responsible entity determines that it would be in the best interests of the investors to proceed with the purchase or sale then it may do so without receiving the compliance committee report.

(v) All investments made must be Authorised Investments in accordance with the Constitution.

36 The replacement compliance plan also required compliance with various procedures in relation to related parties:[28]

(i) All Disclosure Documents must disclose all actual or contemplated transactions with related parties of the responsible entity, whether or not the transactions are on normal commercial terms.

(ii) The Compliance Officer is to provide to the compliance committee the details of any proposed transaction with a related party for review.

(iii) Any transaction with a related party must be in a written agreement between the responsible entity and the related party.

(iv) The compliance committee is to provide a signoff to the Compliance Officer on all proposed transactions with a related party.

37 On 24 May 2002, a further meeting was held of the directors of Agricultural, including Messrs Jackson and Goff. Mr Jackson advised that the purpose of the meeting was to provide an update on the progress of the Syndicate and funding.[29]

38 The meeting was informed that the reason for the transaction was for Agricultural (as trustee of the Westralia Property Trust) to acquire the investment at a wholesale price and to receive a 20% bonus issue, to be funded from the developer's profit, prior to the introduction of other investors.

39 The meeting was also informed about the 'on completion' valuation from Mr Catlin at Ray White Valuers which valued the completed hotel at $19.5 million. Mr Goff advised that finance applications had been lodged.

40 On 13 June 2002, an internal memorandum was sent to people including Mr Jackson and Mr Goff which included an information paper on the Kalgoorlie Hotel Apartments Syndicate. The memorandum was authored by Mr Turner. It was admitted only as a matter relevant to the state of mind of Messrs Jackson and Goff. In it, Mr Turner made observations as follows:[30]

(i) The manager of the Kareelya Group considered that it was preferable for the Kalgoorlie Property not to be strata titled and for the property to be developed on a single lot by a syndicate.

(ii) For stamp duty and taxation purposes the manager of the Kareelya Group considered that it was preferable for Bunbury Centro to transfer the Kalgoorlie Property to the Syndicate at its current market value prior to construction commencing.

41 To obtain finance for the project the options included (a) raising equity in either Bunbury Centro or Agricultural before construction, or (b) introducing a new investor immediately. The new investor was Westralia Property Trust which has significant assets. Westralia Property Trust had arranged borrowings from Hawaiian Developments Pty Ltd. From the point of view of investors the rate of return on the initial cash investment of $2.55 million must exceed the relatively high cost of debt (16%) during the construction phase (emphasis added).

42 Some time prior to 24 June 2002, Agricultural prepared an application for finance for the construction of the 'Broadwater Resort Apartments Hotel'.[31]

43 The application, which was only admitted for the state of mind of Mr Jackson and Mr Goff, said that the estimated construction funding required was $11.250 million.[32] The application said that the directors 'believe the Hotel will be valued in the range of $19.5 to $21.5 million'.[33] It appears from the finance application that the intention was for the hotel to be managed by Broadwater Hospitality, a related company.[34]

44 The application also proposed that the Kalgoorlie Property and work in progress would be purchased from Bunbury Centro for $3,637,000.[35]

45 On 22 and 23 June 2002, Agricultural (as responsible entity of the Westralia Property Trust) agreed to invest $2,250,000 in the Kalgoorlie Apartment Hotel Syndicate and was issued with 3,600,000 syndicate lots.[36]

46 The money was paid on 25 June 2002. It was recorded in the accounts of Bunbury Centro as an unsecured loan to the Westralia Property Trust.[37]

47 On 24 June 2002, Bunbury Centro entered into the Contract to sell the Kalgoorlie Property to Agricultural, as Responsible Entity for the Kalgoorlie Scheme.[38]

48 The Contract was a standard REIWA offer and acceptance, with the Joint Form of General Conditions for the Sale of Land and various special conditions.

49 The Contract was signed by Mr Goff and Mr Jackson on behalf of the vendor. It was also signed by Mr Goff and Mr Jackson on behalf of the purchaser. The purchase price of this Kalgoorlie Property was $2,250,000.[39]

50 The Contract included the following Special Conditions.[40] Although submissions were made (based on exhibit 41 which was not admitted for the truth of its contents and is discussed at [115] - [120]) that the Special Conditions were agreed and backdated some time after 29 July 2002, neither counsel suggested that anything turned on this.

1. The Vendor grants to the Purchaser a nonexclusive licence to use all of the information and know how in the possession of the Vendor at settlement necessary for the continued project development of the Property as the Broadwater Resort Apartments Kalgoorlie including, without limitation, development approvals issued by the City of KalgoorlieBoulder, architect's plans, subdivisional approvals of the Western Australian Planning Commission, finance applications, marketing and prospectus documentation, project feasibilities, draft building contracts, tenders received from builders, reports from quantity surveyors and other consultants, project costings, liquor licence applications, and original site plans and demolition approvals.
2. The licence conferred under clause 7 is personal only and is not capable of assignment. The Purchaser agrees to maintain confidentiality in any of the information that the licence permits the Purchaser to use and which the Purchaser knows or ought to know is of a confidential nature.
3. In consideration for the grant of the licence in clause 7, on 2 January 2004, the Purchaser will pay to the Vendor a licence fee of an amount equal to the costs, expenses and fees incurred by the Vendor in relation to the holding, development and management of the Property and the development of the information and know how since the acquisition of the Property by the Vendor including, without limitation, bank interest and management fees, up to a maximum amount of $1,665,051.

51 An undated register of related party transactions for the Kalgoorlie Apartment Hotel Syndicate provided that the acquisition of the Kalgoorlie Property by Agricultural from Bunbury Centro was a related party transaction.[41]

52 On 24 June 2002, the same day as the Contract, Agricultural (as borrower) entered a loan facility with Hawaiian Developments Pty Ltd (as lender) as well as Bunbury Centro (as 'Developer') and Kareelya Investments Ltd (as 'Project Developer').[42] The interest rate was 16% per annum.[43] The facility permitted a drawdown of $2,300,000 for Agricultural to pay Bunbury Centro which Bunbury Centro must use to discharge a mortgage on the Kalgoorlie Property and reimburse costs,[44] and to pay 'Funded Non Building Costs' of $250,000.[45] The latter are costs payable by either Agricultural or Bunbury Centro in connection with the construction and development of the Project.

53 On 1 July 2002, Agricultural entered a Project Management Agreement with Kareelya Property Group Pty Ltd. The purpose of the Project Management Agreement was for Kareelya Property Group to be responsible for matters including the construction of the hotel on the Kalgoorlie Property, selling or leasing any part of the proposed apartments and hotel premises, and managing the development.[46]

54 Clauses 4.5, 4.6 and 4.7 of the Project Management Agreement have the effect of fixing the price payable for the Project Costs at $18.5 million.

55 The Project Management Agreement defines 'Project Costs' as the costs of acquiring and developing the Kalgoorlie Property including:

(ii) the amount of stamp duty payable on the purchase of the Kalgoorlie Property;

(iii) the property acquisition fee payable to Agricultural;

Hence, all of these items are included in the $18.5 million price.

56 The Works is, in summary, all the work to be done under the Project Management Agreement for the purposes of undertaking and completing the Project.

57 Although the Project Management Agreement post-dated Agricultural's acquisition of the Kalgoorlie Property by six days, the general terms of this Project Management Agreement must have been in the contemplation of Messrs Jackson and Goff at the time the Kalgoorlie Property was acquired on 24 June 2002.

58 On 5 July 2002, there was a meeting of the directors of Agricultural. Mr Jackson and Mr Goff were present.[47] This was the first board meeting after the Contract. No board meeting before the Contract had approved the entry by Agricultural into the Contract.

59 Mr Jackson said that funds had been advanced to Agricultural by Hawaiian Investments Ltd on 24 June 2002.

60 Mr Jackson also explained that a report had been commissioned on market demand. The report was undertaken by Mr Alan Boys and it was seen as a 'worst case scenario for the operations of the hotel'. He said that the report did highlight that there would be a greater risk in managing the food and beverage operations and that the Syndicate would be better off if those operations were leased to an external operator on a turnover rent.

61 Mr Goff said that feasibility studies had been prepared for investors on the basis of the greater risk advised and that although there was a reduction in the estimated cash returns for investors, it still 'stacked up'.

62 The meeting also discussed building tenders which had been received. The lowest tender was from Devaugh Pty Ltd. A review by Ashton Associates recommended the appointment of Devaugh Pty Ltd. The contract price tendered by Devaugh Pty Ltd was $9,014,533.

63 The Devaugh contract documents were tendered as an exhibit.[48] They contain a 5 July 2002 letter of acceptance of the offer by Devaugh to build the hotel for $9,915,986 (inclusive of GST). Exclusive of GST this amount was $9,014,533. The contract price included an amount for Kitchen Fit Out, Bar Equipment, Coolrooms, and Laundry Equipment. That amount was $253,800.

64 On 16 July 2002, in a company record made by Mr Turner, he recites the progress of the development and observes that the 'service contract between [Bunbury Centro] and Kareelya Property Group Pty Ltd will need to be assigned by [Bunbury Centro] to KAHS [and Agricultural as responsible entity]'.

65 On 26 July 2002,[49] the minutes of a meeting of the directors of Agricultural, attended by Mr Jackson and Mr Goff, record that the Westralia Property Trust had invested $2.55 million in purchasing a $3.6 million Syndicate interest in the Kalgoorlie Apartment Hotel Syndicate. The funds for the investment were described as having been borrowed from Hawaiian Developments Pty Ltd at an interest rate of 16%, repayable on or before 30 June 2003.

66 On 29 August 2002, a further meeting of the directors of Agricultural was held with Mr Jackson (as chairman) and Mr Goff in attendance.[50] A report was attached to the minutes including detail of a related party transaction. The related party transaction record explains that Agricultural and Bunbury Centro are related parties. It records the issue to Westralia Property Trust (for which Agricultural is the responsible entity) of a $3.6 million interest in the Kalgoorlie Apartment Hotel Syndicate for $2.55 million. It records that Agricultural, as responsible entity, had entered a loan agreement, borrowing $3 million from Hawaiian Developments Pty Ltd to enable Westralia Property Trust to invest in the Kalgoorlie Apartment Hotel Syndicate.

67 An unsigned lease dated 23 September 2002 was also tendered as an exhibit. That unsigned lease provided for the Kalgoorlie Property to be leased by Agricultural to Dunsborough Hotel Management Ltd.[51] The lease was conditional upon a grant of a liquor licence before 31 December 2003. The annual rent was $800,000 per annum plus an additional amount which was based on operating profit.

68 On 26 September 2002,[52] the minutes of a meeting of directors of Agricultural attended by Mr Jackson and Mr Goff record that Agricultural entered a lease of the completed hotel to Dunsborough Hotel Management Pty Ltd. The lease was conditional upon the grant of a liquor licence. Annual rent would be $800,000 per annum plus an amount of 'Additional Rent' based upon net operating profits. The period of the unsigned lease was five years with two further options of five years.

69 The meeting was also advised of the fixed price contract with Devaugh Pty Ltd for construction of the hotel and a variation of the loan agreement with Hawaiian Developments Pty Ltd.

70 From 1 October 2002 to 31 October 2002,[53] Ashton and Associates reported that work completed to date on the hotel was $1,031,480 excluding GST. The Commonwealth Bank had provided a Bill Facility of $10 million at 5.82% with first drawdown on 30 June 2003 and maturing on 30 June 2006.

71 From 1 November 2002 to 31 December 2002,[54] work to date on the hotel was $2,695,823 and the estimated cost to complete was $8,685,536.

72 By 31 May 2003, the value of work in progress on the hotel had increased to $9,343,271.[55]

73 By 30 June 2003, the value of work in progress on the hotel had increased to $11,754,060.[56]

74 Prior to August 2003, the construction of the hotel on the Kalgoorlie Property was completed. The hotel opened for business on 1 August 2003.[57]

75 On 2 January 2004, Agricultural paid to Bunbury Centro:

(ii) at least $1,665,051 in respect of the Licence fee.[58]

76 Although Agricultural pleaded that $1,763,260 was paid for the Licence fee there was no clear evidence led about the amount of payment by Agricultural.

77 Counsel for Agricultural submitted, contrary to the Agreed Facts,[59] that payments for the Licence fee were made in the year ended 30 June 2003.[60] He submitted that the payments made exceeded the maximum possible amount due for the Licence under cl 9 of the Contract which was $1,665,051. Counsel relied upon the notes to Agricultural's Financial Statements for that year. Those notes refer to a cost of acquisition of the Kalgoorlie Property of $3,250,000.[61] Counsel apparently assumed that this amount included $1 million for the Licence fee. He then referred to a note which said that at 30 June 2003, the total value of the land and work in progress purchased was $3,915,051 (which appears to be the purchase price of $2,250,000 plus the maximum Licence fee of $1,665,051) and that $1,599,700 remains unpaid.[62] Counsel never explained how these figures somehow meant that more than $1,665,051 had been paid for the Licence.

78 The case can only proceed on the basis of the agreed fact that 'at least' $1,665,051 was paid.

79 Even if $1,763,260 had been paid for the Licence fee on 2 January 2004, the effect of this would be that Agricultural had paid $98,204 more than the contractual maximum for the Licence fee. But there was no evidence of any demand or claim for restitution of that allegedly overpaid amount being made by Agricultural against Bunbury Centro. Nor was there any allegation that Messrs Jackson and Goff caused loss to Agricultural by making any overpayment in breach of duty and failing to ensure that Agricultural reclaimed the money or litigated within the limitation period to recover the alleged overpayment.

80 On 23 July 2006, the Kalgoorlie Scheme for which Agricultural is the responsible entity was deregistered on Agricultural's own application.[63]

81 On 21 June 2007, Agricultural (acting for the Westralia Property Trust) sold the Kalgoorlie Property including the hotel. The sale price was $10.15 million.[64]

82 On 5 September 2007, the settlement occurred for Agricultural's sale of the Kalgoorlie Property.[65]

83 On 4 June 2008, these proceedings were commenced by writ with indorsed statement of claim.[66]

84 Mr Catlin was the only person to give oral evidence. Affidavit evidence was given by Mr Nuttall.

85 Mr Catlin has been a licensed valuer since 1987.[67] Although he no longer practises as a valuer, he has had many years of experience, including having conducted valuations of more than 20 to 30 accommodation hotels.[68] He was called to give evidence by Agricultural, solely for the purpose of tendering his 29 April 2002 valuation.[69] Subsequently, he was crossexamined and reexamined in detail in relation to matters relating to that valuation.

4.1 Mr Catlin's 29 April 2002 valuation of the Kalgoorlie Property 'as if complete'

86 Mr Catlin's 29 April 2002 valuation,[70] was conducted on the basis of an 'as if complete' development of the Kalgoorlie Property. He was instructed to, and did, value the Kalgoorlie Property on a 'hypothetical development' approach. That approach led to an assessment that if the Kalgoorlie Property were completely developed on 29 April 2002 it would have a value of $19.5 million, net of GST.

87 It must be reiterated that the focus of Mr Catlin's valuation was upon determining the 'as if complete' value of the Kalgoorlie Property. In determining the 'as if complete' value of the Kalgoorlie Property, Mr Catlin used two valuation methods:

(i) a capitalisation approach which assessed fair occupancy rates and capitalised the net returns;[71] and

(ii) direct comparison to recently recorded sales of quality hotels and resorts.

88 Mr Catlin's 'as if complete' valuation was 58 pages long. In the course of that valuation, Mr Catlin also considered the fair market value of the 'land component' of the Kalgoorlie Property. That land component was assessed as a 'final check to value' for the assessment of the $19.5 million 'as if complete' valuation.[72] It involved a process by which Mr Catlin started with the $19.5 million figure for gross realisation and then deducted an allowance for selling expenses, legal expenses, advertising, profit and risk, loss of interest over the development and selling period, development costs, construction costs, rates and taxes and initial expenses. The end figure was then considered to be a realistic guide to the market value of the Kalgoorlie Property.[73]

89 In the crucial paragraphs of his 29 April 2002 valuation, Mr Catlin explained the following matters.

(i) Using the hypothetical development approach, and working backwards from the 'as complete' assessment of $19.5 million, he reached a conclusion of $2,250,000 land value for the Kalgoorlie Property.

(ii) The $2,250,000 assessment included[74]

costs incurred to date [emphasis added] in relation to demolition fees and site costs together with architectural drawings required to obtain approval for the subject development in accordance with the proposed development ...

[and including] approvals as obtained and pending ... [and] the costs associated with obtaining such approvals in relation to fees incurred regarding working drawings, engineers' costs and other preliminaries.

(iii) The $2,250,000 assessment did not include additional costs which meant that the Kalgoorlie Property could potentially be sold to the Syndicate for a value higher than this assessed value. Those additional costs were matters such as:

Interest and finance costs, sales and marketing costs, responsible entity fees and other scheme costs included.

(iv) The land value of $2,250,000 reflected a rate of $258 per square metre and $24,457 per hotel room.

90 During crossexamination of Mr Catlin by senior counsel for the defendants, a page of his calculations used was tendered which explained the process described and the conclusion in those four paragraphs.[75]

91 One immediate point is that Mr Catlin's $2,250,000 valuation of the Kalgoorlie Property was dependent upon his assessment of his $19.5 million 'as complete valuation'. In opening submissions, some attacks were made by counsel for Agricultural upon the $19.5 million estimate based upon Mr Catlin's estimates of capitalised income.

92 There are four reasons why I reject counsel for Agricultural's submission that the $19.5 million assessment was inaccurate.

93 First, Mr Catlin was called to give evidence by Agricultural in order to tender his 29 April 2002 valuation. He was cross-examined by senior counsel for the defendants about his calculations in that valuation. He iterated, and re-iterated, his starting point in his calculations as the $19.5 million figure. But counsel for Agricultural asked no questions of Mr Catlin in examination or re-examination to suggest that any doubt should be cast upon the $19.5 million figure.

94 Secondly, counsel for Agricultural submitted that the reason why the $19.5 million figure was not accurate, and could not have been relied upon by any reasonable director, was because Mr Catlin had assumed a net operating profit from the hotel of $1.64 million for its first year of operations.[76] Counsel for Agricultural submitted that this figure was not justifiable because Agricultural's income from the hotel, based on an unsigned and unstamped lease, was limited to rent received from the operator. He submitted that Agricultural had entered a lease of the hotel to Dunsborough Hotel Management Ltd which had fixed the rent at $800,000.[77]

95 This submission is incorrect. The unsigned and unstamped lease agreement tendered provided for a rent of $800,000 per annum in addition to an 'Additional Rent'. The Additional Rent was to be calculated by a formula of the excess of Net Operating Profit over a Base fee (a nominal $50,000 adjusted for inflation). So, if the hotel had a net operating profit of $1.6 million then the rent received by Agricultural would be around $750,000 more than the $1.6 million which Mr Catlin estimated. However, other costs to take into account are $400,000 promised under the lease from Agricultural to Dunsborough Hotel Management Ltd for marketing, fit out costs, and working capital.[78]

96 Thirdly, as Mr Catlin explained in his written valuation, the capitalised income basis of assessing the value of the Kalgoorlie Property indicated an average room rate of $211,936. Using a direct comparison approach with other completed hotels the value was $200,000 to $225,000 per room.[79]

97 Fourthly, counsel for Agricultural also relied upon criticisms and queries about Mr Catlin's 29 April 2002 valuation.[80] The criticisms and queries were made by Mr Boys.[81]

98 The documents containing those queries and criticisms were admitted only for the state of mind of Mr Jackson and Mr Goff. As for Mr Goff, there was no evidence that Mr Goff saw the documents at the date of the Contract. As for Mr Jackson, his knowledge of the criticisms[82] does not make them true or false. It does not make them likely.

99 Mr Jackson's knowledge of the criticisms also does not establish any bad faith or recklessness on his part. Mr Jackson's conclusion was that the trading figures provided by Mr Boys were a 'worst case scenario'.[83] Those trading figures involved cash flow from operations for 2004 of $1.115 million rising to $1.331 in 2006.[84] No submissions were made, and no evidence led, which compared these figures with those used by Mr Catlin which were concerned with forecast returns and assessed surpluses. The latter figures, before adjustments, were $762,362 rising to $964,850. But there was no evidence or submissions concerning the relationship between these amounts and the cash flow figures of Mr Boys.

100 In opening submissions, counsel for Agricultural also made reference[85] to criticisms made by Mr Boys of a 43page market demand study into the hotel by Mr Bird and Associates[86] upon which Mr Catlin may have relied.[87] Once again, none of these criticisms was raised with Mr Catlin in his oral evidence. Further, there was no evidence that Mr Goff saw the market demand study by Mr Bird.

101 For these four reasons I reject the attack by counsel for Agricultural on Mr Catlin's $19.5 million, 'as complete' valuation. I also reject the submission, and the associated pleading,[88] that Messrs Jackson and Goff were aware, at the later date of Contract (24 June 2002), that the cost to completion of the hotel would substantially exceed the costs in Mr Catlin's valuation. As I explain in section 4.4 below, the Project Management Agreement contemplated by Messrs Jackson and Goff on 24 June 2002 was a 'turnkey' deal. It fixed the total costs to completion at $18.5 million. Messrs Jackson and Goff could reasonably have expected that the project would result in approximately $1 million profit to Agricultural. The submission by counsel for Agricultural that a profit in the region of this amount was too marginal or speculative to justify a reasonable director engaging in the project was not the subject of any expert evidence. It is sufficient to say that it was reasonable for Messrs Jackson and Goff to cause Agricultural to proceed with the project on the basis of an apparently detailed and comprehensive opinion from a qualified valuer.

102 It is important to observe that there was no pleaded case that the Licence was a sham, involving deliberate deception,[89] or that it was disguised goodwill. Senior counsel for the defendants also made it clear that the defendants did not apprehend any pleading of sham against them.[90]

103 Counsel for Agricultural made it clear that his case was that the Licence was either worthless to Agricultural or worth substantially less than the amount paid.[91] The submission that the Licence was worthless was based upon a proposition that the items of value in the Licence had already been accounted for in the assessment of the $2.25 million purchase price for the Kalgoorlie Property.[92]

104 Nevertheless, two matters asserted by counsel for Agricultural might be perceived as raising allegations of sham. The remainder of this section deals with two issues raised by Agricultural involving

4.2.1 The method for calculation of the Licence fee

105 Agricultural alleged that the 'intention of [the defendants] in a related party transaction was to reimburse the costs of the land and the work in progress for [Bunbury Centro]'.[93]

106 I accept that the manner of calculation of the Licence fee concerned various costs incurred by Bunbury Centro. In that sense, the Licence fee was intended to recoup costs up to the maximum amount provided. Clause 9 of the Contract set the fee for the Licence by reference to Bunbury Centro's costs, expenses and fees of holding, development and management of the Kalgoorlie Property and the development of the information and know how since its acquisition (up to a maximum amount of $1,665,051). But this intention to recoup costs does not assist Agricultural's case for three independent reasons.

107 First, merely because the manner of calculation of the Licence fee showed a concern to recoup costs does not mean that the amount charged for the Licence fee was more than it was worth, or that the Licence was a sham. The elements of cost used to calculate the Licence fee are not the same as the rights conferred by the Licence. Hence, they are not the same as the value of the Licence. The value of the Licence is independent of the manner in which the fee was calculated. The Licence could have been much more valuable or much less valuable.

108 Secondly, in assessing breaches by Messrs Jackson and Goff in relation to the entry by Agricultural into the Contract, the focus must be on the Licence fee which was due to be paid. This was the amount of the various costs and expenses in cl 9 of the Contract up to a maximum amount of $1,665,051.

109 If the amount of the Licence fee which was actually paid on 2 January 2004 by Agricultural to Bunbury Centro exceeded the amount which was due under the Contract then this overpayment was not a consequence of any breach by Agricultural in entering the Contract. For instance, an excess payment might have involved a miscalculation by Agricultural. Or it might have involved a mistaken assumption about various costs by officers of Bunbury Centro or Agricultural. None of these matters were issues in this litigation.

110 If Agricultural's payment of the Licence fee exceeded the amount properly due then a loss would not necessarily arise even if the payment somehow amounted to a breach of duty by some person who procured it. A loss from that excess payment would only arise if restitution were not possible from Bunbury Centro. Whether restitution was (or is) possible would depend on matters which were not the subject of evidence. For instance there was no evidence concerning any demand from Agricultural from Bunbury Centro for restitution of any overpayment based upon any overpayment of the Licence fee. There was no evidence concerning whether any action had been commenced by Agricultural against Bunbury Centro for restitution of any overpayment. And there were no submissions made concerning whether such an action, if brought now, would be timebarred. That question might itself depend on whether an action for restitution of unjust enrichment accrues at the date of payment or at a later date of inequitable retention.[94]

111 Thirdly, and in any event, on the evidence before the Court it cannot be concluded that, on 24 June 2002, the costs incurred by Bunbury Centro under cl 9 of the Contract would necessarily be less than the maximum amount payable for the Licence fee.

112 Some of the costs relating to the calculation of the Licence fee appear from a document, on plain paper without letterhead, entitled '[Bunbury Centro] Allocation of Transfer Costs as at 8 April 2002'.[95] The document contains costs in five categories, each of which is broken into sub-categories. The five main categories, and the total, are:

(i) Land and Holding Costs $1,992,760

(ii) Finance Costs $428,695

(iii) Construction and Design Preliminaries $821,190

(iv) Syndication Expenditure $243,347

(v) Marketing Expenditure $154,715

113 Counsel for Agricultural observed that when the purchase price for the Kalgoorlie Property is added to the Licence fee then the total ($3,915,051) exceeds these 'transfer costs' (which include 'Land' the price for which is not a component of the Licence fee). But the evidence did not establish the total costs of Bunbury Centro at the date of the Contract on 24 June 2002. The 'transfer costs' concerned only those costs at 8 April 2002.

114 Further there was no evidence which related the transfer costs document directly to a calculation of all elements of the Licence fee. For instance, I am not satisfied that the five categories of 'transfer cost' in April 2002 exhaust all the costs incurred by Bunbury Centro by 24 June 2002 in relation to the 'holding, development and management of the Property and the development of the information and know how since the acquisition of the Property by [Bunbury Centro] including, without limitation, bank interest and management fees'.

115 Another matter relied upon by counsel for Agricultural, apparently to cast suspicion upon the Licence, was a document which was admitted on the basis that it was evidence of matters which might be known to Mr Jackson or Mr Goff. It is a handwritten memorandum from 'Paul' (Turner) to 'Ray' (Anderson), and a response from Mr Anderson. Mr Anderson is one of the directors of Agricultural.

116 The memorandum and response are as follows:[96]

Ray,

Could you please consider the special conditions. Are you comfortable that the sale of land and the licence in condition 7 constitute a supply of a business.

I want to express clause 7 as a licence to try to keep it away from being a sale of goodwill that would attract duty at conveyance rates.

The licence in clause 7 should attract duty at mortgage rates (40c/$100)

Regards,

Paul

Paul,

I am comfortable that the arrangement outlined should be accepted as the sale of a going concern.

There could be an argument that the 'business' of the vendor was the 'acquisition of land, the construction of strata titled units and the sale of those units (this was the initial intent)' or alternatively the development of the land and the sale of the development in whatever form the company decided. If so, it could be argued that KAHS is not acquiring 'that' business but rather it is acquiring the land and everything else to finish construction and retain.

This could be construed as 2 different businesses (sic) and that KAHS did not contract to purchase the company's business or enterprise.

Despite this possible argument, I believe that the going concern approach is appropriate and the clauses as drafted are acceptable.

Ray

118 There is no evidence sufficient for an inference to be open that anything in this memorandum or response was seen by, and known to, Mr Jackson or Mr Goff.

119 Counsel for Agricultural submitted that this inference was open because the content of the communication concerned an amendment to the Contract. But the fact that the amended Contract was signed by Mr Jackson and Mr Goff is not a sufficient foundation from which an inference can be drawn that they were privy to the discussions between others concerning the purpose for amendments to the Contract.[97]

120 Nor is it sufficient for this inference to be open that prior to the Contract there were suggestions (such as in in the undated finance application document: see above at [42] - [44]) that the price payable by Agricultural to Bunbury Centro be a single amount of $3,637,000 for the Kalgoorlie Property and work in progress. Contrary to the submission by counsel for Agricultural,[98] this does not establish that the directors intended that the Licence should disguise part of the goodwill to the extent of $1,387,000. All that can be concluded in relation to the figure of $3,637,000 is that it was the estimate by the unknown author of the finance application, at the unknown date of that document, of the combined value of the Kalgoorlie Property and work in progress at the estimated date of sale.

4.3 The substantial value of the Licence independently of Mr Catlin's 29 April 2002 valuation

121 One issue which arose in cross-examination was the extent to which the Licence replicated matters which had already been included in Mr Catlin's valuation of the Kalgoorlie Property.

122 Counsel for Agricultural submitted that Messrs Jackson and Goff entered into a transaction to pay $2.25 million for the Kalgoorlie Property, based on a $2.25 million valuation of that Kalgoorlie Property, and then agreed to pay an additional $1.65 million for a Licence which either concerned matters already included in the $2.25 million valuation or involved matters of no value to Agricultural.

123 To reiterate, the terms of the Licence in cl 7 of the Contract concerned:

all of the information and know how in the possession of the Vendor at settlement necessary for the continued project development of the Property as the Broadwater Resort Apartments Kalgoorlie including, without limitation, development approvals issued by the City of KalgoorlieBoulder, architect's plans, subdivisional approvals of the Western Australian Planning Commission, finance applications, marketing and prospectus documentation, project feasibilities, draft building contracts, tenders received from builders, reports from quantity surveyors and other consultants, project costings, liquor licence applications, and original site plans and demolition approvals.

124 For four reasons, I do not accept the submission by counsel for Agricultural that all the matters of substantial value to Agricultural in the Licence were included in the written valuation of the Kalgoorlie Property.

125 First, in crossexamination Mr Catlin was asked whether his 29 April 2002 valuation of the Kalgoorlie Property sought to value the Licence under clause 7 of the Contract. Mr Catlin said, and I accept, that it did not.[99]

126 Mr Catlin's explanation of what he subjectively intended by his 29 April 2002 valuation is not relevant to what a reasonable director would have understood the written valuation to mean. But it is relevant to ascertain the actual value of the Kalgoorlie Property because it is Mr Catlin's opinion, both written and oral, which is relevant to the question of the actual value.

127 Mr Catlin said that his April 2002 valuation had not included the following:[100]

(i) costs that might have been incurred in relation to advertising, marketing and promotion fees;

(vi) the benefit of reports from quantity surveyors and other consultants; and

(vii) the benefit of project costings subsequent to 29 April 2002.

128 Each of the above falls within the terms of the Licence. The Licence, in cl 7 of the Contract, contains express reference to (ii), (iii), (iv), (v), (vi), and (vii) (both before and after 29 April 2002). The general terms of the Licence also includes (i). The Licence also includes reference to 'project feasibilities' but Mr Catlin said that he wasn't sure what that meant so he didn't know if it was included in his April 2002 valuation.[101]

129 I accept Mr Catlin's evidence that none of the enumerated matters above was included in his valuation. Mr Catlin's evidence on this point was honestly given and I consider him to be a reliable witness generally.

130 Secondly, it is misleading to segregate each of the enumerated matters in the list and then ask whether that matter was of real value to Agricultural or whether it had already been included in Mr Catlin's 29 April 2002 valuation.

131 The reason why this approach is misleading is because each of the enumerated items was only an example, without limitation, of information and know how in the possession of the Vendor at settlement necessary for the continued project development of the Kalgoorlie Property as the Broadwater Resort Apartments Kalgoorlie.

132 It is immediately apparent that the information and knowhow for the continued development of the Kalgoorlie Property is likely to have had real value. More accurately, that information would have been perceived by a reasonable director of Agricultural, on 24 June 2002, as having real value and it was reasonable to acquire a licence to use it. The Kalgoorlie Property was acquired by Agricultural on 24 June 2002. Barely a year later, in August 2003, there had been completed, as contemplated, a fully constructed hotel which Mr Catlin described as 92 apartments, licensed bar and restaurant, swimming pool and spa, car parking, and extensive landscaped surrounds.

133 The proper approach for Agricultural to prove that the Licence was of no value, or less value than the cl 9 cost (to a maximum of $1,665,051), would have been for Agricultural to lead expert evidence of:

(i) the relevant information and knowhow for the development of a hotel;

(ii) those matters of information and knowhow which were imparted from Bunbury Centro to Agricultural; and

(iii) those matters which were included in Mr Catlin's 29 April 2002 valuation.

134 From these three issues there could be discerned the value to a reasonable purchaser of information and know how possessed by Bunbury Centro on 24 June 2002 which had not been included in the 29 April 2002 valuation.

135 Thirdly, there were some of the enumerated matters in the list of matters covered by the Licence that might have been of real value, subject to expert evidence on the subject. For instance, matters of real potential value to a purchaser could have been advertising, marketing and promotion documentation, finance applications, draft building contracts, tenders received from builders, reports from quantity surveyors and other consultants, and project costings subsequent to 29 April 2002. There was no evidence led from Agricultural that in the subsequent development of the hotel it obtained no benefit from any of these matters.

136 Nevertheless, the enumerated matters may have included some examples which were not of value to Agricultural. One example is the liquor licence application. This application was not made by Bunbury Centro. It was made by Broadwater Hospitality Pty Ltd, the proposed operator of the hotel, and granted conditionally on 1 November 2001.[102] If this was the only liquor licence application relevant to the proposed hotel on 24 June 2002 then information and know how relating to that liquor licence might not have been a matter of value which Bunbury Centro could provide to Agricultural. But there was no evidence that the 1 November 2001 liquor licence was still extant at 24 June 2002. One question arising from this is if this was the only liquor licence application made (and granted) then why was the later unsigned 23 September 2002 lease, upon which Agricultural relied, expressed to be conditional upon the grant of a liquor licence?

137 Other material in the list of examples contained in the Licence which was of little value to Agricultural was marketing and prospectus material concerning the Broadwater Hotel dated 22 May 2000.[103] The value that this material might have had is substantially reduced by the fact that it was concerned with the strata title plan which was later superseded by the development of the Kalgoorlie Property and hotel as a Managed Investment Scheme. More fundamentally, that prospectus was produced for Agricultural, not for Bunbury Centro.[104] But, once again, there was no evidence of the extent of any benefit available to Agricultural from Bunbury Centro from other marketing and prospectus material. The absence of evidence is not evidence of absence.

138 Fourthly, I do not accept the assertions of counsel for Agricultural that the matters of substantive worth to Agricultural enumerated in the Licence had already been included by Mr Catlin in his written valuation of the Kalgoorlie Property at $2.25 million. For instance, counsel referred to references in Mr Catlin's 29 April 2002 written valuation to the inclusion of 'approvals as obtained and pending' and 'costs associated with obtaining such approvals in relation to fees incurred regarding working drawings, engineers' costs and other preliminaries'.

(i) 'draft building contracts' fell within 'preliminaries';[105] and

(ii) 'project costings' fell within 'approvals' in the 29 April 2002 valuation.[106]

140 Even if this submission were correct, it would only apply to draft building contracts and project costings as at 29 April 2002. Any further draft building contracts and project costings between 29 April 2002 and 24 June 2002 would not be included.

141 In any event, I reject the submission. It is not immediately obvious that the scope of 'preliminaries' and 'approvals' extends to draft building contracts and project costings. And the evidence given by Mr Catlin, which I accept and set out above in [127], is that they do not.

142 I conclude that Mr Catlin's April 2002 valuation did not include items from the Licence which were potentially of real value to Agricultural. The absence of any sufficient evidence concerning the value of those items makes it impossible to conclude that the value of the Licence was less than the Contract fee for it. Even if the costs in the Contract fee, cl 9, amounted to the maximum of $1,665,051 there is insufficient evidence to conclude that the Licence was worth less than $1,665,051.

4.4 The relevance of the $18.5 million Project Management Agreement

143 In reexamination, counsel for Agricultural put a series of questions to Mr Catlin which focused upon two key matters:

(1) The Kalgoorlie Property, with an 'as complete' hotel constructed upon it, would be valued at $19.5 million; and

(2) Agricultural had entered a 'turnkey' contract, the Project Management Agreement, which was inclusive of all costs and which required Agricultural to pay $18.5 million for the construction of the hotel.

144 In section 6.1 of these reasons I explain the limitation bar which is faced by the premise of these questions. The premise for these questions appeared to be an endeavour to call into question the purchase price and Licence fee (which were the focus of the pleadings) by focusing on the terms of the Project Management Contract.

145 The combination of the purchase price and maximum Licence fee ($3,915,051) was paid by Agricultural for the Kalgoorlie Property. The premise of the questions was effectively that a reasonable director could not have believed that the Kalgoorlie Property and Licence fee could have a combined value of $3,915,051 when, after construction, the difference between the cost of construction and the 'as complete' value was only $1 million.

146 The immediate difficulty with such a premise is that in the Project Management Agreement the purchase price was expressly included as a Project Cost for which the $18.5 million price was paid. And, on its proper construction, the Project Cost also included the Licence fee. Although the Licence fee was not expressly included by the description 'Licence fee', the Project Cost included 'costs of acquiring and developing the [Kalgoorlie Property]'. The Licence fee was a cost of 'developing the [Kalgoorlie Property]' because the licence fee was expressly concerned with the use of 'all of the information and know how in the possession of the Vendor at settlement necessary for the continued project development ...'. A director could also reasonably have assumed that the Licence fee was included in the Project Cost.

147 It is, therefore, extremely difficult to see how the Project Management Contract, which incorporates the purchase price for the Kalgoorlie Property, could be relevant to an assessment of the value of the Kalgoorlie Property. This was the effective reason why Mr Catlin, in oral evidence, rejected the relevance of the $18.5 million Project Management Agreement to an assessment of the value of the Kalgoorlie Property on 24 June 2002.

148 Mr Catlin's explanation for why he would not take the $18.5 million project management contract into account as part of any hypothetical development valuation was as follows:[107]

The project was worth 19 million 500. Kareelya is delivering to [Agricultural], in my understanding of this, the total project at 18.5 million. So in fact there's a million dollar discount from the assessed value to the total project cost that Kareelya is delivering to [Agricultural].

...

This is not a hypothetical development calculation process because it has been agreed at a purchase price of 18 million 500. So I wouldn't do those calculations. That's an agreed purchase, inclusive of all costs.

...

[Agricultural] is paying $18,500,000 for this property to be handed over at completion and that is the price. Now, I wouldn't do a hypothetical development calculation on that basis ... the land value is no longer as a part of a hypothetical development because it actually is completed, so it's not hypothetical any more - it's actual. So I would assess the land value based on a rate per square metre.

150 Since counsel for Agricultural made reference in submissions to the financing costs and the $1 million fee payable to Agricultural as responsible entity on acquisition of the Kalgoorlie Property,[108] I should also record that the $18.5 million price in the Project Management Agreement was inclusive of a $1 million fee payable to Agricultural as responsible entity on acquisition of the Kalgoorlie Property and also inclusive of finance costs for the construction. These matters were included in the Project Costs by the definition of 'Project Costs' which included 'the property acquisition fee payable to [Agricultural]' as well as 'Works' which were defined as 'all of the things to be done, provided or procured for the purposes of undertaking and completing the Project or any part of the Project in accordance with this document'.[109]

151 I also accept Mr Catlin's evidence that if the figure of $18.5 million were confined to costs of construction and project management then it would be in excess of the market cost for that construction.[110]

4.5 The underestimation of the 24 June 2002 value of the Kalgoorlie Property in Mr Catlin's April 2002 report

4.5.1 Mr Catlin's underestimation of the value based on the date of valuation

152 Mr Catlin's valuation was conducted in April 2002. But the date of Agricultural's purchase of the Kalgoorlie Property was 24 June 2002. Mr Catlin explained, and I accept, that there are numerous reasons why the later date would increase the valuation of the Kalgoorlie Property: there would be a shorter period for finance costs;[111] the development period would reduce;[112] there would be a shorter period for rates and taxes[113] and so on.

4.5.2 Mr Catlin's underestimation of the construction cost

153 In Mr Catlin's April 2002 report he estimated the building price for the hotel at $9,869,950.[114] Mr Catlin separately estimated construction costs for 'preliminaries' ($497,135) and 'deposit furniture and fitout' ($212,724).

154 In oral evidence, Mr Catlin gave further detail about this valuation. The further detail is relevant to the value of the Kalgoorlie Property at the date of Mr Catlin's valuation.

155 The further detail given by Mr Catlin was that:

(i) the $9,869,950 estimated construction cost was exclusive of GST;[115]

(ii) the full cost of furniture, fitout, and equipment (it appears, on an assumption of 10% deposit) was $2,127,240;[116]

(iii) the fit out costs included, but was not necessarily confined to, café and kitchen fitout, bar equipment, coolrooms, and laundry equipment.[117]

156 The combination of these amounts was the figure used by Mr Catlin for estimated development costs: $11,997,000.[118] This amount ignores the $497,135 cost for 'preliminaries'. No explanation was given by Mr Catlin, nor was he asked, why the preliminaries were omitted from his estimated development costs. It may be that, as he suggested in his report, the preliminaries had been included in construction or development costs.[119]

157 However, as I explain below, both the tendered construction costs and the actual construction cost were significantly lower than Mr Catlin's estimations on 29 April 2002. The effect of this is that if all other things remained equal then Mr Catlin's valuation of the Kalgoorlie Property would have been significantly higher.

4.6 The value of the Kalgoorlie Property on 24 June 2002

158 In cross-examination, Mr Catlin tendered a page which reflected the calculations by which he reached the assessment of $2,250,000 value of the Kalgoorlie Property as at 29 April 2002. He then performed an exercise in cross-examination which was designed as an attempt to update this valuation to the date of sale on 24 June 2002.

159 The calculation on 29 April 2002 was as follows:

LESS: Interest on development costs (12 months, 7.5%) 2,703,225

LESS: Rates and taxes (half period 10.5 months) 3% 2,365,055

160 In crossexamination Mr Catlin was asked to update this valuation to 24 June 2002, with the benefit of three assumptions. The assumptions were as follows.

161 First, that the building contract price, which Mr Catlin said he would use rather than a tender price,[120] was $9,014,533 (exclusive of GST).[121]

162 Secondly, that the tender price was $8,804,766 (exclusive of GST).[122]

163 Thirdly, that the construction price includes a deposit for fit out costs of $253,800 (special equipment).[123] Mr Catlin appears to have accepted that the deposit should be deducted from the fit out costs, and the full estimated fit out cost ($2,127,240) should be added to obtain the development cost.

164 All these assumptions involve the correct figures, supported by the evidence.

165 The contract price, on 4 July 2002, was $9,915,986 inclusive of GST, which is $9,014,533 exclusive of GST. This price included 'special equipment' of $253,800, which was part of the fit out costs.[124]

166 The tender from Devaugh, on 13 June 2002, was for a building price of $8,804,766, exclusive of GST.[125] The Devaugh tender also included 'special equipment' of $253,800 which was part of the fit out costs.

167 Mr Catlin used the actual contract price and produced, during his oral evidence, a revised valuation as at 24 June 2002. His 24 June 2002 valuation used the contract price of $9,014,533 plus the same estimated fit out costs as he had estimated on 29 April 2002 ($2,127,050) less the component of those fit out costs already included in the contract price ($253,800).

168 A document was tendered reflecting his manuscript amendments to the calculations while he was in the witness box.[126] This exhibit reflects the following:

LESS: Interest on development costs (12 months, 7.5%) 4,227,602

169 In reexamination, counsel for Agricultural asked Mr Catlin about the loan agreement of 24 June 2002 between parties including Agricultural and Hawaiian Developments Pty Ltd.[127] That loan agreement concerned a facility permitting drawdown of up to a 'Total Commitment' of $3 million.[128] The first part of the facility, $2,300,000, was required to be used to pay Bunbury Centro. A further $250,000 was required to be used to pay 'Funded NonBuilding Costs' of $250,000[129] which are costs payable by either Agricultural or Bunbury Centro in connection with the construction and development of the Project.

170 In reexamination, counsel for Agricultural conflated both of these types of cost as 'the project costs'[130] and suggested to Mr Catlin that his 24 June 2002 valuation should have included interest at a rate of 16%. It was not put to Mr Catlin that only around $250,000 of this cost would be used for the construction and development of the Project.

171 In any event, Mr Catlin explained, and I accept, that the 16% rate would not have been included in his valuation of the Kalgoorlie Property because it was 'way above the standard rates'.[131]

172 In reexamination, Mr Catlin was also taken to Agricultural's financial statements for 1 July 2002 to 30 June 2003.[132] Mr Catlin acknowledged that 7.9% in interest costs on borrowings, which is reflected in those financial statements, would increase the interest cost from the 7.5% which he had allowed on the development costs.[133] Although I was not referred in any submissions to whether the 7.9% interest cost was known at 24 June 2002 it is reasonable to suppose that it would have been known and that, therefore, there was an overestimation of value by $43,551 attributable to this issue.

173 On the other hand, there is a matter which could have a far more significant effect on Mr Catlin's 24 June 2002 valuation. As I have explained, Mr Catlin used the contract price to assess the development cost of $9,014,533 exclusive of GST. But the contract price was only proposed by Devaugh on 4 July 2002. There was no evidence that the contract price was known, or could have been known on 24 June 2002. The tender from Devaugh, however, was made on 13 June 2002 and would have been known on 24 June 2002. It was for a considerably lower building price of $8,804,766, exclusive of GST.[134]

174 It was common ground that the use by Mr Catlin of the actual contract price in his 24 June 2002 valuation was legitimate even though that price was not known to anyone at that date and might not have been knowable at that date.[135]

175 It is not necessary to consider whether that common ground is accurate. Even on the assumption that a later contract price could be included in an assessment of value at 24 June 2002 (and therefore relevant to any loss suffered), the actual value at that date is a different matter from the value that a reasonable person in Mr Jackson's or Mr Goff's position could have expected at that date. It suffices to say that information which was not known on 24 June 2002, and not reasonably available to a reasonable director, could not be used as the basis for findings of breach of duty. If Mr Jackson and Mr Goff had attempted to update Mr Catlin's 29 April 2002 valuation on 24 June 2002, without the benefit of knowing the actual contract price but being aware of the tender price, then if they had applied Mr Catlin's methodology in his oral evidence the value of the Kalgoorlie Property would be increased by more than $200,000 for this lower building cost, independently of all the other increases noted by Mr Catlin.

(i) Mr Catlin's 29 April 2002 valuation of the Kalgoorlie Property as $2,250,000 was substantially less than the value of the Kalgoorlie Property as at 24 June 2002.

(ii) The value of the Kalgoorlie Property on 24 June 2002 can only be assessed in approximate terms at around $3,550,000.

(iii) A number of the listed items in the Licence were potentially matters of substantial value and were not included in Mr Catlin's valuation of the Kalgoorlie Property as at either 29 April 2002 or 24 June 2002.

(iv) There is insufficient evidence to assess, even in broad approximate terms, the value of the Licence on 24 June 2002, nor to compare that value with whatever was the discounted value, on 24 June 2002, of the proper amount due at the time it was due (even if the proper amount due is assumed to be $1,665,051 which was paid on 2 January 2004).

177 Mr Nuttall's evidence was, at best, peripheral to the issues in the case. Mr Nuttall swore an affidavit which annexed a valuation report that retrospectively valued the Kalgoorlie Property at $8.8 million as at 1 August 2003.

178 This valuation does not prove Agricultural's precise loss on the sale of the Kalgoorlie Property and hotel on 21 June 2007. At best, all that it could assist to establish is that a year after the sale of the Kalgoorlie Property, at around the time the hotel was completed, a substantial loss had been incurred by Agricultural. That loss was realised on 21 June 2007 when Agricultural sold the Kalgoorlie Property and hotel.

179 It is necessary to observe that Mr Nutall's valuation of the asserted 'true value' on 1 August 2003 is not a market value. It relies on trading figures and forecasts which were not introduced into evidence and which postdate 1 August 2003 and which were not reasonably knowable at that date.

180 In opening submissions, Mr Nuttall's valuation was relied upon only for the submission that the directors who entered into the Contract undertook a project where the profitability was so marginal and so speculative that had the directors given proper consideration they would have concluded that the potential return on the investment was insufficient to warrant the acquisition of the Kalgoorlie Property.[136] Even if Mr Nutall's report could be used for this purpose (which it cannot due to its incompleteness in relation to trading figures and its date), as I explain below in section 6.1 of these reasons, the cause of action alleged by this submission and associated pleading is timebarred.

181 In Agricultural's closing written submissions there was no reference made to Mr Nuttall's valuation.

182 In closing oral submissions, Mr Nuttall's report was relied upon only to show that there was no new intervening event which caused the loss to Agricultural when it sold the Kalgoorlie Property for $10.15 million on 21 June 2007.[137] For the reasons I explain below in section 18.2.3, I do not conclude that there was any new intervening event which caused the loss to Agricultural independently of the Project Management Agreement and the value of the hotel when constructed in August 2003.

5. The inferences which Agricultural alleged should be drawn

183 Counsel for Agricultural submitted that five inferences should be more readily drawn against the defendants because Mr Jackson and Mr Goff adduced no evidence at the trial. Those inferences sought were as follows.[138]

(i) The valuation by Mr Catlin was accepted by the defendants as being the market value of the Kalgoorlie Property, namely $2,250,000.

(ii) The Licence fee structure was an attempt to minimise or avoid stamp duty.

(iii) It was always the intention of Messrs Jackson and Goff that the Kalgoorlie Property would be leased as a hotel development.

(iv) It was always the intention of Messrs Jackson and Goff to enter a management agreement similar to that which existed with Bunbury Centro.

(v) It was always the intention of Messrs Jackson and Goff to purchase the Kalgoorlie Property from Bunbury Centro to provide an element of profit for the shareholders of Bunbury Centro.

(i) First, the subjective views of Messrs Jackson and Goff concerning the market value of the Kalgoorlie Property are irrelevant to the actual assessment of that market value, which I have concluded was $3,550,000. Secondly, whether Messrs Jackson and Goff 'accepted' that Mr Catlin's valuation mean that the Kalgoorlie Property was worth $2,250,000 on 29 April 2002 is not relevant to any issue in dispute. Thirdly, the evidence supports an inference that Mr Jackson's and Mr Goff's subjective intention was to sell the Kalgoorlie Property at its current market value.[139] No conclusion of bad faith or improper purpose could be drawn in any event.

(ii) This inference relies upon the discussion in the memorandum between Mr Turner and Mr Anderson.[140] As I have explained above at [118], it is not open to draw the inference that Mr Jackson or Mr Goff saw this memorandum or discussed its contentions with Mr Turner or Mr Anderson.

(iii), (iv) The defendants accept that these inferences are uncontroversial.[141] This acceptance is appropriate in the context of the timing of the Project Management Agreement and other documentary evidence.[142]

(v) This inference is not open. First, the memorandum upon which Agricultural's submission relies[143] is selectively quoted. Agricultural quotes a passage which refers to the need for shareholders in Bunbury Centro to be compensated for value which they will forego.[144] But, in the immediately preceding paragraph from that memorandum, Messrs Jackson and Goff say that the parent company of Bunbury Centro and Agricultural 'considers that it is preferable for [Bunbury Centro] to transfer the [Kalgoorlie Property]... at its current market value prior to construction commencing'.[145] It may be that counsel for Agricultural meant that a 'book profit' from historical cost was intended. That matter is considered in section 20.2 of these reasons. Book profit is not relevant.

184 In Forrest v Australian Securities and Investments Commission[146] French CJ, Gummow, Hayne and Kiefel JJ explained that the task of the pleader 'may require facts or characterisations of facts to be pleaded in the alternative'. But, their Honours emphasised, '[i]t does not extend to planting a forest of forensic contingencies and waiting until final address or perhaps even an appeal hearing to map a path through it'.[147]

185 Those observations are apt in this case. Agricultural pleaded a vast suite of obligations allegedly breached by Messrs Jackson and Goff. The pleadings involved obligations, within obligations, within obligations. There were crossreferences within crossreferences. The various types of relief claimed were not expressly associated with particular breaches. And whenever one type of breach was apparently answered, another breach, sometimes nearly identical, would rise from the place where the previous breach was alleged.

186 It is necessary to wade through the detail of the pleading for three reasons.

187 The first reason is that there was considerable focus by the defendants in opening and closing submissions on the terms of Agricultural's pleaded case. Only one witness, Mr Catlin, was called in the trial. He was called by Agricultural for a very limited purpose. The defendants plainly intended that Agricultural should be held to its case as pleaded.

188 The second reason for the importance of the pleadings is that the first and second defendants did not give evidence. As I have explained, the effect of this decision not to give evidence was the subject of submissions by counsel for Agricultural and falls to be assessed in light of Agricultural's pleaded case and the facts found based on that case.

189 The third reason is that there were limitation issues raised by the defendants and, as senior counsel for the defendants submitted on a number of occasions, an amendment to Agricultural's case in various respects would be, and was, timebarred.

190 The vital aspects of Agricultural's pleaded case in relation to the duties owed, and breached, by the defendants can be summarised in groups as follows below. However, it is necessary first to explain why one category of alleged breach cannot be sustained.

6.1 The plea concerning loss arising from the costs of construction

191 Agricultural commenced these proceedings by writ issued on 4 June 2008. That writ was issued very shortly before the expiration of six years after the 24 June 2002 Contract. It was also issued shortly before the expiration of six years after the 1 July 2002 Project Management Agreement.

192 The 4 June 2008 writ, and indorsed statement of claim,[148] only made a claim against the defendants for loss or damage suffered by reason of entry into the Contract. The focus of the pleading was on various breaches concerning the entry into the Contract and particularly the payment of the purchase price and the Licence fee. There was no plea of any breach of duty concerning entry into the Project Management Agreement. The Project Management Agreement was not mentioned in the statement of claim. There was no plea that (i) the defendants entered the Contract with the risk that upon completion the hotel would be worth less than the total cost of completion, or (ii) that this loss had occurred by, at the latest, 1 August 2003 (see the evidence of Mr Nuttall).

193 On 28 October 2010, Agricultural purported to amend the statement of claim without leave to add a claim against Messrs Jackson and Goff based upon damage suffered by reason of entry into, and performance of, the Project Management Agreement. The amendment cannot 'relate back' to the original 4 June 2008 pleading for the purposes of the limitation period. If it is outside the limitation period then the new claim is defeated.[149] It will be outside the limitation period unless it arises from the same or substantially the same facts as the 4 June 2008 pleading. [150]

194 The defendants pleaded,[151] and I accept, that Agricultural's 28 October 2010 amendments do not arise out of the same or substantially the same facts as the 4 June 2008 pleading. Even if a broad and flexible approach is taken to the facts and issues alleged in the 4 June 2008 pleading,[152] the issues concerning (i) losses flowing from construction, and (ii) the terms of the Project Management Agreement, raise wholly new issues which are well beyond the scope of the 4 June 2008 pleading.

195 On 27 August 2012, Agricultural again purported to amend its statement of claim. It did the following.

(i) The new pleading deleted the claims against Messrs Jackson and Goff based upon loss or damage allegedly suffered by entry into and performance of the Project Management Agreement.

(ii) It pleaded that on 24 June 2002, Messrs Jackson and Goff 'were aware [from the Project Management Agreement] that the total cost to completion of the Resort would substantially exceed the cost referred to in [Mr Catlin's 29 April 2002 valuation]'.[153]

(iii) It pleaded that if proper consideration had been given to matters including this, then Messrs Jackson and Goff would have concluded that:

(a) the potential return on the investment was insufficient to warrant proceeding with the purchase of the Kalgoorlie Property; and

(b) there was a significant risk that upon completion the hotel would be worth less than the total cost to completion.[154]

(iv) It introduced new pleas concerning reasons why Mr Catlin's 'as if complete' valuation of the hotel when fully constructed ($19.5 million) was unreliable or excessive. These matters included occupancy levels, room rates, lack of comparable developments in Kalgoorlie, and the fluctuations in Kalgoorlie's economy.[155]

196 Once again, these new claims advanced in Agricultural's amendments on 27 August 2012 do not arise from the same or substantially the same facts as the 4 June 2008 pleading.

197 In written opening submissions, counsel for Agricultural accepted that '[n]o separate claim is advanced for damages allegedly suffered by entry into or performance of the Project Management Contract'.[156] Nevertheless, counsel said that one of the two key issues in the case would be whether, at the time of the Contract (24 June 2002) Messrs Jackson and Goff[157]

themselves undertook a project where the profitability was so marginal and so speculative that had the directors given proper consideration they would have concluded that the potential return on the investment was insufficient to warrant the acquisition of the Kalgoorlie Property and that there was a significant risk upon completion that the Resort would be worth less than the total cost of completion.

198 This submission, and the associated plea, were never formally abandoned. But there are two independent reasons why they must be rejected.

199 First, as the defendants pleaded, Agricultural's case is timebarred to the extent that it is based upon any cause of action for loss or damage suffered by (i) entry into or performance of the Project Management Agreement, or (ii) the construction of the hotel.[158]

200 Agricultural's submission concerning the marginal or speculative profitability of the project is inextricably associated with the costs of construction and the Project Management Agreement.

201 The reason why these pleas, and associated submissions, are timebarred is because they involve a new cause of action which does not arise from the same or substantially the same facts as previously pleaded.

202 I do not accept Agricultural's written closing submission that '[t]he breach of trust occurred upon entry into the Contract on 24 June [2002]. The events that follow go not to the establishment of the cause of action but to the quantification of loss or damage'.[159] Putting aside the absence of any pleading of breach of trust, Agricultural's submission about the speculative nature of the project focuses upon reasons why the loss on sale of the hotel arose. This is not a submission merely about quantification of loss. It concerns the reasons for the loss related to alleged costs of construction of the hotel, the Project Management Contract terms and speculative profitability.

203 The new cause of action concerns either or both of a claim for compensation under s 1317H of the Corporations Act[160] or a claim for equitable compensation for breach of an equitable duty of care and skill. In relation to s 1317H the cause of action is outside the statutory limitation period of six years.[161] In relation to equitable compensation the cause of action is barred by analogy.

204 The relevant pleaded facts in these causes of action were introduced on 27 August 2012. But the 6 year limitation period for a claim under s 1317H of the Corporations Act[162] expired on 1 July 2008 to the extent that the new facts involving speculative profitability concern a breach of the Corporations Act relating to the Project Management Agreement. It expired on 24 June 2008 to the extent that the new facts involving speculative profitability concern a breach of the Corporations Act relating to the Contract for purchase of the Kalgoorlie Property.

205 To the extent that the pleaded facts are relied upon to allege a breach of an equitable duty of care the same limitation period arises by analogy.

206 In Knox v Gye,[163] Lord Westbury said:

[W]here the remedy in Equity is correspondent to the remedy at Law, and the latter is subject to a limit in point of time by the Statute of Limitations, a Court of Equity acts by analogy to the statute, and imposes on the remedy it affords the same limitation...Where a Court of Equity frames its remedy upon the basis of the Common Law, and supplements the Common Law by extending the remedy to parties who cannot have an action at Common Law, there the Court of Equity acts in analogy to the statute; that is, it adopts the statute as the rule of procedure regulating the remedy it affords.

207 The reason why a statutory limitation period is applied to a circumstance which was not recognised in the terms of the statute has never been clearly explained. One possibility is that the application of a limitation period by analogy is an example of the first limb of the controversial doctrine of the equity of the statute: 'cases, thus out of the letter [of the statute], are often said to be within the equity'.[164] This perhaps explains the firmness of the conviction with which some views are held that when equity applies a statute by analogy it does so by exact application of the terms of the statute to the new action.[165]

208 Whatever the reason for the doctrine, and whether or not the basis for limitation by analogy is controversial, the remarks of Lord Westbury are well established in Australian law. In Motor Terms Co Pty Ltd v Liberty Insurance Ltd (in liq),[166] Kitto J held that 'the analogy of the statute is used in a suit for equitable relief as affording a prima facie proper standard by which to decide whether the relief should be refused on the ground of the staleness of the claim'. And, in this jurisdiction, it has been added that[167]

When claims are made in equity that are not the subject of a statutory prescription and the claims correspond to a remedy at law that could be subject to a statutory time bar, then a court of equity, in the absence of fraud or other special circumstances, will adopt by way of analogy the same limitation for the equitable claim.

209 A claim for equitable compensation for breach of a duty of care and skill attracts a sixyear limitation period either by analogy with:

(i) a claim for damages at common law for breach of a duty of care and skill;[168] or

(ii) by analogy with the limitation period which applies under s 1317H of the Corporations Act for breach of s 180 of the Corporations Act.

210 It might be appropriate to apply an analogy with the limitation period for damages at common law in circumstances in which, in seriously considered obiter dicta in this jurisdiction, it has been held that 'the tortious duty not to be negligent, and the equitable obligation on the part of a trustee to exercise reasonable care and skill are, in content, the same'.[169] Further, claims for equitable compensation, at least for recovery of consequential loss, have been said to be 'analogous to claims for damages at law'.[170]

211 It is perhaps even more appropriate to apply an analogy with compensation under s 1317H of the Corporations Act for breach of a director's duty of care and skill under s 180. This analogy has been described as 'a very strong one; indeed, this is as close an analogy as one can conceive'.[171]

212 There is one qualification, binding upon me, to the principle concerning the application of a statute by analogy. This qualification is that equity will not apply a limitation period by analogy where there are circumstances which make the application of the statute unconscionable.[172] Counsel for Agricultural did not make any submission, nor lead any evidence, that there were any circumstances which might make the application of a sixyear period of limitation unconscionable.

213 The sixyear limitation period in s 1317K, or the application of a sixyear limitation period by analogy, means that Agricultural's case is timebarred to the extent that it is based upon loss or damage suffered by entry into or performance of the Project Management Agreement or the construction of the hotel. This includes submissions concerning the alleged marginal or speculative profitability of the construction and operation of the hotel.

214 Secondly, and independently of the limitation period, as I have explained at [92] - [101] no factual basis was established for the pleas and submissions concerning the risk of loss, or actual loss, on 24 June 2002 arising from the proposed construction of the hotel.

215 In particular, Mr Catlin was called by Agricultural to produce his 29 April 2002 report. He was crossexamined by senior counsel for the defendants concerning his calculations on a hypothetical development basis which started from a premise that the 'as complete' value of the hotel would be $19.5 million. Counsel for Agricultural did not ask Mr Catlin any questions in reexamination such as those pleaded concerning occupancy levels, room rates, lack of comparable developments in Kalgoorlie, and the fluctuations in Kalgoorlie's economy which could call into doubt either the reliability of the reasonableness of his determination that the 'as if complete' valuation of the hotel was $19.5 million on 24 June 2002.

6.2 The other duties allegedly breached by Messrs Jackson and Goff

216 The remaining breaches of Messrs Jackson and Goff's obligations are governed by pars 34 and 35 of the re-amended substituted statement of claim. Each is set out in sequence below.

217 The breaches alleged in par 34 involve breaches of the related party provisions in the Corporations Act,[173] and its failure to comply with the Replacement Compliance Plan. None of these breaches, by themselves, directly gives rise to liability for the compensation pleaded by Agricultural, either under s 1317H of the Corporations Act[174] or as equitable compensation. But the admissions by the defendants in relation to par 34 are relevant to the breaches pleaded in par 35.

218 The opening words of par 35, which qualify all the subsequent pleaded breaches are as follows:

By their conduct in causing [Agricultural] to enter into the Contract and make the payments pleaded in subparagraphs 31.1 and 31.2 above, [Messrs Jackson and Goff] breached their obligations (emphasis added):

...

219 The payments pleaded in subparagraphs 31.1 and 31.2 are payments to Bunbury Centro under the Contract of:

220 It is of significance that the opening words of par 35 qualify all of the numerous, overlapping, pleaded breaches in par 35. The pleaded breaches in par 35, of Mr Jackson's and Mr Goff's obligations, are as follows below.

(1) Entering the Contract when it was not in the best interests of Agricultural to do so,[175] in breach of

(i) obligations of care and diligence (s 180 Corporations Act),[176]

(ii) obligations to act in good faith in the best interests of Agricultural, and for proper purposes (s 181, s 184 Corporations Act),[177]

(iii) obligations under s 601FD(1)(f)(i) and s 601FD(1)(f)(iv) of the Corporations Act to take all steps that a reasonable person in their position would take to ensure that Agricultural complies with the Corporations Act and the Kalgoorlie Scheme's compliance plan.[178]

(2) Failure to take all necessary steps to ensure that Agricultural complied with the Kalgoorlie Scheme Replacement Compliance Plan,[179] in breach of

(i) obligations of care and diligence (s 180 Corporations Act),[180]

(ii) obligations to act in good faith in the best interests of Agricultural, and for proper purposes (s 181, s 184 Corporations Act),[181]

(iii) obligations under s 601FD(1)(f)(i) and s 601FD(1)(f)(iv) of the Corporations Act to take all steps that a reasonable person in their position would take to ensure that Agricultural complies with the Corporations Act and the Kalgoorlie Scheme's compliance plan.[182]

(3) Breaching their 'common law' duty of care to exercise reasonable care, skill and diligence in the performance of their duties as a director and a company secretary of Agricultural[183] because they did not take all necessary steps to ensure that they complied with the Kalgoorlie Scheme Replacement Compliance Plan.[184]

(4) Using their position improperly for the purpose of gaining an advantage for themselves or Bunbury Centro[185] or causing detriment to Agricultural[186] (s 182 Corporations Act), with the impropriety being that to the knowledge of Messrs Jackson and Goff, the purchase price and Licence fee payments

(i) exceeded the market value of the Kalgoorlie Property at the date of the Contract,[187] and

(ii) the rights acquired under the Licence were either (a) worth nothing, or (b) worth substantially less than the Licence fee, or (c) Agricultural did not need to acquire any rights under the Licence to enable it to proceed with the Project, or (d) the payment was in excess of the maximum amount of its Licence fee.[188]

(5) Breaching their 'common law' duty of care to exercise reasonable care, skill and diligence in the performance of their duties as a director and a company secretary of Agricultural[189] because any reasonable director in their position would have concluded that it was not in Agricultural's best interests to enter into the Contract.[190]

(6) Breaching their fiduciary duties not to prefer their own interests to the interests of Agricultural when acting as directors and the company secretary of Agricultural[191] because of the following:

(i) the purchase was not in the best interests of Agricultural since the Kalgoorlie Property and the Licence were worth, in combination, no more than $2,250,000 and in all likelihood substantially less;[192]

(ii) the sale provided a substantial benefit to Bunbury Centro in which Mr Jackson was a director and held an indirect interest and Mr Goff was company secretary and Agricultural paid $4,013,260 for the Kalgoorlie Property and the Licence when both were worth no more than $2,250,000 and, in all likelihood, substantially less;[193] and

(iii) in causing Agricultural to enter the Contract, Messrs Jackson and Goff had conflicts of interest arising from their position as directors of Agricultural, and directors and company secretary of Bunbury Centro, and did not seek the approval of the shareholders of Agricultural.[194]

(7) Breaching their fiduciary duties to avoid any situations that might give rise to a conflict of interest between the interests of Agricultural and their interests or the interests of associated parties;[195] because

(i) the purchase was not in the best interests of Agricultural since the Kalgoorlie Property and the Licence were worth, in combination, no more than $2,250,000 and in all likelihood substantially less;[196]

(ii) the sale provided a substantial benefit to Bunbury Centro in which Mr Jackson was a director and held an indirect interest and Mr Goff was company secretary and Agricultural paid $4,013,260 for the Kalgoorlie Property and the Licence when both were worth no more than $2,250,000 and, in all likelihood, substantially less;[197]

(iii) in causing Agricultural to enter the Contract, Messrs Jackson and Goff had conflicts of interest arising from their position as directors of Agricultural and directors and company secretary of Bunbury Centro and did not seek the approval of the shareholders of Agricultural.[198]

6.3 The pleading of duties breached by Bunbury Centro

221 Claims against Bunbury Centro for 'knowing assistance' and 'knowing receipt', based upon Barnes v Addy,[199] were abandoned.[200] The remaining claims against Bunbury Centro were that it breached the following duties:[201]

(i) Bunbury Centro was, directly or indirectly, knowingly concerned in Mr Jackson's and Mr Goff's contraventions of the Corporations Act within the meaning of s 79 of the Corporations Act;

(ii) Bunbury Centro 'made a profit from the contraventions of the Corporations Act by Agricultural, Mr Jackson and Mr Goff.

222 These two matters did not raise independent breaches. Agricultural's case against Bunbury Centro in relation to breach was simply that Bunbury Centro was 'knowingly concerned' under s 79(c) of the Corporations Act in contraventions by Messrs Jackson and Goff.[202]

223 The defendants admit[203] that Messrs Jackson and Goff breached the related party provisions of the Corporations Act,[204] namely s 208(1) as replaced by s 601LC.[205]

224 Section 208(1) of the Corporations Act, as replaced by s 601LC, provides as follows:

(1) If all the following conditions are satisfied in relation to a financial benefit:

(i) the responsible entity of a registered scheme; or

(ii) an entity that the responsible entity controls; or

(iii) an agent of, or person engaged by, the responsible entity

(ii) another person referred to in paragraph (a) or a related party of that person;

then, for the person referred to in paragraph (a) to give the benefit, either:

(i) obtain the approval of the scheme's members in the way set out in sections 217 to 227; and

(ii) give the benefit within 15 months after the approval; or

(e) the giving of the benefit must fall within an exception set out in sections 210 to 216.

225 Examples of the meaning of 'giving a financial benefit' are provided in s 229(3) of the Corporations Act. They include 'buying an asset from or selling an asset to the related party'. The making of a profit on the transaction is not necessary for a 'financial benefit'.

226 The defendants' concession should be accepted. Agricultural's conduct infringed s 208(1) of the Corporations Act in:

(b) conferring rights upon Bunbury Centro to payment from scheme property under the Contract;

(c) in circumstances in which Bunbury Centro was a related party, as shown in Appendix 1; and

(d) without approval of the scheme's members or an exception in s 210 to s 216.

227 The defendants also admit[206] that they failed to comply with the Replacement Compliance Plan[207] clauses 20 and 27.

228 Clause 20 of the Replacement Compliance Plan dated 20 May 2002 (Replacement Compliance Plan) for the Kalgoorlie Scheme includes:[208]

the responsible entity of the Kalgoorlie Scheme must conduct appropriate due diligence on any proposal to buy or sell any real property of the Kalgoorlie Scheme during the term of the Kalgoorlie Scheme;

any proposal to buy or sell any real property at any time during the term of the Kalgoorlie Scheme must be tabled at a directors' meeting of the responsible entity with a due diligence report prepared by the Trust Manager;

the due diligence report must also be tabled at a meeting of the compliance committee of the Kalgoorlie Scheme for review; and

Notwithstanding the above procedure, if the responsible entity of the Kalgoorlie Scheme determined that it would be in the best interests of investors to proceed with the purchase or sale then it may do so without receiving the compliance committee report.

229 Clause 27 of the Replacement Compliance Plan for the Kalgoorlie Scheme includes[209]

The Compliance Officer is to provide the compliance committee with details of any proposed transactions between the Plaintiff and any related party, for review;

The compliance committee was to provide a sign off to the compliance officer on all proposed transactions with a related party.

230 It was admitted,[210] and I accept, that

(i) Agricultural did not follow cl 20 because the proposal to buy the Kalgoorlie Property was not tabled at a directors' meeting with a due diligence report prepared by the Trust Manager and a due diligence report was not tabled at a Compliance Committee Meeting for review.

(ii) Agricultural did not follow cl 27 because Mr Goff, as Agricultural's compliance officer, did not provide the Compliance Committee with details of the Contract, and the Compliance Committee did not provide approval in writing for Agricultural to enter the Contract.

8. The first group of alleged breaches: entering the Contract when it was not in the best interests of Agricultural to do so

231 The first group of pleaded breaches of duty concern Agricultural entering the Contract when it was not in the best interests of Agricultural to do so, and making the purchase price and Licence fee payments.

232 The alleged failure to act in Agricultural's best interests is pleaded as a breach of:

(i) obligations of care and diligence (s 180 Corporations Act);

(ii) obligations to act in good faith in the best interests of Agricultural, and for proper purposes (s 181, 184 Corporations Act); and

(iii) obligations under s601FD(1)(f)(i) and s 601FD(1)(f)(iv) of the Corporations Act to take all steps that a reasonable person in their position would take to ensure that Agricultural complies with the Corporations Act and the Kalgoorlie Scheme's compliance plan.[211]

233 This group of breaches must all fail for the simple reason, set out above, that Agricultural has failed to prove that it was not in Agricultural's best interests to enter the Contract. Under the Contract, Agricultural acquired the Kalgoorlie Property, with a value of around $3,550,000 for $2,250,000. It also acquired a Licence, of unknown value, for an amount due of not more than $1,665,051, and possibly less.

234 In any event, some of the additional ways of pleading breach by Agricultural of this 'best interests' obligation introduce additional elements which were also unproved. Sections 181 and 184 of the Corporations Act require proof of an absence of 'good faith' in the exercise of powers, and recklessness or intentional dishonesty. None of these matters was proved. No submissions were made by counsel for Agricultural on these matters.

235 The plea of breach of obligations under s 601FD(1)(f)(i) and s 601FD(1)(f)(iv) of the Corporations Act fail within this category. This is because the pleaded breaches in this category include an allegation that the entry into the Contract and the associated payments were not in Agricultural's best interests. Those obligations are pleaded separately from the 'best interests' allegation in the next category. They are considered there, in section 9 of these reasons, independently of the 'best interests' pleading.

9. The second and third groups of alleged breaches: failure to take all necessary steps to ensure that Agricultural complied with the Replacement Compliance Plan

236 The second and third groups of alleged breaches by Messrs Jackson and Goff concerns their failure to take all necessary steps to ensure that Agricultural complied with the Kalgoorlie Scheme Replacement Compliance Plan.

237 As I have explained above, the defendants admit that Messrs Jackson and Goff failed to comply with the Replacement Compliance Plan. The defendants also admit that this failure was a breach of their obligations under s 601FD(1)(f)(iv) of the Corporations Act. That provision is the statutory obligation to take all steps that a reasonable person would take, if he or she were in the officer's position, to ensure that the responsible entity complies with the scheme's compliance plan.

238 It is difficult to see what matters of substance the numerous alternative pleaded breaches in these second and third categories of breach add to the admissions by the defendants.

239 As for the second category, Agricultural's alternative pleadings rely upon the same failure to ensure compliance for a pleading that Messrs Jackson and Goff breached:

(i) obligations of care and diligence (Corporations Act s 180);

(ii) obligations upon directors and officers not to use their position improperly (Corporations Act s 182);

(iii) obligations not to be reckless or intentionally dishonest (Corporations Act s 184); and

(iv) obligations under s 601FD(1)(f)(i) of the Corporations Act.

240 As for the third category, the same failure to ensure compliance is pleaded as a breach by Messrs Jackson and Goff of their 'common law' duty of care to exercise reasonable care, skill and diligence in the performance of their duties as a director and a company secretary of Agricultural.

241 This third category plea is ambiguous. If the plea of breach of a duty of care at 'common law' is to be read as a reference to 'common law' in contrast with equity then the immediate difficulty is that there is no claim for damages brought against Agricultural. A plea for '[s]uch further or other relief as the Court considers just' is not a plea for damages. Another difficulty may be whether such a claim exists outside equity.[212] But if the pleading of 'common law' is intended to mean any 'general law' duty of care, including a duty of a company director to take care in equity, then the pleading makes sense because the relief sought includes equitable compensation. The plea must be understood as a plea of breach of the general law, equitable, duty of care for the pleading to be comprehensible.

242 None of Agricultural's submissions suggested that any of these alternatives added anything to the admission by the defendants. Each involves the identical facts pleaded: failure to take all necessary steps to ensure that Agricultural complied with the Kalgoorlie Scheme Replacement Compliance Plan.

243 Although I accept that, as the defendants conceded, Messrs Jackson and Goff failed to take all necessary steps to ensure that Agricultural complied with the Kalgoorlie Scheme Replacement Compliance Plan, almost all of the alternative pleaded forms of this breach fail because of missing additional elements.

244 In relation to the pleas of breach of equitable duties of care, Agricultural did not plead or prove that it relied upon any of these breaches in entering the Contract. Agricultural did not show that but for the failure of compliance by Messrs Jackson and Goff, Agricultural would not have entered the Contract in any event.[213] Indeed, in light of my findings concerning the value of the Kalgoorlie Property, I consider that it is likely that Agricultural would have entered the Contract in any event. As I explain below, the 'but for' test is a generally accepted negative indicia of causation.

245 In relation to duties requiring impropriety in gaining an advantage or causing a detriment to Agricultural (Corporations Act s 182), these also fail due to the failure by Agricultural to prove that any advantage was gained by Messrs Jackson and Goff or any detriment suffered by Agricultural. Agricultural made no separate submissions in relation to s 182.

246 In relation to obligations not to be reckless or intentionally dishonest under Corporations Act s 184, I do not accept that Messrs Jackson and Goff were reckless or that they were intentionally dishonest. Agricultural made no separate submissions in relation to s 184.

247 Although it adds little, if anything, to the admitted breach by Messrs Jackson and Goff of their obligations under s 601FD(1)(f)(iv), I conclude that Messrs Jackson and Goff were also in breach of s180(1) and s 601FD(1)(f)(i) of the Corporations Act.

248 Section 180(1) requires a director or officer to

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.

249 This provision differs from the equitable obligation because the statutory liability is not dependent upon proof of loss.[214] The breach of duty is separate from the remedy.

250 As for section 601FD(1)(f)(i), this is the statutory obligation to take all steps that a reasonable person would take, if he or she were in the officer's position, to ensure that the responsible entity complies with the Corporations Act.

251 Sections 180(1) and 601FD(1)(f)(i) were breached by Messrs Jackson and Goff because they did not take all steps that a reasonable person would take, if he were in their respective positions, to ensure that Agricultural complied with s 208(1) of the Corporations Act (the related party provisions). At the time of the Contract, Mr Goff was the compliance officer for the Kalgoorlie Scheme. Both Mr Jackson and Mr Goff were aware or should have been aware, as the minutes and attached related party documents reveal, that Agricultural and Bunbury Centro were related parties. They chose to sign the Contract on behalf of both companies. Any independent legal advice that they obtained would have informed them of the requirements of s 208(1) of the Corporations Act.

252 I conclude that Messrs Jackson and Goff were in breach of ss 180(1), 601FD(1)(f)(i) and 601FD(1)(f)(iv). The breaches of each of the latter two sections was a contravention of s 601FD(3).

10. The fourth group of alleged breaches: misuse of position as company officers

253 The fourth group of alleged breaches involves a plea that Messrs Jackson and Goff used their position improperly for the purpose of gaining an advantage for themselves or Bunbury Centro or causing detriment to Agricultural (Corporations Act s 182).

254 Although, I accept that Messrs Jackson and Goff intended that Bunbury Centro would obtain a book profit from the transaction (by selling the Kalgoorlie Property for more than Bunbury Centro paid for it years earlier), I reject the plea of impropriety. This was a plea that to the knowledge of Messrs Jackson and Goff,

(i) the purchase price and Licence fee payments exceeded the market value of the Kalgoorlie Property at the date of the Contract, and

(ii) the rights acquired under the Licence were either

(b) worth substantially less than the Licence fee, or

(c) Agricultural did not need to acquire any rights under the Licence to enable it to proceed with the Project, or

(d) the payment was in excess of the maximum amount of its Licence fee.

255 The failure of Agricultural's factual case in relation to the (i) value of the Licence and the reasonableness in acquiring it, and (ii) my findings concerning the value of the Kalgoorlie Property, are fatal to this fourth group of pleaded breaches.

256 Another reason why these pleaded braches must fail is because, as I have explained, Agricultural never established what amount was actually due for the Licence fee. There was insufficient evidence to determine the proper cl 9 cost under the Contract. But Agricultural's case was that the Licence fee under cl 9 of the Contract which was properly due was substantially less than the maximum possible amount of $1,665,051. If Agricultural were correct then the payment by Agricultural on 2 January 2004 of 'at least $1,665,051' would have been an overpayment for which Agricultural was entitled to restitution.

11. The fifth group of alleged breaches: 'common law duty of reasonable care'

257 This pleaded category of breach alleged that Messrs Jackson and Goff breached their 'common law' (sic: 'equitable' - see [241] above) duty of care to exercise reasonable care, skill and diligence in the performance of their duties as a director and a company secretary of Agricultural because any reasonable director in their position would have concluded that it was not in Agricultural's best interests to enter the Contract.

258 For the reasons I have already explained, and summarised at [233], Agricultural has not proved that it was not in Agricultural's best interests to enter the Contract.

12. The sixth and seventh group of alleged breaches: fiduciary duties

259 The sixth and seventh groups of alleged breaches involve allegations that Messrs Jackson and Goff breached their fiduciary duties.

260 The first two reasons pleaded for breach of fiduciary duty in each group concern allegations that the Kalgoorlie Property and the Licence were worth less than what was paid for them, or that Bunbury Centro obtained a substantial benefit from the transaction. Once again, the pleading conflates the amount allegedly paid for the Licence and the amount which was due. In any event, as I conclude in section 4.7, the evidence does not support the pleaded assertion of substantial benefit to Bunbury Centro due to the asserted maximum value of the Kalgoorlie Property and Licence of $2,250,000.

261 The third reason pleaded for breach of fiduciary duty by Messrs Jackson and Goff is that in causing Agricultural to enter the Contract, Messrs Jackson and Goff had conflicts of 'interest' arising from their position as directors of Agricultural, and directors and company secretary of Bunbury Centro, and did not seek the approval of the shareholders of Agricultural.

(i) not to prefer their own interests to the interests of Agricultural when acting as directors and the company secretary of Agricultural; and

(ii) to avoid any situations that might give rise to a conflict of interest between the interests of Agricultural and their interests or the interests of associated parties. This pleading of law concerning a conflict between the 'interests' of Messrs Jackson and Goff arising from their offices held at both Agricultural and Bunbury Centro is more properly expressed as a conflict of 'duties'.

12.2 The nature of the breaches of fiduciary duty

263 Once again, my findings in relation to the value of the purchase price and Licence fee in the Contract mean that Agricultural has failed to prove that Messrs Jackson and Goff actually preferred their own interests to the interests of Agricultural when acting as directors and the company secretary of Agricultural. Further, although, as Appendix 1 shows, Mr Jackson had an indirect interest in Bunbury Centro, he had a greater indirect interest in Agricultural since Kareelya Ltd held 86.82% of the units in Westralia Property Trust[215] and Westralia Property Trust held all the units in the Kalgoorlie Scheme.[216]

264 But there remains the potential conflict that arose for Messrs Jackson and Goff in causing Agricultural to enter the Contract. That conflict was between their duties as officers of Agricultural and their duties as officers of Bunbury Centro. By acting to cause both Agricultural and Bunbury Centro to enter into the Contract they were acting in a position of owing duties to parties with directly conflicting interests. Agricultural's interest was to obtain the lowest price possible. Bunbury Centro's was to obtain the highest. Messrs Jackson and Goff did not obtain shareholder approval from the shareholders of Agricultural for the Contract between Agricultural and Bunbury Centro.

265 The defendants sought to meet this allegation of breach of fiduciary duty by the submission that '[c]onflict per se is not actionable. A breach of duty arises where a fiduciary acts in a position of conflict and pursues (or prefers) the personal interest.'[217] The submission quoted from a judgment of Owen J. It is pertinent that the passage from the judgment quoted commences with the words 'generally speaking'.[218]

266 This submission must be rejected. The 'conflict rule' when concerned with conflicts between duty and personal interest is not limited merely to situations in which a fiduciary actually prefers personal interest. It includes also situations involving a potential for personal interest to be preferred or a potential for breach of duty to one principal where conflicting duties are owed to different principals. The same principles apply where, as in this case, the relevant conflict rule concerns two potentially conflicting duties.

267 It has been said that it is a 'counsel of prudence' rather than a 'rule of equity' that a fiduciary ought to avoid placing himself or herself in a position of conflicting duties. The rule, it has been said, is that a fiduciary must not take advantage of a conflict.[219] But those judges who have remarked on this limit to the fiduciary duty have done so in the context of considering the scope of the separate 'profit rule'[220] or the 'equitable principle governing the liability to account'.[221] The assumption behind the statement may have been that there is no basis for the order of an account of profits in circumstances in which it has not been shown that any advantage was taken to make any profit.

268 In contrast, when focus is directed to the prohibition against a fiduciary placing himself or herself in a position of conflicting duties there are many authorities which emphasise that the underlying duty upon the fiduciary is not circumscribed by whether actual advantage has been taken or whether the fiduciary has actually pursued the conflict.

269 One example is the decision of the Full Federal Court in Commonwealth Bank of Australia v Smith:[222]

Not only must the fiduciary avoid, without informed consent, placing himself in a position of conflict between duty and personal interest, but he must eschew conflicting engagements. The reason is that by reason of the multiple engagements, the fiduciary may be unable to discharge adequately the one without conflicting with his obligation in the other ... In such a case, it is not to the point that the fiduciary himself may not stand to profit from the transaction he brings about between the parties.

270 A second example is the decision of Brennan CJ, Gaudron, McHugh and Gummow JJ in Maguire v Makaronis[223] which referred with approval to a formulation by Richardson J in a case involving conflicting duties by a solicitor:[224]

A solicitor's loyalty to his client must be undivided. He cannot properly discharge his duties to one whose interests are in opposition to those of another client. If there is a conflict in his responsibilities to one or both he must ensure that he fully discloses the material facts to both clients and obtains their informed consent to his so acting ... And there will be some circumstances in which it is impossible, notwithstanding such disclosure for any solicitor to act fairly and adequately for both.

But the acceptance of multiple engagements is not necessarily fatal. There may be an identity of interests or the separate clients may have unrelated interests. Such cases seem straightforward so long as it is apparent that there is no actual conflict between duties owed in each relationship.

271 This is not such a case of 'identity of interest'. When Messrs Jackson and Goff acted as agents for both vendor and purchaser to the transaction they were representing companies with diametrically opposed interests, not least of which was in relation to price.

272 A third example of an authority where the duty is stated independently of any actual advantage or actual pursuit of the conflict by the fiduciary is the comment by Dixon J that a fiduciary is under a duty 'to refrain from engagements which conflict, or which might possibly conflict, with the interests of those whom he is bound to protect' (emphasis added).[225]

273 A fourth example, is the decision in Bristol & West Building Society v Mothew,[226] in a passage approved in Australia,[227] where Millett LJ explained that

[a] fiduciary who acts for two principals with potentially conflicting interests without the informed consent of both is in breach of the obligation of undivided loyalty; he puts himself in a position where his duty to one principal may conflict with his duty to the other ... Breach of the rule automatically constitutes a breach of fiduciary duty.

274 A fifth example are the authorities in this jurisdiction which refer to the authorities which establish that in cases of conflict of duty and interest or conflict of duty and duty, there must be 'a conflict or a real and substantial possibility of a conflict' (emphasis added).[228]

275 The conduct of Messrs Jackson and Goff in causing Agricultural to enter the Contract with Bunbury Centro in circumstances in which they were engaged as officers of Bunbury Centro involved a breach of their fiduciary duties to Agricultural. The breach of fiduciary duty to Agricultural was a breach of the usual duty to avoid placing themselves in a position in which their duties to Agricultural conflicted with duties to another principal.

12.3 Whether the fiduciary obligations were excluded

276 In closing written submissions, senior counsel for the defendants argued that the defendants were not under any fiduciary duty to the plaintiff company 'in respect of property in which the company had no beneficial interest, but which it owned solely as trustee'.[229]

277 One strand of this argument is addressed in section 15 of these reasons below in relation to the defendants' 'disconnect' submission. I explain below why it is nonsense to speak of fiduciary duties owed to a company in a particular capacity as trustee or as beneficial owner. Fiduciary duties are owed to the company. The company may, in turn, owe duties to beneficiaries in relation to trust assets. But if fiduciary duties are owed to the company it does not alter the character of those duties if the company also holds assets on trust.

278 A second strand to this argument was that any fiduciary duties owed to the company were excluded. This submission should also be rejected.

279 Clause 2.3 of Agricultural's Constitution[230] provides that '[t]he law applying to trustees at common law does not apply to the Responsible Entity, except as expressly provided in this Constitution or the Law [defined as the Corporations Act].'[231]

280 Schedule 1 to the Constitution provides, in the definition of 'Portfolio', that the Kalgoorlie Property will be held by the Responsible Entity or Custodian (defined as the person appointed by the Responsible Entity as its agent to hold the Kalgoorlie Property)[232] as nominee for the Investors. At all relevant times, Agricultural has been the Responsible Entity.

281 Although the term 'nominee' is not a legal term of art, the sense in which the term is used in sch 1 of the Constitution is to describe the holding of rights for the benefit of another. That is a trust. And, in the absence of express exclusion, as is sometimes seen in 'commercial' trusts which do not provide for their beneficiaries the full panoply of personal and proprietary rights,[233] undertakings by a trustee will usually include, by implication, an undertaking to refrain from engagements which conflict, or which might possibly conflict, with the interests of the principal.[234]

282 It is possible that cl 2.3 might be construed as an attempt to exclude the usual implication of this 'conflict' duty, like other fiduciary duties, because it is not a duty 'expressly provided in' the Constitution. If cl 2.3 were effective then the declaration of a trust by sch 1 of the Constitution might be deprived of any substantive content at general law other than the liability of Agricultural to convey, upon demand, to the beneficiaries the rights held on trust. It is possible that such an attempt to denude an expressly manifested trust so completely of any positive duty would be ineffective unless the clause were construed, at least, not to exclude the trustee's duty to perform the trusts honestly and in good faith.[235] Whilst the trust relationship exists, the parties cannot deny it is of an essential character.[236]

283 Ultimately, however, it is not necessary to decide upon the proper construction of cl 2.3. One reason why this point need not be decided is because cl 2.3 is expressly subject to the Corporations Act which imposes this obligation, and many others, upon Agricultural as a statutory trustee.[237]

284 More fundamentally, it is unnecessary to identify the precise obligations owed by Agricultural to its members and beneficiaries in this case. As I explain below, in relation to the defendants' 'disconnect' submission, the issue is the duties, including fiduciary duties, owed by the defendant directors to Agricultural. The issue is not the nature of the duties owed by Agricultural to its members and beneficiaries. Nor is it relevant to consider the liability of Agricultural to its members and beneficiaries for any breach by Agricultural. The defendants did not submit that there was anything in the Constitution which excluded the duties owed by the directors to Agricultural.

285 The relief sought against Bunbury Centro for its 'involvement in' breaches by Messrs Jackson and Goff is compensation under s 1317H of Part 9.4B the Corporations Act. One requirement under that section is that a 'person has contravened a corporation/scheme civil penalty provision'.

286 The provisions which, as pleaded in this case, are relevant[238] corporation/scheme civil penalty provisions in Part 9.4B are s 180(1), s 181(2) (involvement in s 181), s 182(2) (involvement in s 182(1)), and s 601FD(3).

287 As I have explained above, Messrs Jackson and Goff breached s 180(1) and s 601FD(3).

288 As to the breach of s 180(1) (duty of care and skill), unlike ss 181 and 182, s 180 does not contain an express provision extending the liability to persons who are 'involved' in that contravention. Agricultural did not submit that there was any basis upon which Bunbury Centro could be liable for being involved in the breach of s 180 by Messrs Jackson and Goff.

289 The only contravention of the Corporations Act for which Bunbury Centro could be liable for 'involvement in' is a contravention of s 601FD(3). Section 601FD(3) provides that a contravention can occur by a person being 'involved in' a contravention of s 601FD(1). The contravention of s 601FD(1) occurred by Messrs Jackson and Goff's breaches of s 601FD(1)(f)(i) and s 601FD(1)(f)(iv).

290 In asserting that Bunbury Centro was 'involved in' the alleged contraventions of the Corporations Act by Messrs Jackson and Goff of s 601FD(3), Bunbury Centro relied on s 79(c) of the Corporations Act.[239] That subsection provides that a person is involved in a contravention if the person 'has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention'.

291 In Re HIH Insurance Ltd; ASIC v Adler,[240] in a passage endorsed on numerous occasions,[241] Santow J said that the involvement required by s 79, including the requirement of knowing concern, requires

knowledge not merely of some potential occurrence, constituting the offence, but of the actual events, though only the essential ones, which constitute that offence. That knowledge must embrace all essential material factual ingredients of a contravention ... Knowledge may be inferred from the fact of exposure to the obvious, though that does not obviate the need for actual knowledge of the essential facts constituting the contravention.

292 The contravention of s 601FD(3) which Agricultural said that Bunbury Centro was 'knowingly concerned in' involved the failure by Messrs Jackson and Goff to 'take all steps that a reasonable person would take, if they were in the officer's position, to ensure that [Agricultural] complies with the Corporations Act and the Kalgoorlie Scheme's compliance plan'.[242] This contravention involved failures by Messrs Jackson and Goff which were broadly as follows:

(i) As to the Corporations Act generally: to take all steps that a reasonable person would take, if he or she were in the officer's position, to ensure that the responsible entity complies with the Corporations Act, namely to ensure that Agricultural complied with s 208(1) of the Corporations Act (the related party provisions).

(ii) As to the compliance plan: to table any proposal to purchase the Kalgoorlie Property with a due diligence report at a directors' meeting; to table the due diligence report at a compliance committee for review (cl 20 Replacement Compliance Plan); for the Compliance Officer to provide the compliance committee details of the proposed transaction for review; and for the compliance committee to provide a sign off to the Compliance Officer on the proposed transaction with a related party (cl 27 Replacement Compliance Plan).

293 The focus of the submissions of senior counsel for the defendants was essentially upon whether Bunbury Centro was 'concerned in' the contravention of s 601FD(3). The involvement of Bunbury Centro relied upon by Agricultural was its execution of the Contract and its provision of information which was used to calculate the Licence fee in the Contract.[243]

294 Senior counsel for the defendants submitted that these matters were not sufficient for Bunbury Centro to be 'concerned in' the contravention because neither is a matter which is part of the contravention.[244] I accept that, as Wilcox J said in the context of the equivalent section of the Trade Practices Act 1974 (Cth), an event will only demonstrate that a person has a 'concern in' the contravention if there is a 'practical connection' between that person's act or omission and the contravention.[245] This must require a practical connection with at least one of the essential elements of the contravention. Such a connection existed in this case.

295 First, as to the breach involving failure to ensure compliance with the Corporations Act, Bunbury Centro was directly concerned and directly connected with the breach by Messrs Jackson and Goff of their obligation to take all steps that a reasonable person in their position would take to ensure that Agricultural complied with the related party provisions. Bunbury Centro's entry into the Contract was an essential requirement for there to be a related party transaction. In the same way as the Full Federal Court in Rafferty v Madgwicks[246] described an essential element of the contraventions as the entry into a franchise agreement, so too in this case was the entry into the Contract an essential element in the contraventions.

296 Secondly, and similarly, in relation to the compliance plan, each of the breaches of the Replacement Compliance Plan involved omissions to do things required by that plan in relation to a proposed transaction. The failures to do those things became legal omissions and breaches when the transaction was no longer proposed. In other words, once the transaction was completed by execution of the Contract, the directors could no longer perform their obligations under the Replacement Compliance Plan in relation to proposed transactions. For instance, clause 27 of the Replacement Compliance Plan, pleaded by Agricultural,[247] required the compliance committee to provide a sign off to the Compliance Officer on all proposed transactions with a related party. The execution of the Contract by Bunbury Centro meant that the transaction was no longer a 'proposed' transaction.

297 There was no dispute that Bunbury Centro's concern in the contraventions was a 'knowing' concern. As counsel for Agricultural explained, Bunbury Centro had the relevant knowledge through its directors Messrs Jackson and Goff, that

(i) Mr Jackson had related party interests in Bunbury Centro,

(ii) there had been a failure to convene a board meeting of Agricultural in relation to the Contract, and

(iii) there had been a failure to refer the acquisition of the Kalgoorlie Property to the Compliance Committee of Agricultural.[248]

298 Bunbury Centro was directly concerned in each breach of the Replacement Compliance Plan and the related party obligations. Its knowledge, through Messrs Jackson and Goff, meant that it was 'knowingly concerned in' the contravention of s 601FD(3).

14. Conclusions in relation to all pleaded breaches

299 I have concluded as follows that the following are the only breaches proved.

(i) Messrs Jackson and Goff contravened s 601FD(1) of the Corporations Act by their breaches of s 601FD(1)(f)(i) of the Corporations Act. Those breaches consisted of their failure to take all steps that a reasonable person would take, if he or she were in the officer's position, to ensure that the responsible entity complies with the Corporations Act, namely to ensure that Agricultural complied with s 208(1) of the Corporations Act (the related party provisions).

(ii) Messrs Jackson and Goff contravened s 601FD(1) of the Corporations Act by their breaches of s 601FD(1)(f)(iv) of the Corporations Act. Those breaches consisted of their failure to take all steps that a reasonable person would take, if he or she were in the officer's position, to ensure that the Agricultural complied with the scheme's compliance plan.

(iii) Messrs Jackson and Goff breached their duties of care and skill under s 180(1) because they did not take all steps that a reasonable person would take, if he or she were in their respective positions, to ensure that Agricultural complied with s 208(1) of the Corporations Act (the related party provisions).

(iv) Messrs Jackson and Goff breached their fiduciary duties to Agricultural to avoid placing themselves in a position in which their duties to Agricultural conflicted with duties to another principal (Bunbury Centro).

(v) Bunbury Centro was knowingly concerned, within s 79(c) of the Corporations Act, in each of the contraventions of Messrs Jackson and Goff of s 601FD(1) described at (i) and (ii) above.

15. Is there a 'disconnect' in Agricultural's equitable compensation claim?

300 Senior counsel for the defendants submitted that there was a 'disconnect' in Agricultural's case for equitable compensation for breach of fiduciary duty.[249] He argued as follows.

(i) The fiduciary duties of Messrs Goff and Jackson were duties owed to Agricultural 'in its own right, rather than duties concerning [Agricultural] as [responsible entity] of the Kalgoorlie Scheme or the Kalgoorlie Scheme itself'.[250]

(ii) Any loss suffered by Agricultural was in its capacity as a trustee and not in its own right.

301 In other words, the defendants' argument was that any claim against the directors was 'the property of [Agricultural] rather than the Kalgoorlie Scheme' and there was no plea that Agricultural had suffered loss or damage in its own right.[251]

302 Unlike the otherwise meticulous and clear submissions of senior counsel for the defendants, this submission misunderstands the basic nature of the rights and duties of trustees, including trustees who are responsible entities of managed investment schemes. Duties are generally owed to legal persons. A 'trust' is not a legal person which has rights and is owed duties. The rights are held by the trustee. The duties are owed to the trustee.

303 Viewed from the perspective of the trustee, the rights are held, and any loss is suffered, by the trustee. So, when a defendant damages a tangible thing the defendant will be liable to the owner for damages for conversion or trespass to the chattel. It does not matter if the ownership of the chattel is held on trust. The owner still holds the rights (subject to the trust). The claim for damages against the third party defendant (ie external to the trust relationship) is almost always brought by the trustee as part of the trustee's duty to protect the trust estate even though the ultimate loss might be borne by the beneficiaries.[252]

304 The same is true if viewed from the perspective of the third party defendant who owes the duties. From the point of view of the third party defendant it matters not that the trustee's loss might not subsequently be suffered by the trustee personally. Hence, putting aside the exceptional, and questionable, cases where a trustee succeeds in a claim based upon losses suffered by a beneficiary which are independent of any rights held by the trustee,[253] the claim is always for the loss suffered by the trustee. That loss is not reduced based on an assessment of whether or not the trustee will ultimately account to beneficiaries for any damages received, or whether the beneficiaries will ultimately bear the loss.

305 This point was succinctly made by Lord Millett in the context of a claim for breach of contract in Alfred McAlpine Construction Ltd v Panatown Ltd.[254] His Lordship explained that the trustee has a right 'to recover damages for breach of contract in respect of the loss [which might ultimately be] sustained by the beneficiaries'. His Lordship said that

in the eyes of the common law it is the trustee who sustains the loss. The fact that a court of equity will compel him to hold the benefit of the contract and any damages recovered for its breach in trust for the beneficiaries is neither here nor there.

306 An example is Lloyd's v Harper.[255] In that case, a father had guaranteed his son's liabilities to Lloyd's. The English Court of Appeal held that Lloyd's held the guarantee on trust for its members. The father argued that although he had breached his duty to Lloyd's they could only recover for their own losses, not for the losses of the members. James LJ said:[256]

The Defendants say, 'You Lloyd's have sustained no loss, and can only recover nominal damages, because you can only recover for your own loss and not for the losses sustained by other persons.' That might be true if Lloyd's were not trustees, but I am of opinion that Mr Justice Fry was well warranted in the conclusion at which he arrived, that the engagement was made with the committee as trustees for and on behalf of the persons beneficially interested.

307 Cotton LJ agreed and made remarks to similar effect.[257] The principle was not new.[258]

308 In Coulls v Bagot's Executor & Trustee Co Ltd,[259] Windeyer J referred to broader comments by Lush LJ in Lloyd's v Harper[260] and, in a passage with which Mason CJ and Wilson J later agreed,[261] Windeyer J then explained that the question whether losses would ultimately be sustained by others disappears in the case of a trustee:

I think we must take it that when the learned Lord Justice spoke of a contract for the benefit of B he was thinking of a contract of which A was a trustee for B - that is to say of a case in which A held his legal rights under a contract as a trustee for B. In such a case of course the question disappears.

309 To reiterate, the reason why the question disappears is because the trustee can sue for loss suffered even though the ultimate loss due to the damage to the trust estate may be borne by the beneficiaries.

310 The same principle applies to the fiduciary duties in this case. The decision in Lloyd's is a useful comparison because many fiduciary duties are themselves sourced in a contract between the parties.[262]

311 Like the father's contractual duties under the guarantee to the Committee of Lloyd's as trustee in Lloyd's, the directors' fiduciary duties are owed to the trustee, Agricultural. And, as in Lloyd's, it does not matter whether the loss flowing from that breach of duty is ultimately suffered by the beneficiaries. Like the Committee of Lloyd's, Agricultural suffers the immediate loss. The fact that Agricultural, like Lloyd's, sues as a trustee indicates that Agricultural considers itself bound to hold any proceeds on trust for its beneficiaries. But this does not affect its right to recover damages.

312 The decision of the High Court of Australia in Fouche v Super Fund Board[263] is also consistent with this analysis. In that case, Tasmanian legislation established a statutory board with the responsibility of investment of superannuation funds. It was constituted as a body corporate with four members.[264] It was authorised to invest the funds in accordance with laws for the investment of trust funds.

313 The Board lent money to Mr Fouche on the security of a country property. Later, members of the Board made a further loan to Mr Fouche to permit him to convert the homestead on the mortgaged property into a large tourist hotel. The further funds were paid to Mr Fouche as progress payments. Mr Fouche commenced an action against the body corporate claiming payment of some of these progress payments. The Board counterclaimed against Mr Fouche and the members of the Board. The Board sought declarations that the mortgage deed and the payments were ultra vires the Board and in breach of trust. It also claimed against the members of the Board for an order that they 'replace' all the money advanced to Mr Fouche without authority.

314 The High Court, in a joint judgment, held that the investment was of a 'hazardous and speculative nature'.[265] The members of the Board neglected to take 'the most elementary precautions'.[266] The investment was of such a kind that it should not have been made at all.[267] The subsequent loan, and every payment under it, was a breach of trust and a misapplication of the Board's funds.[268] Each of the members of the Board were found liable to the Board (the corporate trustee company) for negligence.

315 Senior counsel for the defendants sought to distinguish Fouche on two bases:

(1) it was alleged that Agricultural was not a statutory board where the 'members themselves were deemed to be a body corporate with perpetual succession (the board members themselves being the corporators and owing fiduciary duties as trustees)';[269] and

(2) unlike the Board, Agricultural does not allege that it has suffered any personal loss.[270]

316 As to (1), this misrepresents the decision of the High Court. The Court said that it was not necessary to consider whether 'the individual corporators were, in any sense and for any purpose, to be regarded as trustees'. Nor was it necessary to consider whether any of the members of the Board owed any duties to the 'beneficiaries' of the statutory trust.[271] The duty broken was a duty owed by the members to the Board itself.[272]

317 As to (2), I have explained, and reiterate below, why it is nonsensical to speak of 'personal loss' suffered by a trustee corporation, in apparently contradistinction to 'loss in its capacity as trustee'. But, in any event, the High Court in Fouche emphasised that the nature of the trust of which the Board was trustee was a trust for statutory purposes. There were no individual beneficiaries.[273] The loss suffered by the Board was the payment of funds without adequate value being received in return.[274]

318 In this case, Agricultural had a power to bring court proceedings against Messrs Jackson, Goff and Bunbury Centro.[275] It had power to do so as 'the beneficial owner of the Portfolio and the Fund'. [276] And it was Agricultural's duty to bring any proceedings by which it could recover any losses it suffered as owner of the Kalgoorlie Property.

319 In support of the submission concerning 'disconnect', senior counsel for the defendants relied heavily upon the decision of the Victorian Court of Appeal in Young v Murphy.[277] It is necessary to explain precisely what was decided in that case.

320 In that case, a trustee company was replaced by new trustees. The new trustees brought numerous actions relating to alleged breaches of trust by the former trustee company. Some of the actions brought by the new trustees were against the directors of the former trustee company.

321 The actions brought by the new trustees against the directors of the former trustee company included allegations that the directors 'knowingly procured' or 'knowingly participated in and procured' the breaches of trust committed by the former trustee company. It was alleged that these breaches caused trust assets to be lost or diminished.[278] The claims were treated as arising under the second limb of Barnes v Addy.[279]

322 In relation to the Barnes v Addy claims, one question was whether the successor trustees had standing to bring the claims against the former directors. The directors made various arguments against liability. One was that they might be liable to the beneficiaries for the same breach of trust since the loss had also been suffered by the beneficiaries. The directors said that they should not be subject to double jeopardy. This argument was rejected. The rule that the successor trustees could sue without joining the beneficiaries was one which 'from its great convenience has been repeatedly recognised, and may be considered established'.[280] The trustee is treated as the representative of the beneficiaries.[281] In other words, and contrary to the submissions of the defendants in this case, the trustees in Young v Murphy could recover for the loss even if the loss would be ultimately suffered by the beneficiaries.

323 In Young v Murphy, actions were also brought by the new trustees against the directors of the former trustee company for failure to exercise due skill and care either at common law or in equity including an alleged fiduciary duty of skill and care.

324 The judgment on this issue was given by J D Phillips J, with whom Brooking and Batt JJ agreed. His Honour was critical of a question put to the Court of Appeal which asked whether the duties were owed by the directors to the company 'as trustee' or to the company 'personally'. It will be recalled that this distinction was the foundation of the defendants' submission concerning the alleged 'disconnect' in this case. His Honour said:[282]

It is difficult to know what is meant by the question whether directors owe their duties to their company 'as trustee' or 'personally'. In my view, such duties are owed by the directors to their company, and further description of the company as obligee can only be misleading.

[I]f the company be a trustee for others of certain property held by it or if the company carries on trading as a trustee for others, that matters not (at least ordinarily) to the definition of the duties owed by the directors to the company. The activities of the company will be relevant only to the way in which loss may be suffered, should the directors fail to discharge their duties fully.

326 The reference by his Honour to the 'way in which the loss may be suffered' was to circumstances where it was relevant that the benefit of the obligation was held on trust. In other words, where a trustee or executor enters a contract in that capacity then 'the benefit of the contractual obligation may well be held by the executor or by the trustee for and on behalf of the deceased estate or the trust'[284] (emphasis added). The reason why this way in which the loss is suffered was relevant in Young v Murphy was because unless the benefit of the cause of action was held on trust the subsequent trustees would not succeed to that right of action. It would not be 'trust property'.

327 This is what the Court of Appeal held. The trustee company did not hold the benefit of its claims against the directors for breach of their duty of care and skill on trust. This was because the duties were not owed only in relation to a particular trust or trusts; nor were the duties imposed upon them in relation to some particular item or items of trust property.[285] The existence of the trusts and the trust property was only the context in which the duties of skill and care fell to be discharged.[286] Hence, the right to bring an action against the directors for breach of their duty of skill and care remained with the former trustee company (by its liquidators). It did not pass to the new trustees.

328 The decision in Young v Murphy does not assist Messrs Jackson and Goff because the question relevant to the directors in Young v Murphy was whether the subsequent trustee had succeeded to claims which the former trustee company had against the directors.

329 Further, in Young v Murphy nothing in any of the reasons for decision suggested that the former trustee company would have been prevented from bringing the actions to recover substantial losses if the claim were brought by the former trustee company. To the contrary, J D Phillips J assumed that the former trustee (in the position of Agricultural who was never replaced as trustee) could have brought a claim:[287]

It follows that if there be a breach by the directors of the duties which they did owe to the company, being the former trustee BPTC, and if the company was thereby damnified, BPTC might have a right of action against the directors for breach of their duties. In so far as those duties were founded in the common law, there might be a right of damages and, if they be fiduciary duties, there might be a right to equitable compensation. Either way, it is the company in which the right of action is vested.

330 Later in his Honour's reasons he also explained that it was a matter for the liquidator of the trustee company whether to bring proceedings against the directors for their alleged breaches of duties of care and skill and the benefit of those proceedings would belong to the creditors of the trustee company.[288]

331 In reaching this conclusion I am not to be taken as endorsing the proposition that an action, such as that in Young v Murphy, for breach of a duty of skill and care will always be independent of any trust property so that the claim will not pass to a new trustee, or a beneficiary will not be able to compel an action.[289] If actions could have been brought by Agricultural against its directors alleging unauthorised dissipation of trust property then the claim by Agricultural against its directors for dissipating trust property would be held on trust.[290] In this respect, the appropriate analogy might be with the breaches of duty in Young v Murphy involving claims by the former trustee company against its auditors. In relation to those claims the Court of Appeal held that the former trustee 'was clearly acting in the administration of the trusts and for the purposes of the trusts. It follows then that the benefit of the contract was itself trust property, with the result that any right of action arising thereunder was trust property too'.[291]

332 Having rejected the 'disconnect' argument the next question is whether any compensation is payable, or profits to be accounted for, as a result of the breach by Messrs Jackson and Goff of their fiduciary duties.

16. Equitable compensation: 'substitutive' and 'reparative' compensation

333 As I have explained above, Agricultural has failed to prove that either or both of the promised purchase price or the promised Licence fee under the Contract were at an undervalue in relation to the rights which Agricultural obtained in exchange. Perhaps in anticipation of this difficulty Agricultural framed its case for equitable compensation for breach of fiduciary duty in two different ways. One way focuses upon compensation for loss suffered. The other way permits compensation in the absence of any loss, to restore any unauthorised disposition of assets.

16.1 Two different types of 'compensation' for breach of trust

334 Historically, the mechanism by which equity courts generally gave effect to monetary remedies against custodial fiduciaries was through orders which followed a process of accounting. The manner in which an account was taken reflected the nature of the ultimate remedy which might be sought. Three different forms of account were (i) the account of administration in common form, (ii) the account on the basis of wilful default, and (iii) the account of profits.

335 In relation to the account in common form, if the evidence disclosed an unauthorised disbursement then the plaintiff could 'falsify' the unauthorised entry. The falsification would have the effect of creating a deficit between the account and the fund. The custodial fiduciary would be required to replenish the fund to that extent.

336 When an account in common form was sought, it did not matter whether the dissipation of the asset would have occurred even without the unauthorised act. The analogy for an account in common form is with specific performance or a common law action in debt. In Ex parte Adamson,[292] James and Bagallay LJJ described the rights arising from an account in common form as 'an equitable debt or liability in the nature of debt ... a suit for the restitution of the actual money or thing, or value of the thing'.

337 When payment was sought following an account in common form there was a direct analogy with an order for specific performance or payment of a liquidated debt which was due.[293] In each case it is no answer for the defendant to allege that the plaintiff had suffered no loss.

338 The 'compensation' order following the common account required the defendant to perform his or her duty to maintain the trust fund in an authorised manner.[294] It was not a sufficient response to a disallowance, or falsification, that the disbursement would have been lost even if the trustee had acted properly. In the first edition of Lewin on Trusts, Thomas Lewin explained that:[295]

In awarding compensation against the trustee, the Court pays no regard to the circumstance whether the trustee derived any actual advantage or not, but proceeds upon the principle, that a trustee, who deviates from the line of his duty, is under an obligation to make good the situation of the cestui que trust.

339 Lewin then continued, explaining the different principle of liability where the account is based upon wilful default. In that case, the focus is upon loss. In contrast with the wilful default liability to compensate for losses, the obligation to 'make good' to which Lewin referred was subsequently described by the Master of the Rolls in 1852 as involving the Court treating of an unauthorised investment as if it 'had not been made or had been made for [the trustee's] own benefit out of his own monies'.[296] The common account will not, therefore, conform with the state of the bank balance. So the trustee must perform his duty and replenish the account.

340 In Magnus v Queensland National Bank,[297] in relation to a point approved in the High Court of Australia more than a century later,[298] the Court of Appeal held that a custodial bank was liable to restore trust funds merely because it dissipated the trust funds in a manner which was not authorised. Lord Halsbury LC said that[299]

we are not at liberty to speculate whether the same result might not have followed whether the bank had been guilty of that default or not. The bank have in fact been guilty of default. As a matter of fact they concurred in the money being handed to a person who had no authority, in my view of the facts, to receive it.

341 As Lord Millett explained in Libertarian Investments Ltd v Hall,[300]

Where the defendant is ordered to make good the deficit by the payment of money, the award is sometimes described as the payment of equitable compensation; but it is not compensation for loss but restitutionary or restorative. The amount of the award is measured by the objective value of the property lost determined at the date when the account is taken and with the full benefit of hindsight.

342 In other words, the orders which followed the common account were not concerned with whether the plaintiff had suffered loss. They required the defendant to pay the money equivalent of the performance of his or her duty.

343 The language of 'restitution' and 'restoration' associated with the common account was used by Street J in Re Dawson.[301] One issue in that case was the extent of the liability of a trustee to repay trust funds in New Zealand dollars which had been improperly paid out at a time when the New Zealand dollar was at parity with the Australian dollar. Justice Street held that the trustee was required to restore the trust funds at the higher rate which prevailed at the time of trial. His Honour spoke of 'monetary compensation ... paid in lieu of restoring assets'.[302] He explained that the 'form of relief is couched in terms appropriate to require the defaulting trustee to restore to the estate the assets of which he deprived it'.[303] Justice Street also explained that '[c]onsiderations of causation, foreseeability and remoteness do not readily enter into the matter'.[304]

344 There is, however, some confusion which has arisen from the statement by Street J that 'if a breach has been committed then the trustee is liable to place the trust estate in the same position as it would have been in if no breach had been committed'.[305] This appears to contemplate a test for causation which examines the situation 'but for' the breach. But, as I have explained, that 'but for' question is irrelevant when the duty is to replenish a distribution of unauthorised trust funds. Like instances of payment of a debt, or of specific performance, it does not matter whether the funds would have been lost in any event.

345 One possible treatment of the apparent reference by Street J to 'but for' enquiries is effectively to deem the 'but for' test to be satisfied in a case where an unauthorised dissipation occurs. In other words, the inquiry in cases of a common account is only into whether the act without authority produced the dissipation of the trust asset. In a well-known extrajudicial paper,[306] Gummow J took this approach:

The essence of what Street J held was that the true inquiry is whether the loss [ie dissipation of the asset] would have happened had there been no breach, not whether the loss was caused by or flowed from the breach. Where the loss complained of occurs by a trustee making an investment that was unauthorised, the loss [ie dissipation of the asset] would not have occurred but for the breach.

346 The same approach was taken by the New South Wales Court of Appeal by explaining that in cases of dissipation of trust assets, the law has adopted[307]

a stringent test to the selection of those events preceding loss which are to be taken as causing the loss. There is a sufficient connection, irrespective of the identification of a separate and concurrent cause, when the loss [ie dissipation of assets] would not have occurred if there had been no breach of duty [ie unauthorised dissipation]. (Emphasis added).

347 In contrast with orders sought following a common account, the account which was taken on the basis of wilful default was substantially different. Those orders were dependent upon proof of a loss. An account taken on the basis of wilful default required the plaintiff to show that the custodial fiduciary, in breach of duty, failed to obtain a benefit for the fund. On the taking of the account the plaintiff could then 'surcharge' the account by the value of the rights that the custodial fiduciary would have obtained had the duty not been breached.

348 As Dr Elliott and Professor Mitchell have observed, the historic difference between a claim based upon falsification of a common account and a claim based on surcharge of an account on the basis of wilful default has been concealed in modern cases which generally refer to both as 'equitable compensation'.[308] Even in the leading decision of Street J in Re Dawson reference is made to equitable compensation claims which were concerned with loss and which would have historically been treated as based upon wilful default.[309] Those cases are of a fundamentally different character from cases of restoration on a common account. In wilful default claims, the claim is in the nature of a claim based on breach by a trustee. And the account taken on the basis of wilful default asks whether loss has been suffered.[310]

349 Dr Elliott, whose writing has shone light and brought much clarity to this area of law, has suggested the use of the labels 'substitutive compensation' and 'reparative compensation' to differentiate the two types of claim. The former, based on the common account, describes a claim for the substituted value of the asset dissipated without authority: it demands that the trustee perform his or her duty to maintain the assets or fund. The latter, based on the account on the basis of wilful default, describes a claim for reparation for the loss suffered by breach of duty.[311]

16.2 Youyang Pty Ltd v Minter Ellison Morris Fletcher

350 The leading Australian decision in relation to equitable compensation for breach of trust is the decision of the High Court of Australia in Youyang Pty Ltd v Minter Ellison Morris Fletcher.[312] In that case the High Court relied upon many of the authorities and authors described above.

351 The facts of Youyang were as follows. The plaintiff company, Youyang, paid money to the solicitors of an investment company. The money was required to be released by the solicitors in part for a bearer deposit certificate which provided security for the investment. Upon the delivery of that certificate the remainder of the money was to be paid by the solicitors to the investment company for investment in speculative money market activities. The solicitors paid the money to a prime bank. They did not receive a bearer certificate.

352 Youyang later authorised, by a Deed Poll, the withdrawal of the funds from the prime bank and the deposit of the funds with an overseas prime bank with an identical deposit certificate. The solicitors deposited the funds with the overseas prime bank. Once again the solicitors did not obtain a bearer deposit certificate. The funds were later withdrawn from the overseas prime bank. They were invested and lost.

353 In a joint judgment, the High Court of Australia held that the solicitors were in breach of the terms of an express trust by paying the money to the prime bank and the investment company without having first obtained a bearer certificate of deposit. That breach was unaffected by Youyang's authorisation by Deed Poll of the removal of the money from the prime bank and the payment of it to the overseas prime bank. This was because the payment to the overseas prime bank had also required a bearer deposit certificate which had not been obtained. The solicitors were liable to compensate Youyang for the total amount of the funds paid to the solicitors.

354 The appeal to the High Court was argued as a claim for reparation of loss. On appeal to the High Court, senior counsel for the solicitors in breach submitted that the 'issue is whether the required causal connection between breach and loss was established'.[313] He submitted that 'a trustee in breach of trust is not obliged to restore to the trust fund, or pay by way of equitable compensation to the beneficiaries, moneys which would have been lost if the breach had not occurred'.[314]

355 The High Court approached the case on the basis of this central issue of causation. As the High Court explained, the central issue concerned the liability of the solicitors to pay money to Youyang 'by reason of some breach of trust or default in the performance of [its] duties as trustee' (emphasis in original).[315]

356 The High Court considered the reasoning of Handley JA in the majority in the New South Wales Court of Appeal. His Honour had concluded that Youyang's claim should fail for reasons of causation. His Honour said that if the director who acted on behalf of Youyang 'had been told about the form of the certificate he would not have been concerned and would have proceeded with the investment'.[316]

357 The High Court did not reject the 'but for' test which had been applied by the New South Wales Court of Appeal. Instead, the High Court held that the trial judge had not made the causation finding asserted by Handley JA. The High Court instead approved the comments of Hodgson JA who dissented in the New South Wales Court of Appeal saying:[317]

[I]f a trustee wishes to assert that a breach of trust caused no damage for the reason that the beneficiary would, if asked, have authorised the very action which constituted the breach of trust, then there is at least an evidentiary onus on the trustee to make good that proposition.

358 This appears to endorse the possibility of a 'but for' causation test which, subject to an evidentiary onus on the defaulting party, requires a plaintiff to prove that the unauthorised action would, if requested, have been authorised. But these comments must be understood in the light that

(i) the case was not argued as a substitutive compensation case,

(ii) the High Court did not need to decide this point, and

(iii) there are other indicia in the judgment that such a causal requirement was not required, including the citation of many of the cases discussed above and the extrajudicial writing of Lord Millett.

359 In relation to (iii), in the following passage the High Court also rejected a 'but for' causal test in the context of characterising the 'loss' of the trust funds as merely being their disbursement:[318]

The execution of the Deed Poll and the implementation of these steps thereunder could be of significance on questions of causation if what had been brought about was the release of an existing bearer certificate of deposit and its replacement by a "non-bearer" instrument. But that was not the order of events that transpired. Youyang was not provided at any stage with the security for which it had bargained. It is not to the point that, in addition to the breaches of trust by Minters, there may also have been dishonest and discreditable subsequent acts by third parties which led to the loss of the funds.[319] To present the case by fixing upon those subsequent acts, to adopt the remarks of Bowen LJ in Magnus v Queensland National Bank,[320] would be 'an ocular illusion', because the loss of the trust funds occurred as soon as the trustee wrongly disbursed them, at the completion on 24 September 1993.

16.3 Agricultural's claims for substitutive and reparative compensation

360 Agricultural put its case as involving both a claim for substitutive compensation as well as one for reparative compensation. For the reasons I have explained, I proceed on the basis that the two types of compensatory award are available for a breach of trust.

361 In relation to substitutive compensation Agricultural submitted, in reliance upon the decision of Lord Millett in Libertarian Investments Ltd v Hall,[321] that it was entitled to falsify the payment of the purchase price which it made under the Contract.

362 The first question which arises is whether a substitutive compensation claim can be brought against a director, who is not a trustee. The second is whether it can be brought in this case where the Contract has not been rescinded.

16.4 Awards of substitutive compensation against company directors

363 The availability of an award of substitutive compensation is not confined to a common account taken against a trustee. It applies also to custodial fiduciaries such as company directors.[322] In Madoff Securities International Ltd v Raven,[323] Popplewell J said that 'the directors of a company are in a similar position in respect of the company's property as trustees ... and the basic remedy for a misapplication of company property in breach of fiduciary duty, as with trustees misapplying trust property, is restitution'.

364 In Bishopsgate Investment Management Ltd (In Liq) v Maxwell (No 2),[324] Mr Ian Maxwell was a director of a corporate trustee. He transferred shares held by the corporate trustee to a private family company in which he was also a director. The transfer was for no consideration. The shares were pledged by the private company to Crédit Suisse.

365 Hoffmann LJ held that Mr Ian Maxwell was in breach of his fiduciary duties to the corporate trustee and had prima facie used his powers as a director for an improper purpose. His Lordship said that the 'burden was upon him to demonstrate the propriety of the transaction'.[325]

366 Counsel for Mr Ian Maxwell argued that the plaintiff had not proved causation. He argued that the burden was on the plaintiff to show that if Mr Ian Maxwell had made proper enquiries before signing the transfer certificates then he might still have been 'fobbed off' with some plausible explanation, or some other director might still have signed the transfer.

367 Hoffmann LJ rejected this argument saying:[326]

In the case of breach of the fiduciary duty, it seems to me that the cause of action is constituted not by failure to make inquiries but simply by the improper transfer of the shares to Robert Maxwell Group Plc. Even if Mr Ian Maxwell had made inquiries and received reassuring answers from other directors whom he was reasonably entitled to trust, he would not have escaped liability for a transfer which was in fact for a purpose outside the powers entrusted to the board.... It was the improper transfer which caused the loss and the necessary causal connection is therefore established.

368 In other words, where the claim is essentially for restoration or 'substitution' of the company's asset, the necessary causal connection to establish the liability of a director for dissipation of a company asset is merely to show that the director made the transfer without authority. The 'loss' is merely the dissipation of the asset. It is not to the point to ask whether the company would have suffered financial loss in any event.

369 Senior counsel for the defendants in this case referred to a passage in the judgment of Hoffmann LJ which might not be wholly consistent with this principle. His Lordship was confronted with an argument made by counsel for Mr Ian Maxwell that the company's loss might not be the full value of the shares because the company might recover some of that value in an action against Crédit Suisse if it could defeat the plea of Crédit Suisse that it was a bona fide pledgee. His Lordship said that the company's liability as trustee was 'to restore the fund. Prima facie, therefore, its loss was its liability to make good the value of the shares'.[327]

370 This passage might appear to inject issues of reparative compensation into the enquiry into substitutive compensation if it is understood as a concern with the financial detriment of the company for which Mr Ian Maxwell should compensate. But different explanations of this passage are also possible, consistent with a focus on substitutive compensation. One explanation, adapted from remarks of Lord Millett in a different context,[328] might be that any recovery by the corporate trustee of the shares or their value from Crédit Suisse might be treated as trust money notionally restored to the trust estate on the taking of the account.

371 The decision in Bishopsgate, and the principle that a necessary causal connection is established by proof of an unauthorised transfer was considered by the New South Wales Court of Appeal in O'Halloran v R T Thomas & Family Pty Ltd.[329] In that case, Mr O'Halloran was a director of the plaintiff company (R T Thomas). He was also the Chairman of the Board of another company, Jeffries. R T Thomas held shares in Jeffries. Mr O'Halloran amended the share registry of Jeffries to record a transfer of R T Thomas's shares to another company. The other company had not paid the option price for transfer of the shares. Mr O'Halloran wanted to use the transaction as a means of controlling Jeffries. The share price in Jeffries collapsed before the register could be rectified. R T Thomas sued Mr O'Halloran. It claimed that it suffered loss from an inability to sell its shares in Jeffries before the collapse. Mr O'Halloran was found liable for breach of fiduciary duty.

372 On appeal to the New South Wales Court of Appeal, the primary issue was causation[330] in relation to the compensation for breaches of fiduciary duty by Mr O'Halloran.[331] Mr O'Halloran argued that the real loss was not caused by the registration of the transfer.

373 Spigelman CJ (with whom Priestley JA and Meagher JA agreed) explained in O'Halloran why the same approach historically taken to a trustee of a traditional trust should also be taken to company directors who are custodians of company assets:[332]

The strict standard applicable to a trustee of a traditional trust with respect to improper application of trust property is based on the vulnerability of beneficiaries with respect to the disposition of property by a trustee who has control over such disposition. This policy applies equally to the case of a director of a company, such as a managing director, (or a group of directors) who has (or have) the power to dispose of company property and who does (or do) dispose of such property for an improper purpose. The analogy of ensuring 'restitution' to the estate (in the sense of "restoration") is, in my opinion, an appropriate one. Such a director (or directors) is (are) subject to the same stringent test with respect to the exercise of the fiduciary power to dispose of property, as is the trustee of a traditional trust. It is not necessary to consider the appropriate test for breach by a director of other fiduciary duties. Policy favours a stringent test in the circumstances of this case. It is the vulnerability of a company which places its property in the power of directors, that makes it appropriate to adopt the approach to causation applicable to the trustee of a traditional trust in deciding issues of causation for the contravention by a company director of his or her duty not to exercise the power to dispose of property for an improper purpose. As McLachlin J put it in Canson Enterprises v Boughton (at 154): '... equity is concerned, not only to compensate the plaintiff, but to enforce the trust which is at its heart'.

374 In a concurring judgment, Meagher JA put the point succinctly:[333]

By committing many and serious breaches of the fiduciary duties he owed R T Thomas & Family Pty Ltd, he deprived that company of its ability to deal with one of its main assets, viz, its shares in Jeffries. In such a situation, no court exercising equitable jurisdiction would debate whether the loss arose from the wrongful transfer, the retention or non-retention of share certificates, the failure to record the transaction, continuing attempts to sell the shares, or anything else. The company had a valuable asset, O'Halloran neutralised it. Equity will see to it that the value of the asset is restored.

375 Since substitutive compensation is concerned with the duty to restore the value of an asset dissipated without authority it will not apply to every breach of duty by a company director. As McLachlin J explained in Canson Enterprises v Boughton[334] 'the better approach ... is to look to the policy behind compensation for breach of fiduciary duty and determine what remedies will best further that policy'. One 'policy' recognises the liability of a custodial fiduciary (including a company director) to restore an asset, or its value, where the asset has been dissipated without authority. This requires substitutive compensation. Another 'policy' is concerned with the reparation of losses suffered by a principal caused by the breaches of duty by the fiduciary. This requires reparative compensation.

17. Agricultural cannot succeed in a claim for substitutive compensation

376 Prior to trial, as well as during trial, counsel for Agricultural emphasised that one type of relief sought was what I have described as substitutive compensation. As counsel for Agricultural neatly put it, there is a distinction between Agricultural proving damage and Agricultural seeking compensation.[335] However, there are three impassable obstacles to a substitutive compensation claim by Agricultural.

377 First, the dissipation of funds about which Agricultural complains was made under the Contract. The Contract was executed by Agricultural through two of its directors (and the company secretary). It was never rescinded. Although various matters might have given rise to a claim by Agricultural to rescind the Contract, Agricultural never sought to avoid the Contract.

378 Not only did Agricultural abstain from seeking rescission of the Contract, but the existence of the Contract was essential to its pleaded case. For instance, Agricultural relied upon its conduct in entering the Contract for its claim that a financial benefit was provided to Bunbury Centro under the Contract[336] and it relied on its entry into the Contract as the source of damage which it suffered.[337]

379 It is not possible to say that the payment of the purchase money was unauthorised, or should be treated as unauthorised, when it was paid under a contract which was never rescinded. To do so would require the High Court decisions in Peninsular and Oriental Steam Navigation Company v Johnson[338] and Tracy v Mandalay Pty Ltd[339] to be overturned. The first of those cases is discussed below in relation to reparative compensation.

380 Secondly, as Lord Millett also explained in Libertarian Investments Ltd v Hall,[340] the process of falsification upon the taking of a common account requires the falsification of the whole of a transaction, not merely part of it. Lord Millett said:

If [the defaulting fiduciary] dissipated [the fund] or invested it at a loss, the plaintiff will naturally have the disbursement disallowed and disclaim any interest in the property in which it was invested by treating it as bought with the defendant's own money. If, however, the defendant invested the money at a profit, the plaintiff is not bound to ask for the disbursement to be disallowed. He can treat it as an authorised disbursement, treat the property in which it has been invested as acquired with trust money, and follow or trace the property and demand that it or its traceable proceeds be restored to the trust in specie.

381 A claim for substitutive compensation by Agricultural in the context of this case would require it simultaneously to disallow the disbursement and to authorise the receipt of the Kalgoorlie Property. A substitutive compensation claim cannot operate in that way.

382 Thirdly, Agricultural's pleaded claim for compensation for breach of fiduciary duty was not expressed as a claim which sought restoration of a trust asset. Although counsel for Agricultural argued the case as a claim for substitutive compensation, the remedial plea for compensation was put in two ways neither of which was a claim for substitutive compensation.

383 One basis for the plea of compensation was that Agricultural had suffered damage by reason of its entry into the Contract because it paid more than the Kalgoorlie Property and Licence were worth.[341] That is a claim for reparative compensation for financial loss. It is not a claim for restoration of an asset in specie.

384 The other basis for the plea of compensation put by Agricultural was that the hotel was sold to a third party with a financial shortfall of $10,130,129.[342] Again, this is a claim for financial loss. It is not a claim for substitutive compensation.

385 Agricultural never applied to amend its claim to plead compensation in the form of restoration of the Kalgoorlie Property or its value by Messrs Jackson and Goff. If it had applied to amend in that way, the application might have been opposed for limitation reasons.

18. Agricultural cannot succeed in a claim for reparative compensation in equity

386 The pleaded, and primary, manner in which Agricultural put its equitable claim against the defendants was as compensation for financial loss suffered. That is, it was a case based upon reparative compensation. It made, broadly, two different claims for reparative compensation. They were as follows:

(i) reparative compensation for financial loss suffered on the purchase of the Kalgoorlie Property and Licence; and

(ii) reparative compensation for financial loss suffered when the Kalgoorlie Property (including the hotel) was sold at a loss.

387 Each of these alleged losses is considered separately below. Neither claim can succeed.

18.1 Agricultural's claim for loss on the purchase of the Kalgoorlie Property and Licence

388 Agricultural's claim for compensation based upon its alleged losses resulting from the purchase of the Kalgoorlie Property and Licence must fail for three separate reasons:

(ii) any loss was not proved to have been caused by the breaches; and

(iii) any loss in relation to the Licence cannot be severed from the Contract.

389 I have already explained above that Agricultural failed to prove that either of the Kalgoorlie Property or the Licence was acquired at less than reasonable value. This conclusion means that Agricultural failed to prove any loss arising from the transaction.

18.1.2 Any loss was not proved to have been caused by the breaches

390 The second reason why any loss suffered is not recoverable is because Agricultural has not proved that but for any, or all, of the breaches it would not have entered the transaction in any event.

391 The question of the appropriate causal approach in claims for equitable compensation has been the subject of much academic and judicial writing. It is not necessary to embark on that exercise in this case because both counsel in this case proceeded on the basis that the appropriate starting point was to ask whether 'but for' the defendants' breaches Agricultural would have suffered its loss.[343] It is necessary, however, to explain briefly why I am prepared to follow this approach of counsel.

392 At common law, the High Court of Australia has held that the approach to causation is one of 'common sense'.[344] In Fitzgerald v Penn,[345] Dixon CJ, Fullagar and Kitto JJ remarked, in the course of endorsing the common sense approach, that causation 'is not susceptible of reduction to a satisfactory formula'. But, as Dixon J recently observed with great cogency, the 'common sense' approach is not a legal test.[346]

393 In difficult cases the 'sense' of an answer is rarely common amongst judges. In the leading exposition of the common sense test in March v Stramare,[347] the 'sense' of the result was not 'common' between the five judges of the High Court of Australia (who allowed the appeal) and the majority of the Full Court of the Supreme Court of South Australia. This is one of the reasons why 'common sense' has been criticised as a test for causation.[348] It is also why a number of High Court judgments have doubted whether 'common sense' can be a useful legal norm.[349] It is important that 'common sense' be contextualised and supported by reasoned explanation[350] so that it does not become a shroud which obscures teleological reasoning.

394 Within a 'common sense' approach it has been held that at common law the 'but for' test has an important role to play as a negative criterion.[351] In other words, it is generally necessary, but not always sufficient,[352] for the plaintiff to prove that the plaintiff's loss would not have been suffered but for the defendant's breach of duty.

395 The same negative 'but for' criterion does not apply to all cases where compensation is sought in equity for breach of a fiduciary duty. As I have explained, equitable claims for substitutive compensation are not concerned with financial loss. It would be nonsense to apply a criterion concerned with whether financial loss would have been suffered but for the breach. Further, in claims for breach of fiduciary duty which are said to be based on a breach of a 'duty' of disclosure a different, and contentious,[353] approach to causation is sometimes applied.[354] But where the claim is not one for substitutive compensation and where there is no plea of failure to disclose some material fact the 'but for' criterion becomes more relevant. Where a claim is brought to recover loss caused by the act of the defendant fiduciary putting himself in a position of conflict then it is very difficult to see why the negative 'but for' criterion should not apply. Why should the defendant fiduciary be required to pay compensation for losses which would have been suffered even if the conflict had not occurred?

396 This was the approach taken by Ipp J in Permanent Building Society v Wheeler,[355] in the context of a claim for equitable compensation for loss caused by a lack of skill and care: 'a court of equity ... should not require an honest but careless trustee to compensate a beneficiary for losses without proof that but for the breach of duty those losses would not have occurred'. The High Court of Australia has also said that for a claim for equitable compensation for loss suffered from breach of fiduciary duty, 'there directly arises a need to specify criteria for a sufficient connection (or "causation") between breach of duty and ... the loss sustained'.[356] The High Court has subsequently reiterated that the 'basic equitable principle applicable to breach of trust is that the beneficiary is entitled to be compensated for any loss he would not have suffered but for the breach.'[357] And, in a commonly cited and approved passage[358] in McLachlin J's well known minority judgment in Canson Enterprises Ltd v Boughton & Co,[359] her Ladyship said that 'it is essential that the losses [from breach of fiduciary duty] made good are only those which, on a common sense view of causation, were caused by the breach' (emphasis added). These remarks of McLachlin J were surely intended to refer to the same approach as at common law: it is difficult to see how 'common sense' could be different in common law and equity.

397 Agricultural sought to prove a causal link between the breaches and its alleged loss by arguing that no reasonable director would have caused Agricultural to enter into the Contract.[360] I accept that if Agricultural had shown this then the negative 'but for' criterion would have been satisfied. But in light of my findings about the value of the Kalgoorlie Property and the Licence, it was reasonable for a director to enter the Contract. Agricultural has failed to prove that a reasonable director would not have committed a company to the transaction. It has also failed to prove that at the time of the transaction it was not in the best interests of Agricultural to enter it.

398 For these reasons, Agricultural has not proved that the transaction would not still have taken place if Messrs Jackson and Goff had ensured that Agricultural complied with s 208(1) of the Corporations Act (the related party provisions) and the scheme's compliance plan.

399 Agricultural has also failed to prove that if Messrs Jackson and Goff had fully disclosed their position of conflict to Agricultural, and obtained informed consent, then the transaction would not have taken place in any event, or Agricultural would not have consented to Messrs Jackson and Goff so acting.

18.1.3 Any loss arising from the Licence cannot be severed from the Contract

400 The third reason why any loss suffered cannot be recovered by Agricultural is because even if, contrary to my conclusion, the Licence was sold at some (unspecified) undervalue, the assessment of loss must consider the transaction as a whole. The Licence cannot be severed from the remainder of the Contract which involved a significant profit on the sale of the Kalgoorlie Property (approximately $1.3 million). To do so would be impermissibly to create a new contract.

401 The case which establishes that the transaction must be viewed as a whole and loss proved on the whole transaction is the decision of the High Court of Australia in Peninsular and Oriental Steam Navigation Company v Johnson.[361] In that case, a corporate managing agent for a colliery company, Johnson & Lynn Ltd, bought mining equipment as a speculation for itself. It sold some of the equipment to strangers. But it also sold some of the equipment to its principal, the colliery company, in a transaction which was never brought before the board of directors.

402 The sale of the mining equipment from the corporate managing agent to the colliery company was made by Mr Johnson who was an officer and director of the corporate managing agent as well as a director and assistant general manager of the colliery company. A claim was brought by the colliery company against the corporate managing agent and Mr Johnson. The evidence was deficient. There was insufficient evidence of

(i) the value of the equipment to the colliery company,

(iii) the price the colliery company paid for the equipment.[362]

403 The defence admitted that a substantial profit was made on the transaction, but no amount was proved.[363] The Chief Justice considered the situation of breach of fiduciary duty by an agent who sells his own property to his principal without disclosing his interest:[364]

In such a case there may be rescission and an account of profits, but where rescission is impossible no account of profits is given because (it is said) the result would be really to make a new contract between the parties. Therefore the only remedy available is a remedy in damages for breach of duty by Johnson as general manager and by Johnson & Lynn Ltd. as managers under the managers' agreement. But in order to support such a claim it is necessary to show that the colliery company actually suffered damage. If the company got value for its money, then no damage has been suffered. There is no evidence at all with respect to this matter, and therefore the claim for damages cannot be supported.

404 Dixon J (with whom McTiernan J agreed) also explained that rescission was impossible and then considered whether Mr Johnson should be liable to pay compensation for his breaches of duty.[365]

But running through the line of authorities which are now accepted is the principle that "the court will not fix a new price between the parties. In such a case the measure of damage will be the principal's loss in the whole transaction. If he has suffered no such loss, there can be no damages" (per Lord Parker, Jacobus Marler Estates Ltd v Marler[366]). This statement supposes, of course, that the question arises between a vendor who is a fiduciary agent, e.g., a director, and a purchaser who is his principal. But it explains why the principal cannot recover the difference between the price paid for the property and its estimated value. In Re Cape Breton Co[367] Fry LJ says: "It appears to me that to allow the principal to affirm a contract, and after the affirmance to claim, not only to retain the property, but to get the difference between the price at which it was bought and some other price, is, however you may state it, and however you may turn the proposition about, to enable the principal, against the will of his agent, to enter into a new contract with the agent, a thing which is plainly impossible, or else it is an attempt on the part of the principal to confiscate the property of his agent on some ground which, I confess, I do not understand." To allow a measure of compensation based on the difference between the estimated value of the property when acquired and the price given is to go back to the dissenting judgment of Bowen LJ,[368] which, however cogent it may appear, has not been accepted. But in the measure of damages it is hard to suppose that a distinction can be made between cases where the vendor is the agent himself and cases where the vendor is a company in which the agent is interested. In each case it must be 'the loss on the whole transaction.'

18.2 Agricultural's loss from the sale of the Kalgoorlie Property (including the hotel)

405 It is common ground that this second category of loss, if proved, would wholly subsume the first which was concerned with losses on the transaction between Agricultural and Bunbury Centro.[369]

406 As I explained above, Agricultural sold the hotel and the Kalgoorlie Property on 21 June 2007 for $10.15 million. This involved a loss of $8.35 million on the $18.5 million price paid under the Project Management Agreement (ignoring the time value of money). Although Agricultural pleaded that a further $430,129 was lost as 'additional costs incurred for scheme formation costs and equity raising fees',[370] those costs were never proved, nor were they alleged to be costs of construction.

407 Agricultural's claim for reparative compensation for this category of loss must fail for two separate reasons.

(i) The losses are outside the scope of liability for the duties which Agricultural pleaded that the defendants owed.

(ii) Agricultural has not proved that the pleaded breaches caused its losses.

408 After explaining why I accept these two arguments by the defendants, I set out below why I reject a third argument made by senior counsel for the defendants which was essentially put as an assertion that there was another 'true cause'.

18.2.1 The loss is outside the scope of the defendants' liability for consequences for their pleaded duties

409 Questions of causation may be answered differently according to the purpose for which the questions are asked.[371] This is true in cases where compensation is sought either at common law or in equity. In both cases it is important to identify precisely the scope of the duty which is owed by a defendant. As Lord Hoffmann recognised extrajudicially (repudiating earlier language which he used judicially in favour of the language adopted by Professor Stapleton) there 'is a close link between the nature of the duty and the extent of liability for the breach of that duty'.[372]

410 An example from a decision of Lord Hoffman's in the House of Lords,[373] which has been approved in Australia, is a valuer who negligently overvalues land offered by its financier client as security for a loan. The financier relies on the loan and makes a loan which is wholly lost. But the valuer is liable only for the difference between the value of the security that the financier thought it was getting and the security that the financier actually got. This is because the valuer had not been asked to advise on whether the financier should lend.[374] The scope of the valuer's liability for the consequences of his negligence is confined to an analysis of the loss which flows from his breach in relation to the security.

411 As a joint judgment of the High Court of Australia expressed the point, citing this case involving the valuer:[375]

the scope of liability in negligence normally does not extend beyond liability for the occurrence of such harm the risk of which it was the duty of the negligent party to exercise reasonable care and skill to avoid.

412 I have explained above, in section six of these reasons, that a number of Agricultural's pleas are timebarred. These are pleas concerning loss or damage suffered by

(i) entry into or performance of the Project Management Agreement, or

(iii) alleged marginal or speculative profitability of the construction and operation of the hotel.

413 At times, Agricultural's submissions concerning the losses from the sale of the hotel were based entirely upon these timebarred matters. For instance, counsel opened Agricultural's case on the basis that one of the two key issues in the case would be whether Messrs Jackson and Goff 'undertook a project where the profitability was so marginal and so speculative ... the potential return on the investment was insufficient to warrant the acquisition of the Kalgoorlie Property'.[376] In closing, counsel for Agricultural said in oral closing submissions that Agricultural 'paid [$18.5 m], plus financing costs ... and we're left with an asset that ultimately realises 10.15 million'.[377]

414 Putting limitation matters aside, the scope of liability for the consequences of each of the breaches which I have found to be proved (the Corporations Act provisions and the breaches of fiduciary duty) does not extend to any losses on the ultimate project. As I have explained in section 6.2 of these reasons above, all the pleaded breaches which are not timebarred were qualified by the opening words of par 35 of the reamended statement of claim:

By their conduct in causing [Agricultural] to enter into the Contract and make the payments pleaded in subparagraphs 31.1 and 31.2 above, [Messrs Jackson and Goff] breached their obligations.

415 The scope of liability which follows from the consequences of these breaches is limited to the extent to which the legally required payments (for the purchase price and Licence fee) exceeded the market value of what was obtained by Agricultural in exchange.

416 Even apart from the manner in which the breaches were pleaded, the manner in which Agricultural ran its case also illustrated how the loss on the sale of the hotel was outside the scope of liability for the consequences of the Corporations Act breaches and breaches of fiduciary duty. Two examples can be given.

417 First, counsel for Agricultural submitted that the decision to proceed with the construction of the hotel was a decision that had been taken prior to purchase of the Kalgoorlie Property. Some of the exhibits support this submission.[378] Senior counsel for the defendants also accepted this. He submitted that the decision to build the hotel had been made before the Contract so 'the train had already run'.[379] This illustrates that the losses in relation to the hotel construction were part of a separate decision, outside the scope of liability for consequences of the breaches of duty by the defendants in entry into the Contract.

418 Secondly, Agricultural submitted that even once the Kalgoorlie Property had been purchased it was unreasonable for the directors to go ahead and build the hotel.[380] Once again, however, this raises matters which, if properly pleaded, would be timebarred (see section 6.1 of these reasons above) and which are outside the scope of liability arising from breaches of duty which are concerned with entry into the Contract.

18.2.2 Agricultural did not prove that the breaches caused the loss

419 Stripped of its submissions concerning the marginal and speculative nature of the project, Agricultural's causation argument was that

(i) 'but for' the breaches it would not have purchased the Kalgoorlie Property, and

(ii) without the purchase of the Kalgoorlie Property then Agricultural would never have constructed the hotel and would never have suffered the loss on sale.

420 The reason why this submission must fail is because step (i) fails, as set out at 18.1.2 above.

18.2.3 The novus actus interveniens (intervening cause) argument

421 For completeness, I address a third causation argument made by senior counsel for the defendants in order only to explain why I do not accept it. I address this submission on the assumed premise that principles of new intervening causes apply equally to common law, equity and s 1317H of the Corporations Act. It is not necessary to examine whether that premise is correct.

422 Senior counsel for the defendants argued that the loss arising from the difference between the sale price for the hotel and the cost of construction 'did not result from entry into the Contract. It was caused by the decision to proceed with construction'.[381]

423 Senior counsel for the defendants submitted that the 'real cause' of the loss sustained on the sale of the hotel was not the entry into the Contract for the sale of the Kalgoorlie Property.[382] The 'real cause' of any loss, he submitted, was the decision to proceed with construction.[383] These submissions were made independently of the matters addressed above concerning the scope of liability for consequences and whether the breaches caused the entry into the Contract.

424 Submissions about 'real cause', 'subsequent cause', or 'true cause' are usually explained in the Latin novus actus interveniens. This expression is not without its difficulties. But it is the label commonly used to describe a submission such as that made by senior counsel for the defendants.

425 The approach and language used by senior counsel in submissions bears a close similarity to the approach taken by the majority of the Full Court of the Supreme Court of South Australia in March v E & M H Stramare Pty Ltd.[384] In the High Court of Australia, Mason CJ characterised the approach of the majority of the Full Court as involving a finding that the 'real cause'[385] was the negligence of the intoxicated, speeding driver. The High Court rejected that conclusion.

426 In March v E & M H Stramare Pty Ltd,[386] an intoxicated and speeding driver collided with a truck which was parked at night, with hazard lights, in the centre lane of a six lane road. The High Court unanimously held that the truck driver and his employer were liable. The leading decision was given by Mason CJ, with whom Toohey and Gaudron JJ agreed.

427 Mason CJ explained in March that submissions about voluntary conduct being 'real cause' or 'true cause' are part of an analysis usually labelled a novus actus interveniens.[387] Mason CJ said that[388]

it makes no sense to regard the negligence of the plaintiff or a third party as a superseding cause or novus actus interveniens when the defendant's wrongful conduct has generated the very risk of injury resulting from the negligence of the plaintiff or a third party and that injury occurs in the ordinary course of things.

428 It was held that the collision with the intoxicated, speeding driver was the very risk occasioned by the negligence of the truck driver.

429 Since the decision in March, it has become well accepted that the 'chain of causation is not necessarily broken by an act of a plaintiff ... which constitutes a more immediate cause of the loss or damage than the defendant's negligence'.[389] As McHugh J explained in Medlin v State Government Insurance Commission,[390] the onus is on a defendant to prove that a voluntary act was a novus actus interveniens. In Dominion Natural Gas Company Ltd v Collins and Perkins,[391] Lord Dunedin explained that the question was 'have the defendants been able to show affirmatively that the true cause of the accident was the conscious act of another volition'?

430 The defendants did not plead that the decision by Agricultural to enter the Project Management Agreement or the decision to build the hotel was unreasonable so that it established a novus actus interveniens. And, to the extent that Agricultural raised this issue as a separate ground of negligence (which was timebarred), I have not accepted it.

19. Agricultural's claim for 'compensation' under s 1317H of the Corporations Act

431 It will become apparent in my reasons in this section that many of the reasons why Agricultural must fail in its claim for 'compensation' under s 1317H of the Corporations Act are identical to those explained above in relation to substitutive compensation and reparative compensation in equity. However, in light of the focused and substantial submissions by counsel on s 1317H, I set out my conclusions below on each of the issues raised.

19.1 The terms of s 1317H of the Corporations Act

432 It is necessary to set out the terms of the provision in full.

1317H(1) Compensation for damages suffered. A Court may order a person to compensate a corporation or registered scheme for damage suffered by the corporation or scheme if:

(a) the person has contravened a corporation/scheme civil penalty provision in relation to the corporation or scheme; and

The order must specify the amount of the compensation.

...

1317H(2) Damage includes profits. In determining the damage suffered by the corporation or scheme for the purposes of making a compensation order, include profits made by any person resulting from the contravention or the offence.

1317H(3) In determining the damage suffered by the scheme for the purposes of making a compensation order, include any diminution in the value of the property of the scheme.

1317H(4) If the responsible entity for a registered scheme is ordered to compensate the scheme, the responsible entity must transfer the amount of the compensation to scheme property. If anyone else is ordered to compensate the scheme, the responsible entity may recover the compensation on behalf of the scheme.

1317H(5) Recovery of damage. A compensation order may be enforced as if it were a judgment of the Court.

433 Section 1317J(2) provides that the 'corporation, or the responsible entity for the registered scheme, may apply for a compensation order'.

19.2 The 'curiosities' in s 1317H of the Corporations Act

434 In Grimaldi v Chameleon Mining (No 2),[392] the Full Court of the Federal Court, consisting of Finn, Stone and Perram JJ, observed that s 1317 was 'curious' in a number of respects.[393] The first curiosity is s 1317H(2) extends the concept of 'compensation' in a manner which 'includes' the profits made by the defendant. This has nothing to do with any damage, loss, or effect on the plaintiff. After a careful examination of the history of the provision, their Honours accepted the submission that[394]

the 'include profits' formula is simply definitional in the sense that it brings with the compensatory scheme of the section a type of claim (ie for profits made) which would not otherwise necessarily fall within the formula 'damage suffered by the corporation' as, for example, where the contravenor or a third person made profits as a result of the contravention, but without loss to the corporation. Put shortly, it empowers the Court to compensate for [sic: order disgorgement of] profits made from a contravention without proof of a corresponding loss.

435 Another curiosity is the phrase 'compensate a corporation or registered scheme for damage suffered by the corporation or scheme'. A 'registered scheme' has no personhood. It is an abstract concept without any legal personality. Hence, the corporation or responsible entity is the party which may apply for the compensation order. And, where any other party is ordered to compensate 'the scheme', it is the responsible entity which 'may recover compensation on behalf of the scheme' (s 1317H(4)).

436 The infelicitous expression 'compensate ... a registered scheme' appears to be shorthand for the concept of compensating the corporation which, as responsible entity, owes duties in relation to the assets it holds on trust. The separate treatment of compensation to a 'corporation' and a 'corporation as responsible entity' is required by the statutory language as I explain below in section 19.3. But conceptually, and from the point of view of the person owing duties to the corporation, it makes no difference whether the corporation itself holds its assets as scheme property.

437 A third difficulty is the meaning of 'compensation'. Does this include concepts of 'substitutive' compensation as well as 'reparative' compensation? It is hard to see why it would not. As I have explained, these two different types of compensation correspond with the orders which were historically made after, respectively, an account in common form and an account on the footing of wilful default. In equity they became conflated in the label 'compensation'. It is difficult to see why an interpretation of the statutory embodiment of duties and remedies in equity would exclude a meaning of compensation which represented what was historically the most common form of account.

438 The inclusion of concepts of substitutive compensation is also consistent with the focus of s 1317H upon the obligation to the 'scheme' and the terms of s 1317H(3). Since the 'scheme' has no independent existence, the 'obligation' might be understood in terms of an accounting liability based on diminution of the value of assets.

439 A fourth, and related, difficulty concerns the meaning of the words of s 1317H(1): 'the damage resulted from the contravention'.

440 The legislative history of s 1317H does not shed light on the appropriate approach to 'resulted from' in the section.

441 The origins of s 1317H are in s 232 of the Corporations Law which spoke of recovery by a body corporate from a person who contravenes a provision of this section in relation to the body corporate, of 'loss or damage [suffered] as a result of the contravention'.

442 In 1992, s 1317HA and s 1317HD were introduced to the Corporations Law by the Corporate Law Reform Act 1992 (Cth). Those sections again spoke of recovery where 'the corporation has suffered loss or damage as a result of that act or omission - an amount equal to the amount of that loss or damage' (emphasis added).

443 The Explanatory Memorandum to the Corporate Law Reform Bill 1992 said, in relation to s 1317HD, that[395]

This section is based on Corporations Law subsection 232(8), which will be repealed by clause 11 of the Bill. It applies where a person contravenes a civil penalty provision in relation to a corporation. It allows the corporation to recover from the person, as a debt due to the corporation, an amount equal to the loss or damage caused to the corporation because of the contravention, and any profit made because of the contravention by any other person. (Emphasis added)

444 It appears that the words 'as a result of' were intended to reflect notions of causation but without any further definition.

445 In July 1998, there was an amendment to s 1317HA(1)(b) introduced by the Managed Investments Act 1998 (Cth) in July 1998, which repealed section 1317HA(1)(b) and substituted in its place a provision which provided for compensation when

(b) the act or omission constituting the contravention caused

(i) loss or damage to the corporation in relation to which the contravention was committed; or

(ii) loss or damage to, or a diminution in the value of, the property of the scheme in relation to which the contravention was committed.

446 Neither the Explanatory Memorandum to the Managed Investments Bill 1997 nor the second reading speech of the Bill provided an explanation of the reasons for the amendment.

447 The amendments were short lived. The 1998 amendment to the wording of s 1317HA was removed by the Corporate Law Economic Reform Program Act 1999 (Cth), which repealed s 1317HA to s 1317HF, and in their place inserted s 1317H which is in the same terms as the current provision s 1317H(1). The words 'resulted from the contravention' were used.

448 The Explanatory Memorandum to the Corporate Law Economic Reform Program Bill[396] said that '[t]he civil penalty provisions were also intended to make it clear that for a company to recover compensation or profits from a director as a result of a contravention it is not necessary to establish a fault element'.

449 In Adler v Australian Securities and Investments Commission,[397] Giles JA (with whom Mason P and Beazley JA agreed) considered the meaning of these words of the section. In upholding the trial judge's conclusion on causation,[398] his Honour said:[399]

1. I do not think it necessary to further the debate over causation for the purposes of determining equitable compensation. I am respectfully unable to agree that analogy with equitable claims against fiduciaries influences the meaning and application of 'resulted from' in s 1317H. As Spigelman CJ observed in O'Halloran v R T Thomas & Family Pty Ltd at 272 -

... the remedy of equitable compensation differs from damages at common law. It also differs from damages under a statutory regime where the Court is concerned with, and confined by, the construction of the statute. Causation for purposes of s 212 of the Corporations Law will not involve the same analysis of causation as is required for breach of a fiduciary obligation.

1. For s 1317H, the analogy with equitable claims against fiduciaries is all the more difficult because some civil penalty provisions in the Act do not involve contravention by a person standing in a fiduciary capacity.
2. In my opinion, the words 'resulted from' in s 1317H are words by which, in their natural meaning, only the damage which as a matter of fact was caused by the contravention can be the subject of an order for compensation. Like the word 'by' in s 82 of the Trade Practices Act 1974 (Cth) (see Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494 at [38]- [42]), they should be given their ordinary meaning of requiring a causal connection between the damage and the contravening conduct, free from the strictures of analogy with equitable claims against fiduciaries.
3. ASIC submitted that the limited class of applicants for compensation orders distinguished this provision from s 82 of the Trade Practices Act, but I do not see that as a material distinction. It submitted that in Marks v GIO Australia Holdings Ltd, Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 and I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109 it was recognised that general law principles could be useful guides. That is correct, but in doing so the High Court made clear that the ordinary meaning of the words of the statute had primacy. Section 185 of the Act underlines that the statutory duties in ss 180-183 are additional to and stand free of a director's common law and equitable duties.

450 It can immediately be accepted that the words must be construed giving primacy to the statute. And it can also immediately be accepted that the words mean that recovery is only possible for the damage which as a matter of fact was caused by the contravention. But this still leaves unanswered the meaning and approach to be taken to causation.

451 In Adler, Giles JA applied a 'but for' approach as a negative criterion.[400] The same 'but for' approach has been applied as a negative criterion by the plurality of the High Court of Australia in relation to compensation for breach of statutory proscriptions against misleading or deceptive conduct.[401] Their Honours referred to 'the essential question of causation' and spoke of 'determining what action or inaction would have occurred if the true position had been known'.

452 The application of an analogy with equitable compensation reaches the same conclusion; as explained above, reparative compensation for a breach of fiduciary duty of this type should involve a negative 'but for' criterion. Although Giles JA warned against the application of equitable analogies to s 1317H, it is hard to see why analogies cannot be drawn with the approach to causation taken to breaches of near-identical duties in equity. As I have explained, the meaning of causation is intimately connected with the character of the duty breached. Section 1317H provides remedies for provisions many of which concern breaches of duties owed by directors. Those duties were historically recognised only in the Court of Chancery.[402] Perhaps for this reason, Lee AJA observed in Westpac Banking Corporation v The Bell Group (No 3)[403] that it 'may be thought that the words 'as a result of' or 'resulted from' imported the test applied in equity for linking a breach of duty in equity to loss or damage suffered'.

19.3 The defendants' objections based on Agricultural's unregistered status

453 The defendants raised a further obstacle to any compensation award under s 1317H of the Corporations Act. This obstacle is the provision in s 1317H(1) that a court may order compensation to be paid to a corporation or registered scheme and the provision in s 1317J(2) for the application for a compensation order to be by the 'corporation, or the responsible entity for the registered scheme'. The defendants pointed out that Agricultural is no longer registered. Senior counsel for the defendants argued that duties owed to a responsible entity could only be enforced by that corporation while the scheme is registered.

454 The reference in each of s 1317H(1) and 1317J(2) to compensating (i) a corporation, or (ii) a responsible entity for the registered scheme, is disjunctive but not in the sense submitted by senior counsel for the defendants. Although the responsible entity is a corporation, the Corporations Act draws a distinction between the corporation in each of its different capacities for the purpose of ensuring that where a scheme is registered then compensation for breach of registered scheme provisions becomes scheme property and is held for the benefit of the registered scheme.

455 The limited sense of this disjunctive treatment by the Corporations Act of the corporation in each different capacity appears from s 1317H(3) which refers to the 'damage suffered by the scheme for the purposes of making a compensation order'.

456 Unregistered schemes, which generally have fewer than 20 members,[404] do not fall within the scheme of Chapter 5C of the Corporations Act and the compensation provisions for registered schemes do not apply to them. However, it does not follow from the limited disjunctive treatment of (i) corporations, from (ii) registered managed investment schemes, that there is a gap where breaches of the Corporations Act are committed by officers of a corporation which is the responsible entity for a subsequently deregistered managed investment scheme. If the submission by senior counsel for the defendants were correct then officers of registered entities would be subject to the registered entity duties and compensation provisions of the Corporations Act but those duties, even if breached, would become unenforceable upon deregistration. There is insufficient textual or contextual warrant to read down the provisions of s 1317H in this way.

457 Nor is there any purpose in this restrictive construction. The provisions operate to require an action for compensation to be brought by the responsible entity when the scheme is registered so that the compensation forms part of scheme property. But the duties are owed to the responsible entity which is a corporation. As a corporation it can enforce the duties previously owed if the scheme ceases to be registered.

458 The Corporations Act breaches which I have found proved in this case concern s 601FD(1) and s 180(1).

459 The Kalgoorlie Scheme for which Agricultural is the responsible entity was deregistered on Agricultural's own application on 23 July 2006.[405] No application has been made by Agricultural for reinstatement. Under s 1317J, Agricultural's claims for compensation cannot be brought in its (former) capacity as responsible entity for a registered managed investment scheme.

460 Although Agricultural cannot bring claims for compensation in its (former) capacity as responsible entity for a registered managed investment scheme, it can bring its claims for compensation in its capacity as 'corporation'. This is the case in relation to the breaches by Messrs Jackson and Goff of s 180(1) of the Corporations Act which concerns general duties of officers of corporations. But it also applies in relation to breaches of s 601FD(1) which occurred while the corporation was a responsible entity. Where the responsible entity remains registered then the action for compensation should be brought for compensation to be paid to the 'registered scheme'. Where the responsible entity is no longer registered then the action can be brought by the responsible entity as a corporation, which may nevertheless owe duties to members of the scheme arising from its status as trustee of an unregistered scheme.

461 I conclude, therefore, that Agricultural's status as a responsible entity of a deregistered scheme does not take it outside the compensation provisions of the Corporations Act.

19.4 The reasons why Agricultural cannot recover compensation under s 1317H

462 It is not necessary in this case to attempt to explicate further the meaning of the causal concept (or concepts) which the New South Wales Court of Appeal recognised in Adler to be included in the statutory words 'resulted from'. As I explain below, this is because the claim fails even on the widest view of compensation resulting from the breaches in this case. That view would include the broad approach in instances where substitutive compensation is sought as well as the usual approach to causation in instances where reparative compensation is sought.

463 Substitutive compensation is not available for reasons explained in section 17 of these reasons.

464 Agricultural has failed to establish a right to reparative compensation. The reasons why Agricultural cannot prove a right to reparative compensation in equity, as discussed above, also apply to s 1317H:

(iv) liability was not within the scope of liability for consequences of the breach.

465 For all of these reasons Agricultural's claim for compensation for losses under s 1317H must be rejected. Agricultural's claim for profits is considered separately below.

20. Can Agricultural succeed in a claim for disgorgement of profits?

20.1 Agricultural's claims for an account and disgorgement of profits

466 Apart from the claims for alleged losses which it suffered, Agricultural also sought an account of profits in equity, as well as disgorgement of profits within the extended definition of 'compensation' in s 1317H(2) of the Corporations Act. It is convenient to consider these matters together although, as will be seen in the conclusion to these reasons, there is a separate issue concerning the account of profits upon which I will invite further submissions concerning the appropriate orders.

20.2 No profit was proved to be made by Bunbury Centro

467 Counsel for Agricultural submitted that Bunbury Centro had profited from the Contract because the Kalgoorlie Property and work in progress had a book value to Bunbury Centro at 30 June 2002 of $2,825,639,[406] but the 'sale price' to Agricultural was recorded as $4,013,260.[407] There are four reasons, in combination, why this submission must be rejected.

468 First, the Contract between Bunbury Centro and Agricultural was a zero sum game. Any profit to Bunbury Centro would be a loss to Agricultural. As I have explained above, Agricultural made a significant profit above market value on the purchase of the Kalgoorlie Property and it is impossible to determine whether it made a profit or loss on its acquisition of the Licence. The converse must be true in relation to Bunbury Centro: it made a significant loss on the sale of the Kalgoorlie Property and it is impossible to know on the evidence in this case whether it made a profit or loss on the sale of the Licence.

469 Secondly, the financial report of Bunbury Centro upon which Agricultural relied for the assertion that Bunbury Centro had made a profit on the transaction was 'a special purpose financial report that [had] been prepared for internal use only'.[408]

470 Thirdly, the basis of the alleged profit is unclear. The Bunbury Centro 30 June 2002 financial accounts record 'Land held for resale' at $1,480,822. It is unclear whether this includes the Kalgoorlie Property which is recorded elsewhere in the financial accounts as having a 'sale price' of $4,013,260. It is also unclear how this 'sale price' was determined. The combination of the purchase price and Licence fee was $3,915,051.

471 Fourthly, any profit was not shown to be caused by a breach. In relation to the breach of fiduciary duty there must be a sufficient connection between the breach of the conflict or profit rule and the profit derived.[409] And for the 'compensation' by disgorgement of profits under s 1317H the profit must 'result from' the contravention as discussed above.

472 In Warman International Ltd v Dwyer,[410] a joint judgment of the High Court of Australia said that 'in determining the proper basis for an account of profits, it is of first importance ... to ascertain precisely what it was that was acquired in consequence of the fiduciary's breach of duty'. In that case, the Court held that even allowing for the limits of judicial discretion, the defendants' profits from breach of fiduciary duty should be reduced from four years' profits to two years. The reason for the reduction was because it was only the latter that was a 'fair and equitable' assessment of 'the whole of the benefits acquired by ... breach of fiduciary duty'.[411]

473 No conclusive evidence was given concerning the cost of the Kalgoorlie Property to Bunbury Centro, although there were unsupported references to the acquisition by Bunbury Centro of the Kalgoorlie Property for $750,000 in July 1999.[412] If $1,480,822 was the book value of the Kalgoorlie Property then there was no evidence about how this figure was derived. If it reflected the cost (or adjusted cost) of the Kalgoorlie Property, then the 30 June 2002 financial accounts would show only a 'book profit' on that sale based on the historical cost of the Kalgoorlie Property to Bunbury Centro. Such a book profit is not connected to any breach of fiduciary duty.

474 A note to the accounts provides that[413]

Land held for resale is valued at the lower of cost and net realisable value. Costs include the cost of acquisition and associated costs. Costs directly attributable to the development are capitalised as construction costs.

Work in progress is stated [as] the aggregate of costs incurred to date directly attributable to the construction process. Revenue is brought to account on a percentage of completion method of signed unconditional contracts.

475 The accretion of market value from the historical cost of acquisition to the value of the Kalgoorlie Property at the time of any breach of duty by Bunbury Centro is not attributable to that breach of duty.

476 The benefit acquired by Bunbury Centro as a result of a breach of any duty is the difference between the market value of the Kalgoorlie Property and the Licence fee and the price that Bunbury Centro received for them. It is unnecessary to determine the reasons for the book profit between the cost of acquisition and the value at the date of sale. The book profit might incorporate matters such as (i) any increase in the market value between the date of acquisition by Bunbury Centro (July 1999) and date of sale to Agricultural; or matters such as possible change in zoning from 'Local Business' to 'Tourist' in September 1999.[414] The profit from these pre-breach events is not caused by any breach.

20.3 No profit was proved to be made by Messrs Jackson and Goff

477 Agricultural also brought a claim for disgorgement of profits against Messrs Jackson and Goff. There was no evidence which could satisfy me that Messrs Jackson or Goff made any profit.

478 Agricultural appeared to put its case against Messrs Jackson and Goff on the basis that they are required to disgorge profits which were not made by them but which were made by Bunbury Centro.[415] That claim must be rejected for two cumulative reasons.

479 First, as I have explained above in section 20.2 of these reasons, Agricultural has failed to prove that Bunbury Centro made any profit. Therefore there is no profit for which Mr Jackson or Mr Goff should be secondarily liable.

480 Secondly, an order for disgorgement of profits made by a fiduciary requires proof that the fiduciary made those profits personally. The order is not parasitic upon profits made by another party. It might be arguable that a knowing assistant might be liable to disgorge profits made by a fiduciary. But, if this is possible, it could only be because the liability of the knowing recipient is a secondary liability.[416] But a fiduciary's liability is not dependent upon the wrong of another.

481 Agricultural has succeeded in proving a number of breaches of duty by Mr Jackson and Mr Goff, and also succeeded in showing a knowing concern in those breaches by Bunbury Centro. But no order for compensation should be made. Agricultural has not proved that any loss to it was caused by the breaches. Nor has it proved any entitlement to substitutive compensation. Nor has it proved that any profits were made by any of the defendants as a result of their breaches.

482 This does not necessarily mean that the action should be entirely dismissed. There are two possible consequences of these reasons which were not the subject of any submissions.

483 First, I did not receive any submissions concerning whether any declaration of breach of s 180(1) should, or must, be made under s 1317E(1)(a) of the Corporations Act.

484 Secondly, the consequences of my conclusion that Messrs Jackson and Goff were in breach of their fiduciary duties may require further submissions from the parties. Agricultural did not make any submissions concerning whether it should be entitled to an account of profits from the defendants in circumstances in which it had not proved any loss nor any corresponding profit. Senior counsel for the defendants also deliberately eschewed making any further submissions as to relief in the form of an account of profits for this breach.[417]

485 On one view, to order an account of profits in these circumstances would be futile since no loss or corresponding profit has been proved. It would also give Agricultural a second bite at the cherry. On the other hand, Agricultural sought relief in the form of an account of profits and the usual procedure is that if a defendant is found to be an accounting party then the taking of an account would be ordered. But, as I have explained at [471], I am not aware of any case where an accounting is ordered in circumstances in which a plaintiff has tried, and failed, to prove that any profit at all was made from the breach.

486 I will hear from the parties concerning these two matters and any other orders sought which arise from these reasons.

Appendix 1: The place of the parties in the Kareelya Group structure[418]

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : AGRICULTURAL LAND MANAGEMENT LTD -v- JACKSON [No 2] [2014] WASC 102 (S)

Practice and procedure - Costs - Appropriate orders as to costs - Whether any declaration should be made - Whether taking of an account should be ordered

Corporations Act 2001 (Cth)

Supreme Court Act 1935 (WA)

Plaintiff to pay the defendants' costs to be taxed if not agreed including various reserved costs

The supplementary issues addressed in this judgment

1 On 28 March 2014, I delivered reasons for decision in this matter. Three outstanding issues arise from those reasons for decision. Those issues are as follows.

1. Whether any declarations should be made.
2. Whether an account should be ordered against Messrs Jackson and Goff.
3. The appropriate orders as to costs.

2 For the reasons expressed below, no orders should be made for any declaration or for the taking of an account. The appropriate order as to costs is that the plaintiff pays the defendants' costs of the action, including reserved costs on a number of identified dates.

3 Section 1317E(1) of the Corporations Act 2001 (Cth) provides that if a 'Court is satisfied that a person has contravened a civil penalty provision, it must make a declaration of contravention'. The civil penalty provisions listed in the table accompanying s 1317E(1) includes s 601FD(3), which I found to have been contravened by all the defendants. The civil penalty provisions also include s 180(1), which I found to have been contravened by Messrs Jackson and Goff.[419]

4 Although s 1317E(1) is expressed in apparently mandatory terms, it must be read in the context of s 1317J which provides that an application for declaration of contravention may be made by the Australian Securities and Investments Commission (ASIC). In Lifeplan Australia Friendly Society Ltd v Woff,[420] Besanko J referred to, and applied, the principle from numerous cases that have held that a declaration of contravention under s 1317E will only be made in proceedings brought by ASIC.[421]

5 This is sufficient to dispose of any possibility of a declaration under s 1317E.

6 Counsel for Agricultural also suggested that a declaration should be made of breach of fiduciary duty. There are three reasons why this submission must be rejected.

7 First, no declaration was sought by Agricultural. A plea of 'such further or other relief as the Court considers just' does not give a defendant notice that a declaration is sought. It is too late now for that notice to be given.

8 Secondly, the basis for a declaration is s 25(6) of the Supreme Court Act 1935 (WA) permits 'binding declarations of right' without consequential relief. But courts only make declarations concerning the rights of parties.[422] Legal rights include claim rights, powers, privileges and immunities. They do not include observations about breaches of duty that have no legal consequence. Declarations are not granted where they will 'produce no foreseeable consequences for the parties'.[423]

9 Thirdly, the orders to be made are those that are consequent upon my reasons for decision. Nothing in my reasons for decision contemplates a declaration of breach of fiduciary duty.

10 In my reasons for decision I raised the possibility of an order that Messrs Jackson and Goff, as accountable parties, account for any profit they made from their breach of fiduciary duty.

11 There are three immediate difficulties with ordering such an account. I recognised these in my judgment.[424]

12 The first is that an accounting exercise would be likely to be futile since I determined that no profit was made. Even putting to one side the boundaries of issue estoppel, there are systemic considerations of legal policy in permitting the same issue to be litigated twice in the same proceedings. As Lord Hoffmann has explained, these are considerations that a person should not be troubled twice for the same reason and the need to avoid duplication of determinations.[425]

13 Secondly, although the defendants are strictly accounting parties, and although it may have been open to Agricultural simply to seek an accounting, Agricultural ran its case as an attempt to prove loss and corresponding profit. To order an accounting would also give Agricultural a second bite at the cherry.

14 Thirdly, as I explained, I was not aware of any case where an accounting is ordered in circumstances in which a plaintiff has tried, and failed, to prove that any profit at all was made from the breach. Senior counsel for the defendants has also pointed to authorities that recognise the requirement that a plaintiff must plead that a profit has been made.[426] It follows from this that an account of profits should not be ordered where a plaintiff has pleaded, but failed to prove, that any profit was made.

15 No order should be made for an account of profits.

16 Agricultural seeks various alternative orders as to costs. They are as follows.

(ii) The defendants pay Agricultural's costs of the action to be taxed but with a reduction of 50% and various allowances.

(iii) Agricultural pay the defendants' costs of the action to be taxed but with (a) a reduction of 50% of those costs, (b) no allowance for preparation of witness statements or expert reports for witnesses not called by the defendants, (c) a set off for costs thrown away by reason of the defendants' amendments to the defence and the abandonment of issues at trial of matters pleaded in the defence, (d) a set off for reserved costs orders that should be made in favour of Agricultural, (e) a set off for the costs of the defendants' security for costs application, and (f) a set off for the costs of hearings on 18 September 2013, 6 November 2013 and 8 November 2013.

17 As to the first two proposed orders, the starting point is that the defendants were successful in the action. The relief sought by Agricultural against each defendant was compensation under s 1317H of the Corporations Act, equitable compensation or an account of profits. Each claim for relief failed.

18 Although an award of costs is discretionary, the success of the defendants means that the Court will generally order that they recover their costs.[427] Fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation.[428]

19 Agricultural argues in favour of its proposed orders (i) and (ii) above (no order as to costs, or for the defendants to pay Agricultural's costs) because it says that it was partly successful at trial. Plainly, it was not successful in obtaining any of the relief it sought. But Agricultural says that it was partly successful on the discrete issue of liability. Agricultural says that it succeeded on the discrete issue of liability but failed on 'damages' which precluded any relief.[429]

20 In Bowen v Alsanto Nominees Pty Ltd,[430] in a passage recently reiterated,[431] the Court of Appeal explained the reasons why such orders are not made as a matter of course when a plaintiff succeeds on a discrete issue:

The court may, in the exercise of its discretion, order that a successful party recover only a portion of its costs where that party has been unsuccessful in respect of certain discrete issues. But that should not be done as a matter of course. To embark as a general practice upon an analysis of which party was successful on each issue, or necessarily to deprive a successful party of some portion of its costs if it has lost on a particular issue, would be likely to add further uncertainty and complexity to the outcome of litigation, derogate from the prospect of settlement, and oblige the court to hear lengthy and frequent arguments in relation to costs as an additional burden on its resources and the costs of the parties: see MacKinnon v Petersen (Unreported, NSWSC, 19 April 1989) (Cole J); Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 [67] [68] (McHugh J). Litigation is time-consuming, expensive and burdensome enough already.

In addition, while parties should be encouraged to consider carefully what matters they put in issue, justice may not be served if by too ready a resort to deciding questions of costs according to success on particular issues, parties are dissuaded by the risks of costs from canvassing all issues which might be material to the decision in the case: Doric Products Pty Ltd v Lockwood Security Products Pty Ltd [2002] FCA 282; NRMA Ltd v Morgan (No 3) [1999] NSWSC 768 [24].

21 In this case, as a matter of general impression, these considerations mean that this is not an appropriate case in which there should be any departure from the general rule that the successful party is entitled to its costs.

22 In any event, in O'Rourke v P & B Corporation Pty Ltd,[432] the Chief Justice said that the Court should only adjust a costs order by reference to particular issues if 'it is clear that [(i)] those issues were significantly discrete, [(ii) they] raised costs that can be separately and specifically determined, and [(iii) they] were issues upon which the unsuccessful party has demonstrably failed'.[433]

23 I do not accept the submission by counsel for Agricultural that the issues of liability were significantly discrete from those concerning compensation or the account of profits. One reason for this is that it is, at least, strongly arguable that loss is an element of an action for negligence in equity. A second reason is that the extent of any loss on the sale of the Kalgoorlie Property or Licence is a matter which would be relevant to any inference drawn concerning liability issues such as whether the directors acted in good faith or in the best interests of Agricultural.

24 Nor do I accept that the evidence to which the liability issues and the compensation issues related was independent. The expert evidence concerning the value of the Kalgoorlie Property and Licence was not merely relevant to a quantification of any alleged loss that was suffered. As I have explained, it was also relevant to the question of liability in a number of ways such as whether the directors acted in the best interests of Agricultural, or whether they acted in good faith, or whether they acted for proper purposes.

25 Nor do I accept that these were issues upon which the defendants demonstrably failed. One significant part of Agricultural's case in relation to liability was its claim concerning losses in relation to the Project Management Agreement. Agricultural failed in that part of its case because it was time barred and lacking in a factual basis.[434] Agricultural also failed to prove numerous contraventions and breaches alleged against the defendants. All of the first group of alleged breaches failed.[435] All of the contraventions within the fourth group of alleged breaches failed.[436] All of the contraventions within the fifth group of alleged breaches failed.[437] A number of the breaches in the sixth and seventh group of alleged breaches failed.

26 Finally, I do not accept that any of the issues upon which Agricultural succeeded appreciably increased the costs of the trial. The point could be tested by asking whether the trial would have been abbreviated if the defendants had conceded all of the issues on which Agricultural succeeded. My conclusion is that any reduction in trial time would have been almost nonexistent. For instance, as senior counsel for the defendants submitted, the only issue upon which I found for Agricultural that was not conceded by the defendants, or based upon a matter conceded by the defendants, was in relation to breach of fiduciary duty. My finding in relation to breach of fiduciary duty involved no different factual basis from issues raised in relation to the remainder of the trial and the submissions on this point occupied only nine lines of Agricultural's lengthy closing submissions.

27 Counsel for Agricultural pointed to seven matters about which he said the defendants abandoned. In relation to all but one of those matters it is more accurate to say either that no positive case was advanced by the defendants or that they were irrelevant to the central issues at trial. The matter abandoned was that there were no members of the Kalgoorlie Scheme at the relevant time. In relation to all matters, none of them had any substantial effect on the length of trial, nor were any of them clearly discrete issues about which costs could be specifically determined.

28 For these reasons, the proper order is that Agricultural pay the defendants' costs to be taxed if not agreed.

29 The remaining question then is whether that order should be adjusted, or supplementary orders made, in relation to:

(i) preparation of witness statements or expert reports for witnesses not called by the defendants;

(ii) costs thrown away by reason of the defendants' amendments to the defence and the abandonment of issues at trial of matters pleaded in the defence;

(iii) reserved costs orders that should be made in favour of Agricultural;

(iv) costs of the defendants' security for costs application; and

(v) costs of hearings on 18 September 2013, 6 November 2013 and 8 November 2013.

30 Agricultural submitted that orders should be made in relation to any of these matters for which it was entitled to costs setting off those costs against costs orders in the defendants' favour. The term 'set-off' is sometimes used in different senses. Its primary, and correct, sense is to refer to crossdemands. It appears that this is the sense in which counsel for Agricultural used it. It is in the discretion of the taxing officer to setoff these crossdemands in the taxation of costs.[438] No order of set off requiring the taxing officer to do so should be made.

Preparation of witness statements and expert reports for witnesses not called

31 As to preparation of witness statements or expert reports for witnesses not called by the defendants, counsel for Agricultural sought orders that the defendants' entitlement to costs and disbursements not include 'any allowance or disbursements for the preparation of witness statements or expert reports of witnesses not called by the defendant at the trial of the action'.

32 The witnesses and experts to which counsel for Agricultural is referring are the defendants, Mr Jackson and Mr Goff, as well as the reports from Mr Catlin that were not tendered and a report from a quantity surveyor, Mr Bird.

33 I do not consider it appropriate to exclude these matters from the order for costs in favour of the defendants. It may turn out to be that the preparation of the witness statements and expert reports of any or all of these witnesses are not costs which are allowed. But the failure to call a witness is not automatically a disentitling factor for recovery of those costs. It might depend, for example, on the prudence and reasonableness of the decision to prepare the witness statements, and upon why the decision was said to have been made not to call the witness, and upon when that decision was made. I received no submissions on these points.

34 This is a matter that should be left to the taxing officer.

Costs thrown away by reason of the 20 September 2013 amended defence

35 As to these costs thrown away, an order has already been made in the terms sought by Agricultural. On 25 September 2013, I ordered that the defendants pay Agricultural's costs thrown away by reason of the amended defence dated 20 September 2013.

36 As to the reserved costs orders upon which Agricultural sought its costs, these were orders made on 23 October 2009, 6 November 2009, 13 November 2009, 20 November 2009, and 15 January 2010.

37 All of these hearings were conducted long before the matter was admitted into my list in the Commercial and Managed Cases List. All hearings were status conferences conducted before a registrar. The orders made, and time recorded for each hearing in the Integrated Courts Management System, is set out below.

(a) 23 October 2009 (12 minutes): adjourning the status conference to 6 November 2009;

(b) 6 November 2009 (30 minutes): adjourning the status conference to 13 November 2009 and ordering that Agricultural serve a minute of amended statement of claim as soon as practicable and that there be conferral on that amended statement of claim;

(c) 13 November 2009 (8 minutes): adjourning the status conference to 20 November 2009;

(d) 20 November 2009 (20 minutes): adjourning the status conference to another day to be fixed and ordering Agricultural to make any application for leave to amend its statement of claim by 4 December 2009; and

(e) 15 January 2010 (15 minutes): granting Agricultural leave to file and serve an amended statement of claim, consequential orders in relation to the defence, and leave for the defendants to withdraw an admission.

39 My associate has conducted an electronic search of ICMS and no recording of those hearings is available, nor was there any transcript on the court file. However, the solicitor for the defendants (who appeared at all of the status conferences above) made submissions before me this morning and also handed up copies of transcripts for the first four of those hearings. He submitted that all of the status conferences involved issues including deficiencies in Agricultural's statement of claim and proposed amendments to Agricultural's statement of claim. That submission is supported by the orders, the time taken, and the transcripts which I have read this morning.

40 The solicitor for the defendants submitted that the proposed amendment by Agricultural was concerned with the complaint that the defendants had about Agricultural's pleading which was that it did not explain the loss that had been suffered. I accept this submission. At the first status conference, the exchange was substantially concerned with this question of quantum. The Registrar concluded the hearing by saying that it was 'worrying' that the solicitors for Agricultural (who were not its solicitors at trial) had allowed the matter to proceed this far without considering what a reasonable fee would have been for the Licence.[439] Ultimately, it was pleaded that the Licence had no value, a claim that I rejected.

41 All of these matters are strong reasons for an order to be made that the costs of these status conferences be costs of the defendants or, which now amounts to the same thing, that the costs be in the cause.

42 However, on a number of occasions the necessity for a status conference, and the length of the status conference, appears to have been affected by delays by the defendants in responding to correspondence and absence of proper, timely conferral by the defendants. For instance, it was common ground that a minute of proposed amended statement of claim was provided to the defendants on 24 August 2009. The defendants did not respond to that minute until 20 October 2009. Counsel for Agricultural said that on 22 October 2009, Agricultural responded to that letter from the defendants. I was not told of the contents of that letter, but nothing was said at the status conference on 22 October 2009 to suggest that the point was conceded. At the status conference on 23 October 2009 the Registrar then observed that there were serious deficiencies with the statement of claim and that there needed to be conferral between the practitioners to sort out the problem.[440]

43 Although the status conference was concerned with the deficiencies in Agricultural's statement of claim, in the circumstance of the long delay by the defendants in responding to Agricultural's correspondence, the appropriate order is that there be no order as to costs of the 23 October 2009 status conference.

44 As to the status conference on 6 November 2009, Agricultural submitted that the defendants' solicitors had again delayed in responding to the letter sent to them on 22 October 2009. A reply had not been received until 3 November 2009, shortly before the status conference on 6 November 2009. Nevertheless, the dispute appeared to be a simple point and Agricultural's solicitor had adequate time to consider the pleading issue which had been in dispute. At the status conference the solicitor who was then acting for Agricultural submitted that it was not necessary for Agricultural to plead what it said the Kalgoorlie Property and Licence were worth. The solicitor for Agricultural said that he could not plead that until he obtained an expert report and that it may be that the Licence was worthless.[441] No expert evidence was ever led in relation to the Licence. The status conference concluded with the submission by the solicitor for the defendants to the Registrar that the last time that this matter was adjourned was[442]

for 14 days ... for the purpose for these matters to be addressed. They haven't been quite addressed [by Agricultural] and my friend tells me that any issues can be attended to in the next few days...

45 The appropriate order is that these costs be in the cause which has the effect that Agricultural pay the defendants' costs of the status conference on 6 November 2009.

46 As to the status conference on Friday 13 November 2009, a minute of proposed amended statement of claim was provided by Agricultural to the defendants on 6 November 2009. At the hearing the solicitor for the defendants said that he had received it on Monday 9 November 2009. But, he did not advise Agricultural until 12 November 2009, that counsel would not be able to look at the minute until the following week. There is nothing on the Court file to suggest that the defendants informed the Court that they would not be able to confer prior to the status conference. The status conference before the Registrar had to be adjourned. The Registrar remarked that costs would be reserved because he had expected a response from the defendants in time.[443]

47 The defendants should pay Agricultural's costs of the status conference on 13 November 2009.

48 As to the status conference on 20 November 2009, a number of matters were canvassed during this hearing. One of them concerned particulars of the minute of the proposed amended statement of claim. A letter seeking particulars had only been sent by the solicitors for the defendants one day before the status conference. The letter related, again, to the issue of quantum.

49 The solicitor for Agricultural also accepted before the Registrar that there was an error in the minute because it referred to the licence having no value. The defendants did not intend to plead that (at that time).[444] The Registrar refused leave to amend the pleading and said that 'it still needs another go'.[445] There was also a dispute about the absence in the proposed amended statement of claim of any reference to the document which required disclosure of the transaction. The Registrar reserved costs because 'we are dealing with proposed amendments'. He considered it appropriate to deal with them together with any application that is made.[446]

50 In all the circumstances, the appropriate order is that the costs of the 20 November 2009 status conference be costs in the cause. This means that they will be the defendants' costs.

51 As to the status conference on 15 January 2010, counsel for Agricultural said that this 15 minute hearing was for Agricultural's application to amend its statement of claim which had been the subject of the difficulties discussed above. The application was allowed. No transcript of that hearing was available when counsel appeared before me this morning. However, one has been located in the archives. It will be provided to the parties prior to any formal order being entered but my preliminary conclusion is that the transcript from that hearing provides a strong basis for an order that Agricultural pay the defendants' costs of that status conference.

52 At the hearing, two applications were made: an application by Agricultural to amend its statement of claim and an application by the defendants to withdraw their admission that Agricultural was a registered entity. Neither application was opposed. The Registrar proposed making orders that Agricultural pay the defendants' costs of the application including reserved costs.[447] The solicitor for Agricultural opposed this. He said that some of the earlier directions hearings might have involved late communications from the solicitors for the defendants that made adjournment difficult.[448] So costs of the 15 January 2010 hearing were reserved.

53 In these circumstances, there is a strong basis for the appropriate order to be that the costs of the 15 January 2010 status conference be costs in the cause. This means that they will be the defendants' costs. However, since I have reached this preliminary view by relying upon material that counsel before me this morning has not seen, I will give counsel for Agricultural the opportunity of making any brief submission to the contrary if he wishes to do so.

Costs of the defendants' security for costs application

54 Senior counsel for the defendants submitted in writing that the orders had already been made on 16 May 2013 that the defendants pay Agricultural's costs of the security for costs application. This point was not pressed at the hearing this morning. I have confirmed from the court file that the submission by senior counsel for the defendants is correct. This order sought by Agricultural is therefore unnecessary.

Costs of hearings on 18 September 2013, 6 November 2013 and 8 November 2013

55 Senior counsel for the defendants submitted in writing that the Court has already ordered that the defendants pay Agricultural's costs of these hearings. I have confirmed from the court file that the submission by senior counsel for the defendants is correct. This order sought by Agricultural is therefore unnecessary.

56 Unless any further submission in relation to (2) is made by counsel for Agricultural before 7 May 2014, the appropriate orders are as follows:

(2) The plaintiff pay the defendants' costs of the action including the costs reserved on 6 November 2009, 20 November 2009 and 15 January 2010, to be taxed and paid forthwith (if not agreed).

(3) There be no order as to the costs of the status conference on 23 October 2009.

(4) The defendants pay the plaintiff's costs reserved on 13 November 2009, to be taxed if not agreed.

[1] For example, exhibits 3, 35, 36, 39, 41, 44, 45, 46, 47, 49, 50.

[2] Re-amended substituted statement of claim [1.1]; Seventh amended defence [1].

[3] Exhibit 61 (Statement of agreed facts) [1].

[5] Exhibit 61 (Statement of agreed facts) [2].

[6] Exhibit 61 (Statement of agreed facts) [4].

[7] Exhibit 61 (Statement of agreed facts) [5].

[8] Exhibit 61 (Statement of agreed facts) [3].

[12] Exhibit 61 (Statement of agreed facts) [6].

[13] Agricultural's closing submissions [4].

[14] Exhibit 43 (Trial bundle page 680).

[16] Cl 3.2(a)(i) (Exhibit 6, Trial bundle page 111).

[17] Cl 3.3, and Schedule 1 (Exhibit 6, Trial bundle pages 111, 182).

[18] Exhibit 13 (Trial bundle page 260).

[19] Exhibit 13 (Trial bundle page 261).

[20] Exhibit 61 (Statement of agreed facts) [7].

[23] Exhibit 13 (Trial bundle page 262).

[24] Clause 3.2(a)(i) (Exhibit 6, Trial bundle page 111).

[25] Clause 3.3 (Exhibit 6, Trial bundle page 111).

[26] Clause 12.1(a) (Exhibit 6, Trial bundle page 133) and Schedule 1 definition of 'portfolio' (Exhibit 6, Trial bundle page 186).

[29] Exhibit 13 (Trial bundle page 263).

[30] Exhibit 39 (Trial Bundle page 584).

[35] Exhibit 3 (Trial bundle page 71, 75).

[37] Bunbury Centro Notes to Financial Statements (Exhibit 51, Trial bundle page 799).

[39] Exhibit 27; Exhibit 61 (Statement of agreed facts) [9].

[40] Exhibit 27 (Trial bundle page 462); Exhibit 61 (Statement of agreed facts) [10].

[43] Clause 5.1(a) (Exhibit 54, Trial bundle page 105).

[44] Clause 2.4(a)(i) (Exhibit 54, Trial bundle page 104).

[45] Clause 2.4(a)(ii) (Exhibit 54, Trial bundle page 104).

[46] Clause 1.1 'Project' (Exhibit 58, Trial bundle 343-344).

[47] Exhibit 13 (Trial bundle page 265).

[49] Exhibit 16 (Trial bundle page 319).

[50] Exhibit 13 (Trial bundle page 267).

[51] Clause 3 (Exhibit 28, Trial bundle page 471).

[52] Exhibit 13 (Trial bundle page 270).

[53] Exhibit 13 (Trial bundle page 279).

[54] Exhibit 13 (Trial bundle page 282).

[55] Exhibit 13 (Trial bundle page 292).

[56] Exhibit 13 (Trial bundle page 295).

[57] Exhibit 20 (Trial bundle page 358).

[58] Exhibit 61 (Statement of agreed facts) [14].

[61] Exhibit 20 (Trial bundle page 354).

[62] Exhibit 20 (Trial bundle page 357).

[63] Re-amended substituted statement of claim [1.2]; Seventh amended defence [3(1)].

[64] Exhibit 62 (Westralia Property Trust Annual Report 30 June 2007, page 3); Exhibit 63 (Agricultural Land Trust Annual Report 30 June 2008, page 3).