Australian Super Developments Pty Ltd v David Wellesley Marriner & Ors [2014] VSC 464

DEFENCES AND COUNTERCLAIMS - remitted by the Court of Appeal - common sub-stratum of facts for allegations of unconscionable conduct, misleading and deceptive conduct and estoppel - accounting entries were made to reflect the fact that bond monies lodged as security had been repaid - plaintiffs by counterclaim were unaware that bond monies debt was no longer in existence when sale and assignment took place - whether conduct of defendants by counterclaim was unconscionable - whether first plaintiff by counterclaim was under a 'special disadvantage' - whether defendants by counterclaim made representations about the assignment of bond monies debt - pleaded representations not made out - related counterclaim for estoppel also fails.

For the Plaintiff and the Defendants by counterclaim

For the Defendant and the Plaintiffs by counterclaim

Are any of the findings of fact made by the original trial judge relevant, binding or to be regarded by the Court as having any significance at all for the determination of the remitted issues? (Issue (v))

When Wallace & Wallace received the third tranche bond monies, for whom did they hold them on trust? (Issue (i))

Whether Mr Marriner is liable for knowingly inducing or immediately procuring all or only some of the breaches of trust by Wallace & Wallace? (Issue (viii))

Are 'knowingly induced' and 'immediately procured' alternative bases for liability under the principle in Eaves v Hickson? (Issue (iii))

What knowledge and level of knowledge (if any) is required for inducing and/or procuring an innocent breach of trust? (Issue (ii))

What effect, if any, does the Briginshaw standard have on the standard of proof required to make good ASD's allegation that Mr Marriner knowingly induced or immediately procured the breach(es) of trust by Wallace & Wallace? (Issue (vi))

Whether Mr Marriner had knowledge of circumstances that would have indicated the relevant facts to an honest and reasonable person? (Issue (iv))

When drawing inferences can the Court follow a path of reasoning that applies the concepts referred to in R v Lane? (Issue (vii))

Whether the various Marriner companies on whose letterhead the instructions to Wallace & Wallace were sent are also liable on the basis that Mr Marriner's knowledge is to be attributed to them? (Issue (ix))

To the extent that some of the third tranche funds were applied to pay invoices addressed to ASD, or were spent on Laguna Quays, is ASD's loss to be commensurately reduced? (Issue (x))

What is the proper construction of clause 10(d) of the 30 June 2000 Heads of Agreement? (Issue (xi))

Did ASD engage in unconscionable conduct at common law or under s 51AA of the Trade Practices Act 1974 (Cth) or s 7 of the Fair Trading Act 1999 (Vic) (issue (xiv)) and was Mr Marriner relevantly under any 'special disadvantage' for the purposes of his claims of unconscionable conduct? (Issue (xv))

Whether the representations pleaded in pargraph 114 of the counterclaim were made and, if so whether they constituted misleading or deceptive conduct? (Issue (xii))

Whether Mr Marriner relied on any representations made that are permitted to be relied upon and if so what facts constituted any relevant act of reliance? (Issue (xiii))

Whether ASD is estopped by representation from pursuing the bond monies claim? (Issue (xvi))

Did the Deed of Assignment of Debt operate to assign from ASD to Fulham Holdings the chose in action the subject of ASD's primary claim, thereby disentitling ASD from making the bond monies claim? (Issue xvii)

Whether the terms of the sale agreements made on 13 November 2001 (and in particular, cls 2.3(b), 2.5(a) and 5.1 of the Deed of Assignment of Debt, and cls 7.8(a), 7.8(b) and 11.1 of the Share Sale Agreement preclude Mr Marriner and his associated companies from bringing the claims he now seeks to make? (Issue xviii)

Whether there is any basis for ASD's directors and Mr Patience to be held liable to Mr Marriner and, if so, what are the facts relevant to each individual and what amount is each individual liable for and in respect of what causes of action? (Issue xix)

Ruling on documents sought to be tendered at the remitter hearing that were not included in the Court Book

1 The claims and counterclaims in this proceeding have their genesis in activities undertaken in the course of a joint venture conducted by interests associated with the first defendant, Mr David Wellesley Marriner, on the one hand and the Construction and Building Unions Superannuation Fund ('CBUS') on the other.

2 Between 1993, when the joint venture commenced, and 3 November 2000, when it was effectively dissolved, CBUS, Mr Marriner and companies associated with him, engaged in a number of property development projects as joint venturers. The plaintiff, Australian Super Developments Pty Ltd ('ASD') was the corporate vehicle through which the joint venture was conducted. At all relevant times, United Super Pty Ltd ('United Super'), in its capacity as the trustee of CBUS, and Goldworthy Pty Ltd ('Goldworthy'), a Marriner company, held equal interests in ASD.

3 During the period of the joint venture, Mr Marriner was the CEO and a director of ASD. The joint venture was conducted on the basis that Mr Marriner would contribute his expertise in property development and CBUS would provide funding in relation to the business ventures conducted by ASD.

4 Towards the end of 1999 or early 2000, CBUS grew increasingly disenchanted with aspects of Mr Marriner's involvement in the joint venture projects and it sought to bring the joint venture to an end. In mid-2000, the parties agreed to sever their relationship. This was formalised and accomplished in a series of agreements made over a period of about 18 months, the first of which was a heads of agreement dated 1 November 2000. On 3 November 2000 their joint venture arrangement was effectively at an end, whereupon Mr Marriner and each of his appointees to the board of ASD, namely Mr Garry Weaven and Mr Ian Court, ceased to be directors of ASD.

5 One of the joint venture projects undertaken and ultimately operated by ASD was the development of a resort known as Laguna Quays in North Queensland. Laguna Quays had been operating at a loss for some years with no signs of improving in the short-term. In March 2000, Mr Marriner expressed interest in acquiring the resort. He submitted to the Board a proposal whereby interests associated with him would purchase the Laguna Quays project for $26.5 million, subject to certain terms. This proposal culminated in a heads of agreement being entered into on 30 June 2000 between ASD, Matelda Oaks Pty Ltd and SDA-Laguna Investments Pty Ltd ('Matelda Oaks' and 'Laguna Investments' respectively, both of which were wholly owned subsidiaries of ASD) and Laguna Australia Pty Ltd ('Laguna Australia', a Marriner company), whereby ASD agreed to sell the Laguna Quays project to Laguna Australia ('30 June 2000 Heads of Agreement'). Mr Marriner was not personally a party to the 30 June 2000 Heads of Agreement but he continued to play a key role in the Laguna Quays project.

6 Under cl 9 of the 30 June 2000 Heads of Agreement, ASD agreed to:

forthwith and at its own cost and expense complete or procure the completion of the capital works described in the budget set out in Annexure 4 provided always that the liability of [ASD] to complete such works shall not exceed A$4.7 million.

7 The 30 June 2000 Heads of Agreement was superseded by a further agreement made on 19 October 2001, recorded in a letter of that date and executed for and on behalf of ASD and Laguna Australia. The terms of the sale were finalised and documented on 13 November 2001 when formal sale agreements were entered into.[1] The completion date of the sale was extended and settlement of the sale and purchase of Laguna Quays and the associated transactions did not occur until 17 April 2002.[2]

8 In 2005, some years after Mr Marriner and ASD had parted ways, ASD commenced this proceeding and raised numerous claims against Mr Marriner and some of his associated companies (the second to sixth defendants). Mr Marriner and his associated companies counterclaimed against ASD, United Super, and Mr Patience, who was the new CEO of ASD, and Messrs Willis, Wason and Frost, who were members of the ASD board at the relevant time for, among other things, misleading and deceptive conduct.

9 In essence, the proceedings brought by ASD at the original trial involved two main claims, each of which involved payments that were said by ASD to have benefited Mr Marriner and/or his associated companies by increasing the value of Laguna Quays, which he had agreed to buy: (1) claims arising from dealings with electricity bond monies and (2) a capital expenditure claim.[3]

10 The bond monies claim related to a bank bond of $1.61 million that was required by the Mackay Electricity Board (later known as Ergon Energy), the provider of electricity to Laguna Quays, to ensure that the consumption of electricity at the resort would be maintained at levels sufficient to justify its initial investment. The arrangement in place with the Mackay Electricity Board was that the bond monies would be released over time, in three tranches, as and when the security was appropriately reduced. In 1999, the first tranche sum of $330,200 was released from the set-off account that had been established with the Bank of Queensland and paid to ASD. The second tranche, in the sum of $426,600, became available in the set-off account when the security was further reduced in late 2000. The third and final tranche sum of $853,200 became available in the set-off account when the security was further reduced in February 2001 and the bond was cancelled.

11 ASD claimed that because the $1.61 million paid into the set-off account in the name of LQ Management Pty Ltd ('Laguna Management') was provided by ASD for the specific purpose of securing the electricity bond, it gave rise to a Quistclose trust.[4] ASD alleged that Mr Marriner had induced or procured payments from the second and third tranches of the bond monies in breach of a Quistclose trust; and in the case of the third tranche bond monies, also in breach of a solicitor's trust because the third tranche bond monies were held on a solicitor's trust by ASD's solicitors, Wallace & Wallace.

12 Under the capital expenditure claim, ASD contended that, notwithstanding the mandate and limit imposed by the ASD board under cl 9 of the 30 June 2000 Heads of Agreement, Mr Marriner caused to be paid by ASD between December 1999 and 31 October 2000 sums totalling $5,524,890 for the ongoing works so that the limit of $4.7 million was exceeded by $824,890, without the approval of the ASD board.

13 A trial was conducted before Justice Byrne ('the original trial judge') in August and September 2009. Reasons for judgment were delivered on 26 February 2010. Further reasons for the dismissal of the extensive counterclaim brought by the Marriner parties were delivered on 16 April 2010.[5] In general terms, the outcome of the trial was that ASD failed on the bond monies claim and succeeded in part on its capital expenditure claim. Relevantly, his Honour found that Mr Marriner caused ASD and Matelda Oaks to expend a total of $5,112,113 on capital works, which was $412,113 in excess of the $4.7 million limit, and his Honour proposed that there be judgment against Mr Marriner in that sum.[6]

14 Mr Marriner appealed against the orders of the original trial judge requiring him to pay $412,113 to ASD and dismissing his counterclaim for damages against ASD, United Super and the second to sixth respondents. ASD brought a cross-appeal, seeking an order that Mr Marriner pay the sum of $929,800 on the basis that his Honour should have awarded the entire amount claimed.[7]

15 On 3 August 2012, the Court of Appeal (Neave and Mandie JJA and Judd AJA) handed down its judgment allowing an appeal,[8] and setting aside orders made by the original trial judge which had required Mr Marriner to pay $412,113 to ASD. The Court allowed ASD's cross-appeal in part and remitted several issues to be determined by a judge of the trial division.

16 The issue on the cross-appeal where, as the Court of Appeal observed, ASD achieved 'a measure of success' concerned its claim that the third tranche bond monies were held on a solicitor's trust by Wallace & Wallace.[9] The Court of Appeal found that the original trial judge had erred in holding that Wallace & Wallace were not liable for payments made in breach of the solicitor's trust. The original trial judge, having found that there was no breach of the solicitor's trust by Wallace & Wallace, did not proceed to deal with the issue of whether one or more of Mr Marriner and his associated companies were liable for the breach or breaches of trust which occurred as a consequence of the directions that were given by Mr Peter Jephson to Wallace & Wallace to disburse the third tranche bond monies to third party creditors, or for a payment of $80,000 which Mr Marriner is said to have directed Wallace & Wallace to pay to WS Group. The Court of Appeal held that the solicitors, as trustee, were 'strictly liable for any breach of trust, even if the breach is entirely innocent' and in those circumstances, the Court determined that the appropriate course was to remit this part of the case for determination by a judge in the trial division, the original trial judge having since retired.[10]

17 Mr Marriner also raised a number of affirmative defences to ASD's claims in respect of both the bond monies and the excess capital expenditure, and brought associated counterclaims based on the same or similar facts, relying upon what the Court of Appeal described as a 'complex web of facts and inferences'.[11] These affirmative defences and counterclaims were rejected at trial, but the Court of Appeal found that unfortunately, the original trial judge did not provide adequate reasons for rejecting them. Accordingly, the Court also remitted those issues for determination by a judge in the trial division.

18 The alleged liability of the Marriner companies, Goldworthy, Laguna Australia and Stage Design Pty Ltd ('Stage Design') for breaches of trust committed by Wallace & Wallace (including the applicability of any defences and related counterclaims) were also remitted for determination by a judge of the trial division.

19 On the question of costs, after hearing and receiving submissions, the Court of Appeal determined that the appropriate order would be to require the respondents to pay 80% of the appellants' costs of and incidental to the appeal on a party and party basis, and to remit the question of the order which should be made in respect of the costs of the trial for determination by a judge in the trial division.[12]

20 Against that background, on 3 August 2012 the Court of Appeal made orders as follows:

1. The appeal be allowed in the manner that follows.

2. The Orders made by the Honourable Justice Byrne on 16 April 2010 be set aside.

4. The following issues be remitted to be determined by a judge of the Trial Division and, subject to any contrary order of that trial judge, on the basis of the evidence already adduced in the trial:

• the liability of David Wellesley Marriner for the breaches of trust committed by Wallace & Wallace, including the applicability of any defences and related counterclaims;

• the liability of Goldworthy Pty Ltd, Laguna Australia Pty Ltd, and Stage Design Pty Ltd for the breaches of trust committed by Wallace & Wallace, including the applicability of any defences and related counterclaims; and

• liability for the costs of the hearing before the Honourable Justice Byrne.[13]

21 Thus the Court of Appeal has remitted two principal questions for determination:

(1) Questions arising on the ASD claim in chief - namely, whether Mr Marriner and his associated companies are liable for the breaches of the 'solicitor's trust' which the Court of Appeal found, arising from facts and circumstances that took place in 2000 and 2001 in respect of the third tranche of the electricity bond monies and alleged to involve a species of liability under the Eaves v Hickson[14] principle and (second limb) Barnes v Addy.[15]

(2) Questions arising on the Marriner parties' counterclaim - in essence whether the Marriner parties were misled and deceived or Mr Marriner was otherwise the object of unconscionable behaviour on the part of the ASD/United Super group of defendants by counterclaim, in respect of the negotiations that occurred during the winding up of the joint venture and the sale of Laguna Quays to the Marriner parties in 2000 and 2001.

22 I sought assistance from counsel for the respective parties in identifying the issues that were required to be determined on the remitter of the two principal questions.[16] As they were unable to reach consensus, I have prepared the following list of 19 issues by consolidating and synthesising the respective lists proffered by each of them.

(i) When Wallace & Wallace received the third tranche bond monies, for whom did they hold them on trust? (For ASD in their entirety or, as the Marriner parties contend, in part for ASD and in part for Laguna Airport?).

(ii) What level of knowledge is necessary for accessorial liability for inducing or procuring an innocent breach of trust?

(iii) Whether 'knowingly induced' and 'immediately procured' are alternative bases for accessorial liability, the former requiring knowledge and the latter not, or at least not requiring the same level or degree of knowledge?

(iv) Assuming that the test for 'knowledge' is the same as that for knowingly assisting a dishonest breach of trust (ie, the second limb of Barnes v Addy), whether Mr Marriner had knowledge of circumstances that would have indicated the relevant facts to an honest and reasonable person?

(v) Where the matter has been remitted so as to give each party an opportunity to fully ventilate the relevant issues before a judge in the trial division, are any of the findings of fact made by the original trial judge relevant, binding or to be regarded by the Court as having any significance at all for the determination of the remitted issues?

(vi) What effect, if any, does the Briginshaw standard have on the standard of proof required to make good ASD's allegation that Mr Marriner knowingly induced or immediately procured the breach(es) of trust by Wallace & Wallace?

(vii) When drawing inferences, can the Court follow a path of reasoning that applies the concepts referred to in R v Lane[17] if the Court concludes a lie was told and that the motive for the lie was a realisation of guilt and fear of the truth, or whether such a path of reasoning depends on inapplicable criminal law principles?

(viii) Whether Mr Marriner is liable for knowingly inducing or immediately procuring all of the breaches of trust by Wallace & Wallace? Alternatively, whether Mr Marriner is liable for knowingly inducing or immediately procuring only some of the breaches of trust?

(ix) Whether the various Marriner companies on whose letterheads the instructions to Wallace & Wallace were sent are also liable on the basis that Mr Marriner's knowledge is to be attributed to them, thereby fixing them with responsibility for procuring or inducing the breach of trust or alternatively, as knowing recipients of the third tranche funds?

(x) If ASD suffered loss, then to the extent that some of the third tranche funds were applied to pay invoices addressed to ASD, or were spent on Laguna Quays, is ASD's loss to be commensurately reduced?

(xi) What is the proper construction of clause 10(d) of the 30 June 2000 Heads of Agreement?

Issues relating to the affirmative defences and counterclaims alleged by the Marriner parties

(xii) Whether the representations pleaded in paragraph 114 of the counterclaim were made and, if so, whether they constituted misleading or deceptive conduct?

(xiii) Whether the Marriner parties relied on any representations made that are permitted to be relied upon and if so what facts constituted any relevant act of reliance?

(xiv) Did ASD engage in unconscionable conduct at common law or under section 51AA of the Trade Practices Act 1974 (Cth) or section 7 of the Fair Trading Act 1999 (Vic)?

(xv) Whether Mr Marriner was relevantly under any 'special disadvantage' for the purposes of his claims of unconscionable conduct?

(xvi) Whether ASD is estopped by representation from pursuing the bond monies claim?

(xvii) Did the Deed of Assignment of Debt operate to assign from ASD to Fulham Holdings the chose in action the subject of ASD's primary claim, thereby disentitling ASD from making the bond monies claim?

(xviii) Whether the terms of the sale agreements made on 13 November 2001 (and in particular, clauses 2.3(b), 2.5(a), (b) and 5.1 of the Deed of Assignment of Debt, and clauses 7.8(a), (b) and 11.1 of the Share Sale Agreement) preclude Mr Marriner and his associated companies from bringing the claims they now seek to make?

(xix) Whether there is any basis for ASD's directors and Mr Ian Patience to be held liable to Mr Marriner and his associated companies and, if so, what are the facts relevant to each individual and what amount is each individual liable for and in respect of what causes of action?

23 For the reasons which follow, I have found that ASD has made out its claim that Mr Marriner knowingly induced or procured the innocent breach of trust by Wallace & Wallace in paying the sum of $80,000 to WS Group on or about 22 May 2001. As that payment was directed by Mr Marriner personally, and did not purport to be undertaken on behalf of any associated company, there is no basis for fixing any of them with responsibility for procuring or inducing that breach of trust. Nor was any associated company a knowing recipient of those funds. Furthermore, as there was no clear evidence as to what the $80,000 paid to WS Group related to, save for general assertions that the money was spent on Laguna Quays and was legitimately incurred, I have rejected the Marriner parties' defence that because the monies were spent on the resort ASD was benefited, and I am not satisfied that there is any proper basis for commensurately reducing the loss suffered by ASD.

24 I am not satisfied that ASD has made out its case in respect of the balance of the third tranche bond monies that Mr Jephson directed Wallace & Wallace to pay, including the sum of $86,500 that he directed be paid to the trust account of Larkins McCarthy, solicitors, in Colac.

25 I have also dismissed all of the affirmative defences and counterclaims brought by the Marriner parties. For the reasons set out below, I am not satisfied that Mr Marriner relevantly suffered from a special disadvantage in his dealings with ASD and was the subject of unconscionable conduct. Nor am I satisfied that ASD made the representations contended for by the Marriner parties and thereby engaged in misleading and deceptive conduct or that ASD was estopped by representation from acting as it did. It follows that the agreements made between the parties are effective according to their terms, with the result that ASD is not disentitled from making the bond monies claim and the Marriner parties are precluded from bringing the claims they now seek to make.

26 To date no submissions have been made concerning the third issue remitted by the Court of Appeal, namely liability for the costs of the hearing before the original trial judge. Logically, those costs will fall to be dealt with at the same time as submissions are made about the costs of the hearing of the remitted issues.

27 In order to decide the raft of issues raised on the remitter, it is necessary to set out the underlying factual framework in greater detail. In that regard, I note that while the orders made by the Court of Appeal left open the prospect that further evidence could be adduced, neither ASD nor the Marriner parties sought to do so and the hearing on the remittal proceeded on the basis of evidence that was adduced at the original trial. A Court Book was prepared containing the evidence (in chronological order) sought to be relied upon at the hearing of the remitted issues. There are two document tenders that at the conclusion of the hearing were left to be dealt with in my reasons. I set out my ruling on them at the end of these reasons.[18]

28 In advance of the hearing of the remitted issues, extensive written submissions were filed by each of the parties and reply submissions were filed on behalf of ASD and the defendants on the counterclaim. At the hearing, Senior Counsel for the respective parties opened and presented their cases by simply referring to documents located in one or other of the many volumes of the Court Book, including witness statements that had been tendered at the trial and excerpts from the transcripts of the evidence given by those witnesses at the trial.[19] In some instances, additional notes or aide-memoires were also provided to the Court by way of elaboration of oral submissions. Reference was also made to findings made by the Court of Appeal and the parties handed-up an agreed summary of facts established by the decision of the Court of Appeal.

29 Accordingly, as will be apparent, at the remitter hearing I did not have the benefit of seeing, or hearing evidence from, any of the witnesses who gave evidence before the original trial judge. The factual background set out below is taken from the myriad of documents, including the witness statements and transcripts of evidence given at the trial, summary of agreed facts and other materials to which reference was made in the submissions delivered at the resumed hearing.

30 The following description of the parties and associated persons and entities is taken from that set out in the original trial judge's reasons (as adopted by the Court of Appeal and also by the parties on the remitter hearing).

The ASD parties and associated persons and entities

31 CBUS is a superannuation trust and at all relevant times it was subject to prudential regulation by the Australian Prudential Regulatory Authority. CBUS held the shares and units in ASD and the ASD trust from 1993 until 2000.

32 As noted above, at all relevant times, United Super, the firstnamed defendant by counterclaim, in its capacity as the trustee of CBUS, held CBUS' interest in ASD. United Super's directors included the third defendant by counterclaim, Ralph Willis (after 13 April 2000) and the fourth defendant by counterclaim, George Wason (after 5 September 1994).

33 United Super Investments Pty Ltd ('USI') was a wholly owned subsidiary of United Super which held the shares and units in ASD and the ASD Unit Trust after 2000 when the shares and, perhaps, the units, passed to it from United Super.

34 ASD, the plaintiff and firstnamed defendant by counterclaim, was at all material times the trustee of the ASD Unit Trust established in 1993 (under the name Staged Developments Australia Unit Trust). ASD was the proprietor of part of the land upon which Laguna Quays was conducted. Its shareholders and unit holders at all relevant times up to 2000 were Goldworthy and CBUS, each holding six shares and sixty units. Thereafter all the shares were held by USI. During the period 1999 to 2000, the board of directors of ASD comprised appointees of each of the two venturers:

• the Marriner appointees were Garry Arthur Weaven, Ian Robert Court and Mr Marriner himself until they resigned on 3 November 2000; and.

• the CBUS appointees were Barrie Frost, Mr Wason, Thomas John Supple Kane (to 28 January 2000) and Mr Willis (from 27 November 2000).

Mr Marriner was also the CEO of ASD until 3 November 2000 when he resigned and the office was taken over by Mr Patience.

35 Mr Graham Spence was the Laguna Quays project manager, whose responsibility was the maintenance of the project. He departed from Laguna Quays in August 2001.

36 Matelda Oaks, a wholly owned subsidiary of ASD, was the proprietor of part of the land upon which Laguna Quays was situated. It was the trustee of the Victorian Property Trust.

37 Laguna Investments, a wholly owned subsidiary of ASD, is a company whose responsibility was the Laguna Quays project.

38 Laguna Management, a wholly owned subsidiary of Laguna Investments, conducted the day-to-day operations of Laguna Quays as agent for Laguna Investments.

39 Mr Patience, the sixthnamed defendant by counterclaim was appointed as the chief executive officer of ASD on 17 November 2000, following Mr Marriner's resignation.

The Marriner parties and associated persons and entities

40 The first defendant, Mr Marriner, was the CEO and a director of ASD from 1993 to 3 November 2000. He had for very many years engaged in property development.

41 Goldworthy, the secondnamed defendant (and secondnamed plaintiff by counterclaim), is a company controlled by Mr Marriner, of which he was its director. Goldworthy held shares and units in ASD and the ASD Unit Trust respectively for the Marriner interests.

42 Fulham Holdings, the sixthnamed defendant, is a Marriner company which took an assignment of the debt owed by Laguna Investments to ASD under the 13 November 2001 agreements.

43 Laguna Australia, the thirdnamed defendant, is a Marriner company wholly owned by Fulham Holdings. It was incorporated in April 2000 and ultimately became the purchaser of the real estate comprising the Laguna Quays project and the shares in Laguna Investments.

44 Laguna Australia Airport Pty Ltd ('Laguna Airport'), the fourthnamed defendant, is another Marriner company which was incorporated in October 2000 as the corporate vehicle to own the airport which Mr Marriner wished to construct to service Laguna Quays and the surrounding area.

45 Stage Design, the fifthnamed defendant, was a wholly owned subsidiary of ASD until, under cl 10 of the November 2000 Heads of Agreement, its shares were to pass to Goldworthy.

46 Cumberland Management Pty Ltd ('Cumberland Management'), a company wholly owned by ASD, was used by ASD for another joint venture project, the development of the Cumberland Lodge in Lorne, Victoria.

47 Mr Marriner was assisted in the day-to-day management of the Laguna Quays project by Mr Jephson, Mr Spence and Mr John Robert Whalley.

48 Mr Jephson and Mr Whalley were co-secretaries of ASD. Mr Jephson had worked in the Marriner organisation since about 1994. He joined the joint venture team of ASD in 1996 and served as company secretary of ASD, Laguna Investments, Laguna Management and Cumberland Management until he relinquished these positions on 19 January 2001. He was also company secretary of Laguna Australia from 5 February 2001 to 19 October 2001 and of Laguna Airport from 4 October 2000 to 19 October 2001. He was an employee of Stage Design, a Marriner company, from 22 January 2001 or thereabouts until on or about 19 November 2001.

49 Mr Whalley is a certified practising accountant. He had previously been employed as a manager in a Marriner company but was, at all relevant times, carrying on a private accountancy practice. Mr Marriner was one of his clients. Between 18 April and 16 July 2002, Mr Whalley was a director of Laguna Investments and Laguna Management. Mr Whalley also performed the role of company secretary for a number of entities:

• ASD (with Mr Jephson as co-secretary) between 17 September 1996 and 27 February 2001;

• Laguna Investments between 18 April 2002 and 6 November 2006;

• Laguna Management from 18 April 2002 to 6 November 2006;

• Laguna Australia from 9 April 2001 to 2 September 2008;

• Laguna Airport between 19 October 2001 and 2 September 2008;

• Stage Design from 17 September 1996 to 2 September 2008, and

50 Wallace & Wallace is a firm of solicitors in Mackay, North Queensland, which represented ASD in relation to Laguna Quays. Relevantly, Mr Paul Penridge, the fourteenth defendant, was a principal of Wallace & Wallace.[20]

Corporate structure - the relationship between the various joint venture parties

51 On the first day of the hearing of the remitted issues, Senior Counsel for ASD handed-up three corporate structure diagrams: the first showing the relationship between the parties as they existed prior to the separation of the joint venture participants (ie, between February 1993 and November 2000); the second, as they existed post separation (ie, after November 2000), and the third, as they existed after the sale of Laguna Quays resort on 17 April 2002. For convenience, a copy of each of the diagrams appears in Annexure 1 to these reasons.

Relevance of the first and second tranche payments to the third tranche bond monies claims

52 The primary part of ASD's claim that remains in dispute is whether Mr Marriner diverted funds held on trust for ASD for his own benefit, or for the benefit of the associated companies controlled by him, by inducing or procuring an innocent breach of trust by a trustee, namely Wallace & Wallace. While the remaining dispute concerns only the third tranche electricity bond monies, ASD nevertheless contends that the first and second tranches are relevant because:

(a) the facts surrounding the release of the first tranche funds demonstrate that Mr Marriner knew that the third tranche funds belonged to ASD; and

(b) the Court of Appeal made a number of statements of principle when considering the second tranche funds which are relevant to the legal arguments arising in relation to the third tranche.

53 ASD alleges that Mr Marriner 'immediately procured' (in the case of the disbursement of $80,000 that Mr Marriner personally directed) or 'knowingly induced' (in respect of the balance) breach(es) of trust by directing, either personally or through his agents, that the trust funds held by Wallace & Wallace be used to pay the debts of Mr Marriner and his associated companies. That is, ASD contends that Mr Marriner is liable not only for the breach of trust constituted by his direction to pay the $80,000 but also for the breaches of trust directed by Mr Jephson, because (so it contends) Mr Jephson acted with Mr Marriner's authority. ASD also submitted that associated companies controlled by Mr Marriner, namely Goldworthy, Laguna Australia and Stage Design, should be held liable to the extent of their involvement as Mr Marriner's knowledge is to be attributed to them.[21]

The original acquisition and development of Laguna Quays

54 Laguna Quays was located on the north Queensland coast about 25 km south of Proserpine Airport and near the township of Midge Point. The resort was constructed by persons unrelated to the joint venturers in the late 1980s/early 1990s at a cost of about $77 million.

covered over 4,000 acres and included a 60 room five star lodge, 18 hole championship golf course, marina precinct with a leasehold harbour with 110 serviced berths, a water sports lagoon, swimming pool and tennis courts, convention centre, 12 condominiums, 300 serviced lots and substantial areas of undeveloped land.[22]

56 Since its opening in December 1992, the resort operation generated substantial trading losses.

57 In 1997, Village Roadshow Ltd ('Village Roadshow') and ASD entered into a joint venture, as equal participants, to buy Laguna Quays. In March 1999, ASD acquired Village Roadshow's interest for about $13 million.

58 ASD's wholly owned subsidiary, Laguna Investments, was responsible for the Laguna Quays project. Laguna Management, which ultimately became a wholly owned subsidiary of Laguna Investments, conducted the day-to-day operations of the resort as its agent.

59 Early in the life of the joint venture, the secretary of ASD conducted a review of the group's internal control procedures and presented recommendations to the board of directors of ASD. At its meeting on 26 March 1998, the board of directors of ASD resolved to adopt certain recommendations 'to improve current procedures and to keep directors informed of significant issues'. These included the following:

1. All purchases with an aggregate value in excess of $50,000, other than those covered by operational budgets, should be approved in advance by the Board.
2. ...
3. All payments made by entities within the Group to be reviewed by a director or company secretary. In remote subsidiaries, this could [well be] done by the provision of reports together with a physical review of payment documentation on an unscheduled basis.
4. ...
5. Details of all significant transactions to be reported to the Board, showing the party concerned, value, purpose, and allocation for each transaction. In this regard transactions will be considered significant if the value exceeds $50,000 or the transaction affects a unitholder or related party outside the [ASD] group.

60 The background to the establishment of the electricity bond and the bond monies claim is conveniently explained in the Court of Appeal's reasons for judgment.[23] The bond monies claim related to a bank bond that the Mackay Electricity Board, the provider of electricity to Laguna Quays, required be established. The following facts relating to the bond monies claim (as stated in the decision of the Court of Appeal) are agreed between the parties.

[15] In 1997, ASD entered into a joint venture with Village Roadshow Ltd ('Village Roadshow') to acquire the Resort. Initially, ASD and Village Roadshow were equal participants in the joint venture, but ASD later became involved in negotiations to buy Village Roadshow out. The proposed sale was referred to the Board for approval on 11 March 1999.

[16] Village Roadshow had previously provided a bank bond of $1.61 million to secure payment of a sum which would become due to the Mackay Electricity Board ('MEB') if the Resort failed to consume a certain amount of electricity ('the Bond'). At the Board meeting on 11 March 1999, Marriner informed Board members that $1.6 million would be required to cover the Bond and a further $400,000 was required to meet balance day adjustments (a total of $2 million).

[17] The Board agreed to seek $2 million from CBUS.[24] On the same day, the CBUS investment committee resolved as follows:

to approve a further $2 million for Laguna Quays from the 'special project' funding allocation of $30 million, to cover $400,000 in settlement adjustments on purchase of the property and $1.6 million to underwrite a performance bond favoring [sic] the MacKay Electricity Board.

[18] Initially it was agreed that ASD would give its solicitors Freehill Hollingdale & Page ('Freehills') a bank cheque for $1.6 million which was to be held by them until 12 May 1999. It would then be paid to Village Roadshow if Village Roadshow had not received return of the Bond, or to ASD if the Bond had been returned.[25]

[19] On 12 March 1999, $2 million was transferred from CBUS into the ASD bank account with the National Australia Bank ('NAB'). These funds were held in ASD's bank account until 15 March 1999, when $1.61 million was paid by cheque to Freehills. The trust account receipt issued by Freehills recorded this as a 'Deposit to secure Bank G'tee To Mackay Electricity Authority'. On the same day, ASD recorded the payment to Freehills in its general ledger as a loan from ASD to Laguna Investments.

[20] There was then a two month delay. On 19 May 1999, Freehills wrote to DDH Graham, a merchant banker, advising that it would transfer $1.61 million into DDH Graham's account so that it could arrange the issue of a new bond in favour of MEB in the name of Laguna Management. On the same day, Freehills wrote to MEB confirming that this would occur.

[21] On 21 May 1999, the Bond was issued by the Bank for Laguna Management in favour of MEB. The Bank provided a guarantee facility to Laguna Management in the sum of $1.61 million for 10 years. As security for this facility, a letter of set-off was provided by Laguna Management in respect of a new account opened in its name on 20 May 1999. (It will be recalled that Laguna Management had no income, assets or liabilities, but acted as agent for Laguna Investments.)[26]

[22] An amount of $1,615,903.77 was then deposited by DDH Graham into the new Laguna Management set-off account. This was recorded in ASD and Laguna Investment accounts as a loan from ASD to Laguna Investments to fund its operations under the joint venture. There was no evidence as to how it was treated in the books of CBUS.[27] His Honour described Laguna Management's treatment of the bond moneys as follows.

It will be recalled that Laguna Management had a nil balance sheet and recorded no transactions in its profit and loss account. The balance in the Laguna Management account was not shown as an asset in the Laguna Management balance sheet on 30 June 1999. The balance sheet of Laguna Investments on that date shows as a non-current liability, unsecured loans of $7,930,261. This is in fact the balance on that date of the Laguna Investments loan account shown in the general ledger of ASD. It appears from the ledger that this balance includes the sum of $1.61m deposited with Freehills on 22 March.[28]

[23] Before the Bond was put in place, Marriner had negotiated an agreement with MEB to reduce progressively the amount required as security, if the consumption of electricity by the Resort was sufficient. It was agreed that the reduction would be made in three tranches.

61 At the meeting of the ASD board held on 22 June 1999, Mr Marriner reported on Laguna Quays and presented plans for stage one of the development of the resort. His proposals included the 'replacement of the existing airstrip with a new strip on the western side of the resort with a 1500 metre capacity.' After discussion of the proposals at length, the ASD board approved certain works including '[a]cquisition of land on the western side of the resort for development of a suitable unsealed airstrip for the needs of the resort'. The minutes also record that the ASD board 'noted that the Mackay Electricity Board had agreed to release $400,000 from the total deposit of $1.61 million' and that '[t]hese funds would be applied in part to the cost of sealing a section of the Midge Point Road adjacent to the resort.'

62 Ultimately, on 2 December 1999, a first tranche of the electricity bond monies, in the sum of $330,170, was released on the instruction of Mr Jephson, who was then joint company secretary of ASD with Mr Whalley.[29] Mr Whalley stated that in the books of ASD, the release of the first tranche funds was treated as a partial repayment of an intercompany loan owed by Laguna Investments to ASD. The General Ledger for ASD, for Loan A/C 1-7080 'Loan [ASD]/Laguna', for the year ended 30 June 1999 records that the closing balance of $7,930,261.42 included $1.61 million by way of the 'Bank G'tee to MacKay Electricity Authority'. A further entry was made dated 2 December 1999, recording the crediting of the sum of $330,170 by way of 'Laguna Quays - Refund of Portion of Bank G'tee to McKay E', leaving a balance of $1,279,830. An extract from the Cash Receipts Journal for ASD records the relevant entries made to loan account 1-7080 (credit of $330,170) and ASD's bank account upon the receipt of the refunded sum (debit of $330,170).

63 On 3 November 1999, a contract was entered into between Laguna Management and JJ McDonald & Sons Pty Ltd ('JJ McDonald') for the performance of earthworks at Laguna Quays resort, including the construction of an airstrip, airport, roads and the upgrade of existing roads and landscaping. The contract of works with JJ McDonald was signed by Mr Spence, an ASD employee, on behalf of Laguna Management.[30] The Court of Appeal noted:

The contract of works provided for a commencement date on 4 January 2000 and a completion date of 31 May 2000. It was not a lump-sum contract. There was a schedule of rates for particular equipment and an estimate of the cost of particular works. The scope of works included the construction of an airport and roads, the upgrade of existing roads and landscaping. The total estimated value of the works described in Schedule 1 of the contract was a little over $4.4 million. [31]

1999 Business Plan for ASD (including Laguna Quays)

64 One of the tasks performed by Mr Whalley, in consultation with Mr Marriner, was the development of a business plan for ASD and its presentation to the board of directors. At its meeting on 7 December 1999, the board of ASD resolved '[t]o adopt the business plan of [ASD] subject to inclusion of the Campbell Street, Hobart project.'[32]

65 The 1999 business plan covered a number of projects in which ASD was involved or its involvement was proposed, including the Laguna Quays development. As the Court of Appeal noted:

The business plan included projected cash flows and budgeted profit and loss statements. Some of that information related to the Resort. When dealing with the major projects in the current year, the plan stated in relation to the Resort:

During the current year the Company [ASD] will undertake the first stage of rectification and development works including the following.

Repair to lodge roof to eliminate leaks

Repairs to below ground membrane to waterproof the lodge building

Waterproofing of Golf buggy store

Repairs to Concrete Bridge at Lagoon

Expansion of water storage capacity

Sealing of Midge Road

Develop health spa in the lodge building

Develop new airstrip on adjoining site

The total estimated cost of the above works is 4.7 million[33]

66 The Board subsequently resolved, on 21 March 2000, that 'work on the airstrip be suspended pending further consideration by the Board based on more substantial evidence supporting the feasibility of the proposed investment.'[34]

67 The 1999 business plan also recorded, in respect of Laguna Quays, and under the heading 'strategy', that '[t]he decision has now been taken to realise this asset in the short term.' This strategic decision was made at a time when the resort was generating trading losses of at least $2.5 million in each financial year.

68 In late March 2000, Mr Marriner, through his associated company Fulham Holdings, presented a proposal to representatives of ASD's board to acquire the interest of ASD in the assets and undertaking of the resort for $26.5 million. As the original trial judge observed, 'Mr Marriner did not share the pessimism of the board about the long-term prospects of the Laguna Quays project.'[35] A meeting was arranged on 16 May 2000, at the request of CBUS, to discuss Fulham Holdings' proposal and the terms under which a sale might be concluded. The board of ASD received a report of the meeting at its board meeting later that day. The minutes of the board meeting note that Mr Marriner declared his interest in Fulham Holdings and Mr Weaven (who was a Marriner appointee) also declared his directorship in that company.

69 At its meeting on 16 May 2000, the ASD board authorised Mr Marriner 'to proceed with detailed negotiation and documentation of the sale on the following terms':

1. The sale will be made to Fulham Holdings Ltd or nominee for the purchasers and will comprise all of the interests of [ASD] in the assets and undertaking of Laguna Quays, including
   • The lodge, golf course, condominiums, racquet club, plant and equipment, and other developed assets owned by [Victorian Property Trust];
   • Development land owned by [ASD];
   • Leasehold assets including the marina owned by [Laguna Investments];
   • The business of Laguna Quays Resort operated by [Laguna Management]
2. Sale price of $26.5M;
3. Initial deposit of $250k payable on signing;
4. Balance of deposit payable on 1 July 2000, making total deposit equal to 20% of the sale price;
5. Non recourse facility equal to 80% of the sale price secured by a first mortgage over Laguna assets to be provided by [ASD] to the purchaser for a term not exceeding 4 years
6. Until all debt to CBUS has been extinguished [ASD] will hold security over the Lodge building, golf course, conference centre, airport, condominiums, together with all infrastructure necessary to their normal operation
7. Payment of the balance of the purchase price on 30 June 2004, being 4 years after the date of sale. However, the purchaser will have the right to repay the balance in whole or in part at any earlier date with release of security to an equivalent value based on June 1999 valuation, subject to clause 5 above
8. Interest on the balance to accrue from the date at a rate of 8%pa, payable half yearly in arrears. However, payment of interest accruing for the first 12 months will be made concurrently with the repayment of principal due on 30 June 2004
9. Completion by [ASD] of works as set out in the current business plan of [ASD] not exceeding the budgeted cost of $4.7M including sealed airstrip to the west of the resort
10. CBUS and [ASD] approval will be required for any significant capital works affecting secured assets
11. Effective date of sale - 1 July 2000 (subject to documentation), after which the purchaser assumes responsibility for the trading losses (or profits) of the resort

70 As framed, the resolution of the ASD board authorised Mr Marriner on behalf of ASD to negotiate the sale of the resort with his associated company Fulham Holdings. The original trial judge described the act of the ASD board in entrusting to Mr Marriner 'the role of conducting these negotiations with himself on behalf of the purchaser, Fulham Holdings' as representing a 'striking example of the readiness of the ASD Board to leave matters in the hands of Mr Marriner, even at a time when ... CBUS was becoming disenchanted with his conduct of ASD projects'.[36]

71 These negotiations culminated in the parties entering into the 30 June 2000 Heads of Agreement. Under the 30 June 2000 Heads of Agreement, interests associated with Mr Marriner agreed to purchase from ASD, Laguna Investments and Matelda Oaks the assets of the resort for $26.5 million payable by four instalments: $250,000 on the signing, $2.4 million on 31 October 2000, $2.65 million on 28 February 2001 and the balance on 1 March 2001 by vendor finance repayable on 30 June 2004 and secured by mortgage over the real estate. That is, the parties agreed that all but $5 million of the purchase price would be funded by vendor finance.

72 The 30 June 2000 Heads of Agreement recited that Fulham Holdings 'is presently in the process of being restructured upon the completion of which the shares in Fulham shall be owned by or controlled by interests associated with D W Marriner.' Clause 9 of the agreement provided that ASD would, at its own expense, complete or procure the completion of certain capital works (described in Annexure 4 to the agreement) with a cost cap of $4.7 million. The development of a 'new airstrip on adjoining site' was listed as a component of the 'Capital Works' described in Annexure 4 and was expressly authorised as part of the 30 June 2000 Heads of Agreement. This is so, notwithstanding that, as noted above, the ASD board had passed a resolution on 21 March 2000 suspending work on the airstrip.

73 The Court of Appeal considered cl 9 of the 30 June 2000 Heads of Agreement, and in its reasons concluded that it 'did no more than impose a limit on the extent to which ASD was liable to contribute, by way of advances made to to Laguna Investments, for the works described in Annexure 4' and the 30 June 2000 Heads of Agreement 'was not intended to, and did not, limit the works that [Mr] Marriner was authorised to undertake at the Resort.'[37]

74 By cl 14 of the 30 June 2000 Heads of Agreement, Laguna Australia, a Marriner company, agreed to carry out at its own cost and expense not less than $3 million of capital expenditure on the project within 12 months of payment of the second instalment.

75 Clause 10 of the 30 June 2000 Heads of Agreement dealt with 'Transfer of risk' and provided that, subject to making payment of the first and second instalments of the price, Laguna Australia would be entitled to possession of the land and the business sold from 31 October 2000. In the meantime, the parties agreed by cl 12(a) that Laguna Australia would 'proceed to further develop, subdivide and improve the assets hereby sold' and that the 'vendors', a reference to ASD, Matelda Oaks and Laguna Investments, would do everything reasonably required to facilitate its proposals to do this.

76 Clause 10(d) of the 30 June 2000 Heads of Agreement provided that the proceeds of any bonds or sureties held by any authority should be applied toward the costs and expenses of converting to freehold such leasehold land as was part of Laguna Quays. At this time it was believed that there were a number of bonds and securities in place, apart from that in favour of the Mackay Electricity Board, discussed above. These other bonds, apparently thought to exceed $2 million, had been lodged by earlier owners of the Laguna Quays project with the Department of Natural Resources to secure performance of development obligations under the leases pursuant to which the Laguna Quays land was held.

77 Laguna Australia paid the first instalment of $250,000 that was due upon signing.

The sale of the airstrip and variation of the 30 June 2000 Heads of Agreement

78 At its meeting on 12 September 2000, the ASD board received a report about a meeting held between representatives of CBUS and Goldworthy on 28 August 2000 concerning the current joint venture arrangements and changes proposed by both parties. The Secretary, Mr Whalley, reported on Laguna Quays informing the board that 'current work on the new airstrip was being undertaken by, and at the expense of, Laguna Australia (and not by [ASD]) in observance of the previously approved capital expenditure at the resort which was limited to $4.7 M in total.'

79 The minutes of the meeting held on 12 September 2000 also record that Mr Marriner emphasised the importance of continuing with construction of the airstrip. He believed it was vital to achieving a successful outcome to his negotiations with government and other relevant authorities. Further, he believed that '[i]n order that external funding be provided for completion of the airstrip it was essential...that the property be carved out from existing arrangements by sale of the property from [ASD] to Laguna Australia P/L (or its nominee).'

80 The ASD board accordingly resolved that the airstrip sited at 30 Kunapipi Road be sold to Laguna Australia or its nominee on the following terms:

1. The sale price to be the book value of the property as per valuation at 30 June 2000. In this regard the Board was informed that the value of the property at 30th June was approx $750,000;
2. Settlement in full no later than 31 December 2000 with transfer of title upon settlement;
3. The purchaser commit not less than $3M in capital works on the airstrip in satisfaction of its obligations under the Heads of Agreement to spend this amount on improvements of the resort;
4. The purchaser to provide a right of access to the resort and its patrons on terms no less favourable than those applicable to neighbouring airports - Hamilton, Proserpine, and Mackay, until [sic] [ASD] (or its subsidiaries) remains the beneficial owner of the core assets of the resort.

The board further resolved to amend the 30 June 2000 Heads of Agreement 'to reflect the sale of the airstrip property, including its removal from the properties identified in clause 8(d).'

81 The second instalment of the purchase price for Laguna Quays was due for payment by the Marriner interests on 31 October 2000. At the request of Mr Marriner, made in advance of the date for payment, the 30 June 2000 Heads of Agreement were varied 'by changing, with effect from today, the date 31 October 2000 in clauses 1(b)(ii), 2 (b)(ii), 3, 5, 7 and 10(a) ... to 28 February 2001.'

82 At about this time Mr Marriner also incorporated Laguna Airport. It was envisaged that Laguna Airport would own the airport he wished to construct.

Outstanding payments due to JJ McDonald and the release of the second tranche of electricity bond monies

83 As noted earlier, late in 1999, JJ McDonald had entered into a contract with Laguna Management for the performance of earthworks at Laguna Quays resort.[38] By mid-October 2000, progress claims of $4,352,046.30 were outstanding and Dr Christopher Greig, the managing director of JJ McDonald, expressed concern and pressed for payment. Mr Marriner was aware that progress payments for the resort access road and airstrip works had not been made and that substantial amounts were owed to JJ McDonald.

84 Dr Greig met with Mr Marriner and raised directly with him JJ McDonald's concerns regarding payment of outstanding invoices. Dr Greig presented a letter addressed to Laguna Management and ASD, setting out the amounts owed in respect of the construction of the airstrip and access road at Midge Point, and requested that both Laguna Management and ASD execute the letter to 'provide us with some comfort in respect to performing further works under the said contract.'

85 The letter of comfort sought to require both Laguna Management and ASD to agree to certain arrangements for the payment of the debt currently owed in respect of works carried out pursuant to the contract and for further payments to cover works yet to be invoiced, namely:

• For works undertaken on and after 17 October 2000:

[Laguna] Management shall pay the sum of $90,000 per week in advance to cover direct costs incurred, as a prepayment for contract works undertaken after 16 October 2000 for a maximum period of 8 weeks.

The first advance payment will be made by EFT to J J McDonald and Sons Engineering Pty Ltd on 17 October 2000. The differential between the contract price schedule and the prepayment of direct costs shall be settled by 31 January 2001.

• For works completed up to and including 16 October 2000, [Laguna] Management and [ASD] agree to the following payment schedule:

86 The letter agreement was signed on 16 October 2000 by Dr Greig on behalf of JJ McDonald and by Mr Marriner for and on behalf of both Laguna Management and ASD. Before Mr Marriner committed to the arrangements set out in the letter of 16 October 2000, however, he apparently called Mr Jephson, on speakerphone, in the presence of Dr Greig to enquire whether there were available funds. The Court of Appeal noted in its reasons that the original trial judge accepted evidence given by Dr Greig about this conversation which he heard on speakerphone between Mr Marriner asked Mr Jephson.[39] The transcript of the evidence given by Dr Greig is not included in the Court Book for the remitter,[40] but the parties agree that during that telephone conversation Mr Marriner asked Mr Jephson if money was available to meet the debt to JJ McDonald.[41]

87 Prior to the entry into the letter agreement, ASD had no liability for the works being undertaken by JJ McDonald, the original contract having been made with Laguna Management (probably acting as Laguna Investments' agent), not with ASD.[42] Mr Marriner did not report to the ASD board that he had signed the letter agreement. Mr Marriner ceased to be both CEO and a director of ASD on 3 November 2000. Mr Patience became CEO shortly after. Mr Patience's evidence was that he, and thus ASD, did not become aware of JJ McDonald's claim for payment until about April 2001. Mr Patience said the directors of ASD had no knowledge of JJ McDonald's work, and he could not find any record of the contract having been approved.

88 On 17 October 2001, the day after Mr Marriner's meeting with Dr Greig, Mr Jephson, as Company Secretary of ASD, sent a fax to the Cumberland Lorne Resort marked 'Attention: Luis Diamonon/Paul Staley' requesting that they 'please make the following funds transfer today' of $90,000 to JJ McDonald. The Cumberland Lorne Resort was another asset of the joint venture at that time but it otherwise had no relationship with Laguna Quays resort.

89 On 24 October 2000, Mr Jephson, in his capacity as the Company Secretary of Laguna Management, sent a letter by fax to Mr Simon Richards of the Bank of Queensland in relation to the Ergon Energy (formerly the Mackay Electricity Board) guarantee, requesting that he arrange to issue a new guarantee for $853,200, in place of the current one for $1,279,800 and liaise with Ergon Energy as necessary. Further, Mr Jephson said '[o]nce completed, the funds released from our deposit ($426,600) should immediately be transferred to the account of [ASD]...'. This sum of $426,600 is referred to elsewhere in these reasons as 'the second tranche' electricity bond monies.

90 A new guarantee for $853,200 was issued by the Bank of Queensland on 22 November 2000, at the request of Laguna Management, in favour of Ergon Energy.

91 Later that day, by a further letter dated 24 October 2000, Mr Jephson, in his capacity as the Company Secretary of Laguna Management, informed Mr Richards of the Bank of Queensland that 'we wish to vary our instruction regarding disbursement of funds'. He requested that payment be made of $270,000 to the bank account of Cumberland Management Ltd, the subsidiary of ASD which made the earlier payments to JJ McDonald, and $156,600 to the bank account of JJ McDonald for works performed at the resort. On 30 November 2000, the payments were made in accordance with Mr Jephson's instructions.

92 These matters were considered at the first trial and by the Court of Appeal. ASD claimed, and both Mr Marriner and Mr Jephson denied, that Mr Marriner directed Mr Jephson to instruct the Bank to make the above payments out of the second tranche. Mr Jephson's evidence was that he did not discuss any of these payments with Mr Marriner or inform him of them and he had no reason to believe that Mr Marriner was ever aware of them at the time.

93 The original trial judge held that, contrary to ASD's submissions, the bond monies were not held on a Quistclose trust for ASD and therefore Mr Marriner could not be held liable for knowingly inducing a breach of trust by Mr Jephson. His Honour also held that in any event, and notwithstanding reservations he had expressed in his reasons, he concluded that Mr Marriner did not direct Mr Jephson to apply the second tranche funds as he did and that Mr Jephson applied the funds to such of the creditors with whom he was dealing as he saw fit.

94 The Court of Appeal upheld the original trial judge's finding that there had been no Quistclose trust. The Court of Appeal also held that the inference that Mr Jephson was acting under Mr Marriner's instructions in making the payments to JJ McDonald and Cumberland out of the second tranche was 'open on the evidence', but not 'compelling'.[43] The Court of Appeal referred to, among other things, Mr Marriner's awareness of the amount owing to JJ McDonald, communications with Dr Grieg and the signing of the 16 October 2000 Agreement and Mr Marriner's attitude that when he needed money for the project 'he was content to take it from any company which had it available, leaving the detail to be picked up by the accounting staff in the inter-company loan accounts'[44] and had not discouraged Mr Jephson from taking this approach.

95 In its decision on the 'capital expenditure claim', the Court of Appeal concluded that:

When paid to Cumberland Management and JJ McDonald, the second tranche bond moneys belonged to Laguna Investments, not ASD. That being so, there was no occasion to treat those amounts as ASD's money and include them in any calculation of the amount, if any, spent by Marriner in breach of his duty owed to ASD.[45]

(The Court also found on the 'capital expenditure claim' that there was 'no basis' for the original trial judge to deduct an amount of $410,777 for repairs and maintenance from the total cost of the Annexure 4 works, in the absence of evidence establishing that such works fell outside the Annexure 4 works.)[46]

'Divorce' and termination of the joint venture in November 2000

96 On 1 November 2000, the parties to the joint venture entered into a heads of agreement whereby they effectively resolved to 'divorce' and terminate ASD as a joint venture company ('November 2000 Heads of Agreement').

97 Mr Marriner resigned as CEO and director of ASD on 3 November 2000 and he signed a Unit Redemption and a Share Acquisition Deed that same day. Under the deed, the shares in ASD held by Goldworthy were agreed to be sold to United Super, subject to certain conditions.[47] Consequent upon the execution of that deed, Mr Marriner's associates, Mr Weaven and Mr Court, also resigned as directors of ASD effective on 3 November 2000. Under cross-examination, Mr Marriner conceded that he had no authority to act on behalf of ASD after 3 November 2000. However, through Goldworthy and Fulham Holdings, the purchaser of Laguna Quays resort under the 30 June 2000 Heads of Agreement, Mr Marriner continued to play an active role in the development of the resort, presumably with a view to maintaining or enhancing its value. Clause 12 of the 30 June 2000 Heads of Agreement enabled this.[48]

98 Following the entry into the November 2000 Heads of Agreement, Mr Marriner also ceased to be a director of Laguna Investments and Laguna Management on 3 November 2000.

99 In November 2000, ASD undertook a complete restructure of its management. On 17 November 2000, Mr Patience was appointed as the interim CEO of ASD.

Mr Jephson's resignation from his roles with ASD on 19 January 2001

100 Mr Jephson resigned as secretary of Laguna Management on 19 January 2001.[49] He also ceased to be employed by ASD on that day, although he continued working for the Marriner Group until November 2001.

101 The next payment to JJ McDonald, due in December 2000, was not paid. Dr Greig wrote to Laguna Management by letter dated 5 February 2001 in relation to the contract for the construction of the airstrip and access road at Midge Point. The letter referred to the earlier letter of acknowledgment of debt and to recent discussions between Dr Greig and Mr Marriner. While some payments had been made, JJ McDonald was concerned about the non-payment of both the December 2000 Debt by the due date and the January Debt which was due for payment by the end of January 2001. The letter records that Mr Marriner had requested JJ McDonald to forbear from taking recovery action until the end of February 2001. Dr Greig stated that JJ McDonald was 'prepared to consider that request, but only on the basis that this letter is executed in formal acknowledgement' of certain matters listed, including:

Interest will accrue at the rate of 10% per annum (compounding monthly) ...

As from the 28th of February 2001, we will be entitled to make demand for and to issue legal proceedings, in respect to payment of the December Debt and the January Debt.

102 Mr Marriner signed the letter 'for and on behalf of [Laguna] Management' on 7 February 2001. However, by that point, Mr Marriner was no longer a director of Laguna Management and he had no authority to execute the letter on its behalf.

103 In February 2001, Mr Whalley prepared a 'Confidential Report' on Laguna Quays to the CEO and Directors of ASD and CBUS. In particular, the report informed the board that two of the three pre-conditions for the sale of Laguna Quays assets had been satisfied. The third, concerning the construction of the airstrip, was well advanced with an agreement in principle having been reached with the Whitsunday Shire Council for the sale of the Proserpine Airport to Laguna Australia. In the report under the heading 'Funding required for airstrip works', Mr Whalley noted that:

Funding of $5.0M is urgently required to meet commitments in relation to work carried out to date by contractors on the airstrip, and for work in progress. Such funding is sought for a period of 24 months and will be repaid from the proceeds of subdivision and sale of hangar allotments and other airport facilities.

It is proposed that Laguna Airport Australia P/L [sic] will provide a first mortgage over the airstrip site owned by the company by way of security for the loan.

Funds required to complete the initial airstrip will be sourced from a combination of airport land sales and equity investment.

Expenditure was undertaken in excess of the $4.7 million agreed to by the board of ASD

104 It is an agreed fact that, as the Court of Appeal noted:

The Marriner defendants accept that, by 1 February 2001, costs in the sum of $5,098,290 had been incurred and, further, that payments to JJ McDonald in the sum of $426,600 had been spent. They say, however, that, of these payments, $4.7m was in respect of capital works and that the balance was in respect of maintenance and repair costs.[50]

105 On 1 February 2001, Mr Spence, the senior project manager for Laguna Quays, provided Mr Patience with a breakdown of all expenditure on the Laguna Quays upgrade. In his report, Mr Spence identified numerous other contractors in addition to JJ McDonald who were undertaking works for the project, as well as works which may not have been included within the works specified in Annexure 4 to the 30 June 2000 Heads of Agreement.[51]

106 In the Spence report, the breakdown of the expenditure for the airstrip included consultants' fees to Queensland Airport Consultants - totalling $24,139.50, the subject of invoices nos 36, 39 and 49. In fact, however, these three invoices were not actually paid until later in February 2001 when the third tranche bond monies were released to Wallace & Wallace. (These invoices were listed in the 'spreadsheet of payments required' that Mr Jephson faxed to Mr Penridge on 19 February 2001 once he was advised that the third tranche funds were available.)

ASD becomes aware of JJ McDonald's claim for payment

107 On 30 March 2001, Mr Marriner, in his capacity as Managing Director of Laguna Australia, wrote to Dr Greig to outline the steps that Laguna Australia had undertaken in order to meet the $3.8 million outstanding to JJ McDonald, in the shortest possible time. Mr Marriner stated that CBUS had been approached and had undertaken to provide facilities to Laguna Australia in connection with the restructure and he indicated that he also had every expectation that CBUS would approve an additional debt facility that Laguna Australia had sought in respect of the airport construction work. (Mr Marriner discussed this proposal with the Chairman of CBUS, Mr Willis, at a meeting on 23 March 2001 and formally presented it in a letter sent later that day.)

108 By about April 2001, Mr Patience became aware of the JJ McDonald claim. When Mr Patience spoke to Mr Marriner to ask him whether he knew anything about it, Mr Marriner said that the work had nothing to do with ASD and under the 30 June 2000 Heads of Agreement it was his responsibility.

109 Mr Patience met with Dr Grieg and Mr Marriner in mid-April. On this occasion, however, Mr Marriner said that the claim by JJ McDonald was for works that were to be done within the $4.7 million which ASD had to spend on the resort under the 30 June 2000 Heads of Agreement (which had not been completed). Mr Patience said that this explanation was the opposite of what Marriner had previously informed him - namely, that the work was his responsibility. Mr Marriner said that he would speak with Messrs Willis and Hewett of CBUS and sort out the issue.

110 When Mr Patience and Dr Grieg met again on 28 April 2001, Mr Patience was provided with a copy of JJ McDonald's 16 October 2000 and 5 February 2001 letters. Mr Patience then spoke to Messrs Wason and Willis who informed him that they had no knowledge of JJ McDonald performing contract works for ASD in connection with Laguna Quays and the airstrip. Mr Spence informed Mr Patience that invoices had been received by him from JJ McDonald in 1999 and 2000 and that he had sent them to Mr Jephson who, he presumed, had organised for them to be paid.

111 On 30 April 2001, Dr Greig wrote to the CEO of ASD, by then Mr Patience, attaching a summary of the progress claims JJ McDonald had submitted in relation to work carried out at Laguna Quays, both for the airport and the road works totalling $4,039,691.09 plus interest. Dr Greig confirmed that JJ McDonald was 'not prepared to provide further indulgence in respect of the repayment of this debt.'

112 Mr Patience responded to Dr Greig by letter dated 3 May 2001 in relation to the 'alleged debt' owing by ASD, stating that ASD was seeking legal advice as to whether or not ASD had any obligation to JJ McDonald. He followed up with a substantive response on 8 May 2001, pointing out that the land on which the airport works were being carried out was owned by Laguna Australia, a Marriner company, which was developing the land at its own cost and ASD did not accept that either it or Laguna Management were liable to meet any of JJ McDonald's claims. Further, he stated that 'Mr Marriner signed the letters of 16 October 2000 and 5 February 2001 on behalf of [ASD] and [Laguna Management] without reference to or the authority of the Boards of those companies.'

113 JJ McDonald's response was dispatched by letter dated 10 May 2001 via its solicitors, Boulton Cleary & Kern, enclosing copies of two statutory demands. They contended that when Mr Marriner executed the letter of 16 October 2000 he was clearly a director of ASD and JJ McDonald was entitled to rely upon Mr Marriner's ostensible authority to make representations on behalf of ASD and to bind ASD.

114 As will be explained further below, it was the claim from JJ McDonald that sparked Mr Patience's investigation into the bond monies.

The purchase from Mr Erbacher of land adjoining the airport

115 Another matter which bears on the obtaining and disbursing of the third tranche of bond monies involves the purchase of land adjoining the airport from a Mr Erbacher.

116 On 28 July 2000, Mr Marriner, purportedly acting on behalf of ASD, entered into a contract with Mr Erbacher for the purchase of land adjoining the airport land. At the time of entering into the contract, Mr Marriner apparently understood that ASD's board had approved the purchase of the adjoining land, but it later transpired that no board approval had been given. This information was apparently conveyed to Mr Penridge of Wallace & Wallace by Mr Jephson on 6 November 2000 in a telephone call or message, the substance of which was as follows:

Peter Jephson: purchase not sanctioned by Board

[David Marriner] - no longer director of [ASD]

[ASD] Won't sign Deed of Rescission

117 In these circumstances, Mr Penridge wrote to Mr Erbacher's solicitors, Messrs Butler McDermott & Egan, by letter dated 6 November 2000, to explain the position concerning the proposed purchase, and to seek to rescind the contract. He confirmed that his client, Mr Mariner, would 'indemnify your client for any stamp duties assessed in relation to the contract dated 28th of July 2000 between the parties.' By letter of even date, Mr Penridge separately presented to Mr Erbacher's solicitors re-engrossed contracts for the purchase of the land by Laguna Airport.

118 During November 2000, Mr Penridge had a number of conversations and discussions regarding Mr Erbacher's land, including telephone conversations with Mr Marriner and Mr Jephson, and with Mr Spence of ASD (who was based at Laguna Quays) in relation to the acquisition of further lands. He also had a meeting with Mr Erbacher and negotiated the terms of a new contract.

119 On 29 November 2000, Mr Penridge again wrote to Mr Erbacher's solicitors concerning the proposed purchase, and this time requested that 'the existing contract be mutually terminated by the parties.' On 8 December 2000, Mr Marriner and Mr Erbacher entered into a deed of indemnity which recited that '[t]he parties have mutually agreed to the termination of the contract' and that Mr Marriner 'has agreed to indemnify Erbacher for any stamp duties that may be payable on the mutually terminated contract.' They also executed replacement contracts for Lot 32 (at a purchase price of $300,000) and part of Lots 33 and 16 (at a purchase price of $82,000) with the buyer in each case designated as Laguna Airport.

120 As was noted earlier, in Mr Whalley's February 2001 'Confidential Report' on Laguna Quays, he reported to the CEO and Directors of ASD and CBUS on an agreement in principle that had been reached with the Whitsunday Shire Council for the sale of the Proserpine Airport to Laguna Australia.

121 In his witness statement, Mr Whalley explained the background to that agreement in principle. He said that ASD had successfully made application to the Mackay Shire Council for approval of the Laguna Quays airport. Since the application was filed, however, Laguna Airport had become the owner of the airstrip land. In the context of negotiating a settlement resulting in the withdrawal of an appeal against an ASD's successful application, an offer from the Whitsunday Shire Council had 'emerged after difficult negotiation and Mr Marriner was concerned that the [Whitsunday Shire Council] may change its position if the deal was not concluded.' An agreement was hurriedly drawn up whereby the sale would take place under a deed made between Laguna Airport, the Whitsunday Shire Council and ASD. Under clauses 9(a) and (b) of the agreement, ASD was required to acknowledge (a) that Laguna Airport and the Whitsunday Shire Council were intending to negotiate a settlement resulting in the withdrawal of an appeal against ASD's application made to the Mackay Shire Council for approval of the Laguna Quays airport, which had been granted, and (b) that Laguna Airport was the owner of Laguna Quays airport. Mr Whalley said the offer was 'subject of the approval of the Board of [Laguna Airport] so that if the Board of ASD objected, the offer would not be accepted by [Laguna Australia].' He said that on 21 February 2001 he signed the deed for ASD, in good faith, having first confirmed with Mr Penridge that if he did go ahead and sign he would not be binding ASD to any obligations or causing it prejudice. He pointed out that failing to obtain the necessary approval under the 30 June 2000 Heads of Agreement was a pre-condition on which Mr Marriner could rely and withdraw from the agreement, and so 'it was in ASD's interests to assist Marriner to obtain such approval.'

122 Mr Patience said that while he recalled being told that Mr Marriner was endeavouring to buy or relocate the airport, he first learnt that ASD had purchased the Proserpine airport in February 2001 when Mr Willis told him. He then spoke to Mr Whalley who admitted that he had purported to sign the Deed of Agreement for the sale on behalf of ASD, whereupon Mr Patience sought Mr Whalley's resignation. Mr Whalley resigned on 27 February 2001 and he then went to work with Mr Marriner. In that role, Mr Whalley continued to assist Mr Marriner with efforts to complete the sale of the resort.

123 The sale of Proserpine Airport ultimately could not be completed because it transpired that the Whitsunday Shire Council did not own the land.

124 The offices of ASD and Mr Marriner's businesses were both originally located at 157 Spring Street, Melbourne, Victoria. In January 2001 ASD moved to Nauru House, 80 Collins Street. ASD obtained new telephone and fax numbers. Mr Marriner moved to an office in Flinders Lane. Overall, of about 25 staff employed by ASD, about seven moved across to Nauru House and the balance went to Mr Marriner's new office to work with him. Initially, Mr Jephson and Mr Whalley, the co-company secretaries, remained located with Mr Patience.

125 As noted above, Mr Whalley left ASD after the incident with the Proserpine airport. Mr Jephson resigned as company secretary of ASD on 19 January 2001, and also from the positions he held with ASD's subsidiaries, and from about 22 January 2001 he went to work for Stage Design, also located in the office in Flinders Lane.

126 The original trial judge described Mr Jephson's changing role as follows:

Mr Jephson had worked in the Marriner organisation since about 1994. He joined the joint venture team of ASD in 1996 and served as company secretary of ASD, Laguna Investments, [Laguna] Management and Cumberland Management until he relinquished these positions on 19 January 2001. He was also company secretary of Laguna Australia from 5 February 2001 to 19 October 2001 and of Laguna Airport from 4 October 2000 to 19 October 2001. He was an employee of Stage Design from 22 January 2001 or thereabouts until on or about 19 November 2001.[52]

Developments involving the 'freeholding' of the marina / coastal land

127 Towards the end of 2000, Mr Penridge was conducting discussions in relation to the freeholding of the marina/coastal land at Laguna Quays, about which he reported directly to Mr Marriner. On 16 November 2000 he sent a report to Mr Marriner by fax addressed to him at ASD, even though he was aware by then that Mr Marriner had ceased to be a director. In the attached 'Agenda - Discussion Items', both the Erbacher Land Purchase and the Freeholding Marina/Coastal were noted, as follows:

Commonwealth biodiversity legislation - possible application

This fax was cc'd to Mr Spence of ASD and Mr Darell Blackwell of WS Group, who were undertaking a range of planning, surveying, engineering and environmental jobs at Laguna Quays.

128 In early December 2000, Mr Penridge met with Mr Marriner and Mr Spence to discuss the freeholding of the marina/coastal section. Mr Blackwell of WS Group had also been speaking with the Department of Natural Resources ('DNR'). He reported that an offer of $806,564 plus GST and incidentals had been made and DNR told him that they were in the process of finalising the draft conditions to go into the proposed lease. In a file note re Laguna Management - Laguna Quays Special Lease 50949, Mr Penridge noted that:

The price is acceptable to our client [Marriner] however he does not wish to go back to them immediately with acceptance of the offer. The reason for this is a bond of $2,000,000.00 is currently held by the government in relation to the original marina works. These have been completed and it was proposed that we would call upon these bond monies to be refunded and these monies offset against the purchase price. Prior to this however it is necessary to determine what conditions DNR are going to put on the new leases to be issued for adjoining lands and coastal areas.

In his memo, Mr Penridge states:

Our position is:

Look up the proposed lease and settle all terms and conditions;

Accept within 3 months from the 15th of November the offer to freehold;

Chase the bond for payment of the freeholding monies.

In actual fact I will be chasing the bond prior to acceptance of the freeholding offer.

129 Following a telephone conversation with Mr Jephson on 8 January 2001, Mr Penridge reported further to him by letter dated 9 January 2001, pointing out that the offer for freeholding had to be accepted by 14 February 2001. He also reported on his discussions with DNR to the effect that the freeholding had to be undertaken in the name of the current registered owner/lessee of the marina lands and that DNR had accepted that with the pending transfer this could be in the name of the new entity provided that the acceptance was accompanied by a letter from the current owner confirming this arrangement. He noted that 'a decision as to the new entity/s acquiring the resort is yet to be made and that you will discuss these issues with Mr Marriner before providing further instructions to us in this matter.'

130 The notification of acceptance of the offer for freeholding was executed on 24 January 2001 by Mr Marriner for Laguna Investments. However, Mr Marriner was not a director of Laguna Investments at that time.

The release and disbursement of the third tranche of electricity bond monies

131 The electricity bond was cancelled in early 2001, when the third and final tranche of $853,200 became available in the set-off account.[53] After the divorce between the joint venture participants, Mr Penridge did not think anything had changed in terms of the roles of Messrs Whalley, Jephson and Spence and he understood that Mr Marriner continued to be responsible for the management of the resort.

132 In late January 2001, Mr Marriner caused enquiries to be made about the bond money pertaining to the marina development works. Mr David Graham, an investment banker assisting Mr Marriner, contacted Mr Penridge on 24 January 2001 seeking information regarding the bond. Mr Penridge responded by letter dated 29 January 2001 explaining the relevant conditions of the special lease and the calculation of the performance bond of $2,138,000.' In a separate letter to Mr Graham of even date, Mr Penridge reported on other bonds relating to Laguna Quays, namely, a bond of $250,000 that was payable to the National Parks and Wildlife for which he had not found any evidence of repayment; the electricity bond with Ergon Energy (formerly Mackay Electricity Board) and a bond of approximately $5,000 held by the Mackay City Council in relation to road works contributions which was to be set off against future application fees.

133 In his witness statement, Mr Marriner said that he told Mr Penridge to arrange to have the whole of the residual amount released from Ergon Energy, and Mr Penridge said, in effect, he would do whatever was necessary to arrange that.

134 Mr Penridge's evidence was that by letter dated 6 February 2001, he wrote to Ergon Energy on behalf of the owners of Laguna Quays resort 'to formally request the cancellation of bond and immediate release of these monies to our client' on the basis that 'the long term operation of the resort and the maintained consumption levels now warrant release of these monies.' He followed up by a telephone conversation with the Connection and Pricing Manager at Ergon Energy, Mr Greg Edwards, who informed Mr Penridge that while he would not be making the decision, the matter did not need to go to the board and could be decided by the relevant officer ordering the release of the bond. Mr Penridge telephoned Mr Marriner, apparently on 12 February 2001, to let him know that. Mr Penridge's file note dated 12 February 2001 records that 'I phoned David and told him that and he agreed that there was little point in having a meeting'. Mr Marriner's evidence was that he did not recall the conversation with Mr Penridge, but he said he did not dispute the accuracy of Mr Penridge's file note.

135 Mr Penridge said that he accepted that he sent the letter to Ergon Energy requesting the release of the bond on the basis of instructions received from Mr Marriner. He could not recall whether he also received those instructions from Mr Jephson and/or Mr Spence as project manager. He said he did so because he believed that Mr Marriner was authorised to give instructions in respect of any bonds held against Laguna Quays as it had been his 'understanding, and for some time, that ASD had assigned the benefit of any such bonds to Mr Marriner as part of the acquisition arrangement.' Mr Penridge said that his understanding, based on what he had been told by Mr Marriner and Mr Whalley (and possibly also Mr Spence), was that Mr Marriner (or his companies) was purchasing Laguna Quays on an 'as is, where is' basis and that included the benefit of any bonds. He later came to understand that Mr Marriner's position was that there was a clause in the June 2000 Heads of Agreement which entitled him to the bonds.

136 The next day, 13 February 2001, Mr Penridge received a message to call Mr Jephson. When Mr Penridge returned the call, Mr Jephson said that he would send an authority to Ergon Energy to release the funds to the Wallace & Wallace trust account and give him a list of accounts to pay with the money received. Mr Penridge did not see the authority that Mr Jephson sent (which was sent to the Bank of Queensland rather than Ergon Energy) requesting that the cash deposit be redeemed and the funds forwarded to the trust account of Wallace & Wallace.

137 On 14 February 2001, Wallace & Wallace received a copy of a letter from Ergon Energy to the Bank of Queensland authorising the release of the bond monies, and Mr Penridge forwarded a copy of it to Mr Jephson.

138 On 14 February 2001, Mr Jephson sent a facsimile on Laguna Management letterhead instructing the Bank to pay the third tranche bond money to Wallace & Wallace.[54] By that point, however, Mr Jephson had resigned as secretary of Laguna Management and ceased to be employed by ASD (as from 19 January 2001), although he continued working for the Marriner Group until November 2001.[55] It was put to Mr Jephson that he wrote the letter to the Bank of Queensland seeking to have the bond monies released on Mr Marriner's instructions, but he denied that.

139 On 17 February 2001, a lengthy meeting took place at Laguna Quays resort between Mr Penridge, Mr Marriner, Mr Blackwell from WS Group, Mr Whalley and Mr Spence. Mr Penridge's handwritten file note records the matters discussed as being the airport (two and a half hours), quarry (one hour), west development (three and a half hours) and lease/bonds (one hour). In respect of the latter, he noted 'No bonds avail[able]'. Mr Penridge could not recall any discussions about the electricity bond taking place at that meeting. If it had been discussed, he said 'some note would have been there.'

140 On 19 February 2001, Mr Jephson sent a fax to Wallace & Wallace re 'Laguna Airport'. He attached a spreadsheet of payments required to be made by Wallace & Wallace from the funds transferred from the Bank of Queensland, and asked that confirmation be provided when the payments were made. He specifically noted that 'the Larkins McCarthy funds transfer is urgent and must be designated as "Clear Funds"' and requested that Mr Penridge call him to discuss. The evidence was that Larkins McCarthy is a firm of solicitors at Colac and Mr Whalley gave evidence there was a purchase of some property in Victoria by Goldworthy, a Marriner company.

141 Mr Jephson sent a further fax to Wallace & Wallace the next day, requesting that the payment to the Larkins McCarthy Trust Account be increased by $1,500 (to $86,500) and the payment to Goldworthy be decreased accordingly to $6,650.

142 On 21 February 2001, the Wallace & Wallace Trust Account received from the Bank of Queensland the sum of $853,200, being the third tranche of the electricity bond monies.

143 The trust receipt for that sum bears a notation that it was credited to five Wallace & Wallace files as follows:

144 File 96989 is the file that dealt with the purchase of additional land for the runway by Laguna Airport from Mr Erbacher. The relevant land was an area of about 11 hectares being part of Lots 16 and 33 which was required for the runway extension, and the purchase price was $82,000. The sum of $83,200 that Mr Jephson instructed Mr Penridge to allocate to this file was paid into a separate trust account in the name of Erbacher in accordance with Mr Jephson's instruction of 19 February as 'settlement funds for Erbacher transaction'.

145 Following the receipt of the third tranche monies by Wallace & Wallace, Mr Jephson directed Mr Penridge to make various payments from the monies that were transferred by the Bank of Queensland, to meet debts owed to third parties. Mr Jephson's request was usually framed in terms of 'pay the attached invoices from the funds you hold in Trust', pay 'from funds held in trust', or pay an attached invoice Re Laguna 'urgently from funds held in Trust'. These amounts were disbursed progressively between February and June 2001. Mr Penridge said that he did not see any of the invoices, other than those pertaining to his firm's fees, and he 'just acted purely on the instructions.' Mr Penridge's evidence was that on all but one occasion, when verbal instructions were received from Mr Marriner, payments were made on instructions received from Mr Jephson and every time Mr Jephson gave instructions to make a payment he made it.

146 On 5 April 2001, Mr Penridge sent a fax to Mr Jephson of Laguna Australia seeking confirmation that Wallace & Wallace had authority to transfer monies held in trust to pay stamp duty of $2,000 on the purchase by ASD from Erbacher. Mr Jephson responded by reply fax stating that it was 'OK'. The Wallace & Wallace 'Trust Transfer by Journal Entry' form recorded that the monies were to come from ASD matter no 98978 (General Advices) and go to ASD matter no 98989 (Purchase from Erbacher) for stamp duty.

147 By letter dated 11 April 2001, Mr Penridge reported to Mr Jephson on the invoices paid for the month of March and enclosed a trust account statement along with copies of relevant correspondence.

148 On 22 May 2001, funds in the sum of $83,200 were disbursed from Wallace & Wallace's trust account, apparently on instructions from Mr Marriner. At this stage, there was a total of $85,200 standing to the credit of the Erbacher file, being the initial sum of $83,200 which was transferred from the third tranche bond monies Wallace & Wallace had received from the Bank of Queensland and the stamp duty amount of $2,000 which had been transferred across from the general file on 5 April 2001. The evidence Mr Penridge gave was based on his brief file note headed '[ASD] Purchase Erbacher', recording that on 22 May 2001:

I spoke with David Marriner who authorised me at 2.30 this afternoon to draw a cheque for the sum of $80,000.00 from the Erbacher file made payable to WS Group. The cheque was to be converted to a bank cheque then deposited into WS Group's account with the National Australia Bank.

149 Mr Penridge did not recall what was said during the telephone conversation with Mr Marriner. Nor could he recall why money from the Erbacher file was to be transferred to the WS Group. He said 'I can't say why. I just know that WS Group were owed some costs in relation to works they performed for Laguna Quays Resort and those monies were used for that purpose.' It was then put to him that he did this because Mr Marriner instructed him to do so, and he agreed with that. He added that '[i]f I recall, that's the only one that he did give me any instructions on.'

150 Mr Penridge accepted that at the time of making this disbursement he knew that Mr Marriner was not a director or the CEO of ASD and had not been for some time. He added that he believed that at the time he 'did not connect the trust funds credited to the Erbacher file with the bond funds received from Bank of Queensland.'

151 In their reasons, the Court of Appeal noted that Mr Penridge had impressed his Honour as a conscientious solicitor and an honest witness and that his Honour had accepted his evidence.[56] On the remitter hearing, ASD did not suggest that any different finding should be made.

152 In his witness statement, Mr Marriner said that he was not informed by Mr Penridge, nor any other person, and did not know that the third tranche monies had been released from Ergon Energy prior to the monies being disbursed from the Wallace & Wallace trust account. Nor did he know prior to their disbursal that those monies had been deposited into the Wallace & Wallace trust account. He said he was not involved in and did not give instructions to any person, including Mr Penridge, as to how the third tranche monies were to be applied, and he did not know that all or any of those monies had been applied in any particular way. He also said that he 'had no involvement whatsoever' in instructing Mr Jephson to send the faxes to Mr Penridge between February and June 2001 directing that payments be made.

153 In relation to the telephone conversation with Mr Penridge on 22 May 2001, Mr Marriner said he did not recall any conversation with Mr Penridge regarding the disbursement of funds from a trust account to pay WS Group in May 2001. He said that Mr Penridge did raise this with him at some later point and Mr Marriner told him that he 'had no knowledge of it whatsoever.' Mr Marriner added that he responded to Mr Penridge by saying that 'in the normal course our policy has been that some party would have had to give some written instruction and follow up on this' and Mr Penridge was unable to answer that and say why that did not occur in this instance. Mr Marriner maintained that position when he was taken to the evidence Mr Penridge had given, stating that he could not recall that telephone discussion and so could not comment on Mr Penridge's file note, and reiterated that Mr Penridge's normal practice was to require something in writing with a signature before he would do any transaction.

154 Mr Marriner's evidence was that he believed that Mr Jephson, as administrative officer within the scope of his duties, would have decided how best to disburse the monies according to his understanding of the appropriate use and Mr Jephson effectively worked with little or no supervision from him.

155 In cross-examination, it was put to Mr Marriner that he was aware as at May 2001 that Wallace & Wallace were holding monies in respect of the Erbacher file for settlement. He responded in terms:

I would have been perhaps been aware of it in principle, Mr Anderson, but you fail to see that I was not involved in the day to day accounting and financial matters. I was involved in seeing that financial accounts were brought together and concluded and audited. I was involved in sitting in on reports to the relevant parties that sat around the table at an informal Board meeting. I did not stand over that on a day to day basis.

156 On 6 June 2001, Mr Jephson sent a fax to Mr Penridge of Wallace & Wallace re 'Airport' on Stage Design's letterhead. He requested that he 'arrange for payment to WS Group (as per the attached fee proposal) from funds held in Trust.' The fee proposal showed the client as 'Laguna Australia' and the service to be performed was for public notification for Environment Australia work. This payment was apparently the last disbursement of the third tranche of bond monies.

157 In respect of the third tranche bond monies, the Court of Appeal found relevantly that:

All of the disbursements out of the ASD trust account were made by Wallaces at Jephson's direction, apart from one payment of $80,000 which Marriner personally directed to be made. These payments were made after Marriner had ceased to be a director or CEO of ASD in November 2000 and Jephson had resigned as company secretary of ASD on 19 January 2001.

The evidence of Penridge, the solicitor at Wallaces who made the payments out of these moneys in accordance with Jephson's (and in one case Marriner's) instructions was that he believed that Jephson was authorised by ASD to give such instructions. This evidence was not disputed by the Marriner parties and was accepted by the trial judge.[57]

158 Further, they found that by June 2001, 'all but $555.34 of the third tranche had been disbursed'.[58] To this point, however, the board of ASD was unaware that the third tranche bond monies had been released by the Bank of Queensland to Wallace & Wallace and spent. That information was not conveyed to the Board of ASD until August 2001, in the circumstances set out below. Before discussing the evidence concerning the investigation into the third tranche of the bond monies, it is convenient to track matters in a chronological sequence and mention the further negotiations that took place concerning the sale of the resort.

159 On 28 February 2001, the Marriner interests had failed to pay the instalment due under the amended Heads of Agreement.[59] Mr Patience's evidence was that nevertheless 'the board wanted to press on with the sale because the asset was performing poorly (losing in the vicinity of $3 million per annum) and [ASD] wanted to complete a commercial sale transaction, on the terms that were acceptable to the board, as soon as could reasonably be achieved.' Mr Patience also agreed that his mandate was to do what ASD could reasonably do to achieve the sale as soon as possible.

160 On 23 March 2001, Mr Marriner in his capacity as Managing Director of Laguna Australia met with Mr Willis, the Chairman of CBUS, to discuss proposals concerning the sale of Laguna Quays resort by ASD. After their meeting, Mr Marriner wrote to Mr Willis to record the issues they discussed. In summary, they were as follows:

1. Payment on account of the purchase price - Laguna Australia will make payment of $5,050,000 (being the balance of 20% of the purchase price) at the earliest possible time but no later than 30 June 2001.

2. Trading losses of the resort - under the Heads of Agreement, trading losses will be borne by Laguna Australia from the date of settlement.

1. Operation and Management of the Resort - Laguna Australia will assume responsibility for management and administration of the resort from the date of settlement.
2. Financial accommodation from CBUS - Regent Holdings P/L, a Marriner entity, seeks a loan facility of $6M from CBUS secured over the assets of Regent Holdings P/L and a 1st mortgage over the freehold land of Laguna Airport to enable Laguna Australia to meet commitments to contractors in relation to the airport works ($4M) and to fund resort requirements ($2M).

Mr Marriner also proposed that the terms set out in the 30 June 2000 Heads of Agreement, together with the proposals concerning the matters set out above, be incorporated into a formal Contract of Sale.

161 A meeting took place between Mr Marriner, in his capacity as Managing Director of Laguna Australia and Mr Frost, the Chairman of ASD, on 5 June 2001 in relation to work undertaken by JJ McDonald at Laguna Quays and the statutory demands they had served on ASD in May 2001. Following the meeting, on 12 June 2001, Mr Marriner wrote to Mr Frost in relation to two matters 'which require urgent attention and resolution' between ASD and Laguna Australia, namely:

1. Settlement of the claim made against [ASD] by [JJ McDonald] ($4.04M); and
2. Finalisation of arrangements for purchase of Laguna Quays by [Laguna Australia] and its subsidiaries including payment of the balance of deposit.

Mr Marriner then outlined the manner in which Laguna Australia proposed to meet the debt due to JJ McDonald together with the balance of the deposit payable on the Laguna Quays assets. This included obtaining funding from another building industry entity, Grocon, conditional upon the realisation of its equity in the Regent Plaza Hotel Trust (and a proposal for the acquisition of Grocon's interest in the Westin Hotel was currently before CBUS), the disposal of Chris' Restaurant at the Cumberland, Lorne (and ASD was offered first opportunity to purchase this asset), and discussions were well advanced with IMG to become a 50% partner in the development, ownership and operation of all aspects of golf at Laguna Quays. Mr Marriner added that '[i]n the event that additional interim funding is required, bank funding will be sought against airport and other assets' and he concluded by saying that Laguna Australia will 'continue to work towards completion of the agreement with ASD in good faith.'

162 In June 2001, ASD received a valuation of Laguna Quays from Jones Lang LaSalle Hotels. The valuation reported that the recoverable value on a going concern and orderly sale basis ranged from $13 to $18 million - and Jones Lang LaSalle Hotels had adopted a value of $16 million. This may be compared with their June 2000 valuation, again conducted on a going concern and orderly sale basis, where Jones Lang LaSalle Hotels had adopted a value of $22.6 million, albeit for a slightly larger land holding.

163 The outstanding debt to JJ McDonald continued to be an issue between ASD and Mr Marriner during June 2001. Discussions took place on 14 June between Mr Patience, as CEO of ASD, and Mr Marriner and Mr Jephson of Laguna Australia. Mr Marriner followed up by letter to Mr Patience dated 15 June 2001 reporting on the steps being taken in an effort to resolve the matter to the satisfaction of all parties.

164 On 18 July 2001, Mr Marriner put a formal proposal to CBUS on behalf of Laguna Australia, for the 'Purchase by CBUS/ASD of a 35% strategic holding in the Regent Plaza Hotel Trust (Westin Hotel) and sale of Laguna Quays Resort to Laguna Australia'. The proposal, dated 16 July 2001, involved interdependent sale and purchase transactions that were to occur simultaneously, with completion to take place within 60 days of signing the contracts, and Laguna Australia accepting sole responsibility for payment of JJ McDonald's account and obtaining a release from JJ McDonald for all claims it may have against ASD. In the proposal, the value attributable to the completion of the sale of Laguna Quays assets to Laguna Australia was stated to be $4.5 million, made up as follows:

Less amount paid to ASD for airport land forming part of the assets totalling $26.5M

(refer valuation by JLL 30/6/00 - Lot 30 on SP107874

Balance payable by Laguna Australia to complete the purchase of Laguna Quays assets

165 The proposal noted that the assets of Laguna Quays included all right, title and interest of ASD and CBUS in the assets comprising Laguna Quays, including all of the assets of ASD listed in Annexure 1, all of the assets of Matelda Oaks listed in Annexure 2 and all of the issued share capital of Laguna Investments (as a result of which Laguna Australia would acquire ownership of the assets listed in Annexure 3). Annexure 1 specifically listed as an asset of ASD '[t]he debt owing by [Laguna Investments] to [ASD] representing advances made by ASD to [Laguna Investments].'

166 Once Mr Patience became aware that JJ McDonald had made a claim against ASD, in circumstances where the board was apparently unaware of any of the relevant works having been undertaken, he began conducting further investigations into the affairs of Laguna Quays generally. In mid-2001 he made some initial enquiries of Mr Phillip Lunt, the financial controller of Laguna Management as a result of which he became aware of the electricity bond for $1.61 million that was deposited with the Bank of Queensland. In late July 2001, Mr Patience made further enquiries about the disbursement of the $853,200 third tranche bond monies that Wallace & Wallace had received into their Trust Account on 21 February 2001. He apparently contacted Mr Lunt of Laguna Management, Mr Paul Staley, the Resort Manager at Cumberland and Mr Penridge of Wallace & Wallace and requested details of the payments that had been made.

167 Mr Penridge said that in early August 2001, upon his return from leave, he received a message from Mr Patience to call him. Before returning the call, he telephoned Mr Marriner and spoke with him about ASD's request for the provision of detailed cost information and tax invoices covering funds disbursed from the Wallace & Wallace Trust Account. He could not recall the conversation but said that Mr Marriner would have assured him that there was no problem and would have had Mr Jephson send him a letter to clarify the basis of that entitlement.

168 Following that phone call between Mr Marriner and Mr Penridge, Mr Jephson followed up by letter to Mr Penridge dated 8 August 2001, referring to his recent telephone conversation with Mr Marriner, and informing Mr Penridge as follows:

We understand that you have been requested by ASD to provide copies of tax invoices covering funds disbursed from your Trust Account and we further understand that the source of those funds was the redemption of a supply bond from the Mackay Electricity Board.

Under clause 10(d) of our Heads of Agreement with ASD, to quote 'Any deposits, bonds, guarantees or other sureties held by any authority with respect to Laguna Quays or its development shall be applied towards the costs and expenses of converting such crown leasehold land as is part of Laguna Quays to freeheld [sic?] title in the name of [Laguna Australia].'

In satisfaction of the requirements of State and Local Government authorities and in relation to clause 10(d), Laguna Australia Pty Ltd has expended in excess of $850,000. The funds disbursed by your firm represent reimbursement to Laguna Australia of those costs.

169 When it is recalled that Mr Jephson was the person who had provided the instructions to Mr Penridge to disburse the monies, it is somewhat surprising that the letter is expressed in terms of 'we further understand that the source of those funds was the redemption of a supply bond from the Mackay Electricity Board' (emphasis added). Further, the statement in the last paragraph of the letter that the disbursement of the third tranche monies represent reimbursement to Laguna Australia of those costs appears incorrect, given that at least some of the funds were dispatched to pay Larkins McCarthy for a transaction that was unrelated to the Laguna Quays project.

170 Mr Marriner said that it was as a result of Mr Penridge's telephone call that he first became aware ASD was making enquiries of Wallace & Wallace as to the disbursement of the electricity bond monies. Following his conversation with Mr Penridge, Mr Marriner called Mr Patience. Mr Patience's evidence was that Mr Marriner had called to ask him why he had upset Mr Penridge and said that he should not have. Mr Patience said that during that conversation '[Mr Marriner] did not say that the money was his or that he was entitled to it, and nor did he say that he had been unaware of the fact of the fund transfers or suggest that Mr Jephson had organised the funds to be transferred on his own and without any reference to Mr Marriner.'

171 By letter dated 9 August 2001, Mr Penridge reported to ASD, confirming that the sum received into the Wallace & Wallace Trust Account was $853,200, of which only the sum of $555.34 remained, pending further instructions. As to the balance having been disbursed by Wallace & Wallace, Mr Penridge explained that instructions as to payment were received from Mr Jephson 'on behalf of Mr David Marriner' and he said it was Wallace & Wallace's 'understanding that this payment represented a reimbursement to Laguna Australia for funds previously expended in satisfaction of requirements of State and Local Government authorities in relation to the resort by David Marriner's companies.' He added that the sum of $83,200 (being the purchase monies for the second parcel of Erbacher land) was transferred to their file relating to that purchase as purchase monies. When giving evidence, Mr Penridge referred to the statement made in his letter that the instructions were received from Mr Jephson 'on behalf of Mr David Marriner', and clarified that that was something he had assumed, rather than knew. In later correspondence with Mr Marriner in September 2001, Mr Penridge referred to these payments as having been made 'at the direction or approval of Mr Jephson.'

172 A meeting of the board of directors of ASD took place on 15 August 2001. Mr Patience raised the issue of the possible misappropriation of bank guarantee funds at the meeting. He said that the Board was 'horrified' to hear this and suggested that the Bank of Queensland be requested to reimburse the funds. In his witness statement, Mr Willis said that Mr Patience had reported that the funds had been used in 2000-2001 to fund roadworks, the new airport area and other general construction at the resort. He said the directors discussed whether they could raise a debtor recoverable for $1.279 million (ie, the original total claim representing the second and third tranche payments), as an asset in the balance sheet and an offsetting income amount in the profit and loss.

173 The minutes record that the board discussed the schedule of proposed adjustments (which had been prepared by the internal accountant, Mr Peter Lewis) to the draft statutory accounts for the year ended 30 June 2001, and in particular the provision/write-offs proposed for consideration by the Board, one of which was the proposed re-classification of the third tranche bond debt as a third party receivable. The Minutes of Meeting noted variously:

VALUATIONS

[redacted]

It was noted that, at Laguna Quays, returned security bond monies had been used for road and general construction related works. The Company [ASD] is seeking to reclaim the wrongly expended [bond] monies from Mr Marriner or his associates.

[redacted]

2 FINANCIAL REPORTS

The Board received and discussed a schedule of monies believed to be owing by Mr Marriner or related companies totalling $37,684,158 inclusive of the balance of the purchase moneys due on the purchase of Laguna Quays ($26,250,000).

With regard to the writ by [JJ] McDonald the Company's application for dismissal to the Supreme Court of Victoria is to resume on 16 August 2001.

[redacted]

...

The Board discussed what action could and should be taken against Mr Marriner.

[redacted]

BANK OF QUEENSLAND

The Board noted the data collected in relation to the transfer of funds out of the BOQ account inclusive of the responses from Wallace & Wallace.

The Board agreed that the BOQ be required to reimburse the funds as transferred to Wallace & Wallace.

[redacted]

10 LAGUNA QUAYS

...

• The Board [redacted] ratified the execution of the Deed between Laguna Australia Airport Pty Ltd, Whitsunday Shire Council and the Company.

174 Mr Patience's evidence was that on 30 August 2001 he met with Mr Lunt and Mr Penridge to discuss the distribution of the third tranche of bond monies. Following that meeting, on 5 September 2001, Mr Penridge wrote a 'Private & Confidential' letter to Mr Marriner in relation to the 'reclaimed bond monies', in order to 'place on record our [Wallace & Wallace's] understanding of our role in relation to this matter and to provide you with copies of all information provided to Mr Patience, so that you may meet with him and resolve areas of concern expressed by him to us.' Mr Penridge's letter enclosed copies of all correspondence and material relating to collection of the electricity bond and accounts that were paid, along with 'correspondence which authorised the transfer of monies from the sum of $83,200, which was originally credited to our trust account for the purchase of the balance of the Erbacher land.' He noted that the sum of $80,000 was released from these monies to pay the WS Group accounts and that 'the Marriner companies subsequently forwarded further funds to allow for the Erbacher settlement to proceed'.

175 Following the 15 August meeting of the ASD Board, Mr Lewis prepared and presented to the Chairman, Mr Frost, on 4 September 2001 a memorandum concerning the 2001 Accounts of ASD. The memorandum is labelled 'Draft' but Mr Lewis' handwritten note records '[e]xact copy given to Barry 4/09/01'. In the memo, Mr Lewis was seeking direction from the Directors of ASD on the issues listed, which included matters such as the possible liability for GST on the sale of the Airport to Mr Marriner's company and the treatment of the electricity bond monies. In respect of the latter item, the memo noted:

This still remains as an expense in the P&L. I understand preliminary legal action has been initiated by us [ASD]. I also understand there was discussion by the Directors on whether we could raise a debtor recoverable for $1,279,800 as an asset in the BS, and an offsetting income amount in the P&L. This would then negate the P&L effect to nil.

I now seek your instructions on the position to be adopted, that is (i.) should the accounts be left as is or (ii.) should an offsetting debtor be recorded in the BS. In deciding this issue, I draw your attention to the following factors that should be considered.

1. As the BOQ term deposit has been closed, this obviously cannot be reflected as an asset in the BS as the asset has gone. If we were to reinstate this asset in the BS, I would expect to be vigorously challenged by the auditors. I do not believe they would accept us reinstating this asset, even if the issue was mentioned in the notes to the accounts.
2. To record an offsetting debtor receivable as an asset, a position needs to be taken by the Directors whether this amount can be recovered.

176 Following the board meeting on 15 August 2001, the Chairman of ASD also requested that Mr Marriner provide an explanation and justification of how the bond monies were applied. Mr Marriner said that with the assistance of Mr Whalley, a letter was prepared by way of response and faxed to ASD. Mr Patience confirmed that he received the letter on 5 September and immediately faxed it to Mr Frost and distributed it to the other directors. There is some doubt, however, as to whether the directors had actually received Mr Marriner's response by the time they met with him on 6 September 2001. Mr Frost believed he did not receive the 5 September letter until after that meeting.

177 In the letter to Mr Frost, Mr Marriner responded to his request for 'an explanation and justification for the application of these funds, being the property of ASD, at the direction of Laguna Australia.' He stated:

As you are aware the residual bond money held by Mackay Electricity Board was refunded during February and March this year and paid into the trust account of Wallace & Wallace in Mackay.

These funds were subsequently disbursed by Wallace & Wallace and utilized for reimbursement of costs outlaid by Laguna Australia. Such reimbursement was effected by the payment of creditors of Laguna Australia.

You have requested an explanation and justification for the application of these funds, being the property of ASD, at the direction of Laguna Australia.

...

178 The explanation given in the letter was that once refunded, the residual bond money was paid into the trust account of Wallace & Wallace, and disbursed by them. Mr Marriner then sought to explain the utilisation of the residual bond monies, pointing out that costs were incurred in connection with the completion of road works and landscaping. A list of expenses that Laguna Australia had incurred was enclosed. The letter stated that these costs 'were funded, in part, from the release of bond moneys by the Mackay Electricity Board' and '[r]eimbursement of [Laguna Australia]'s costs was effected by the payment of creditors of [Laguna Australia] to the extent of the bond money refunded' (emphasis added). He added that the 'application of the refunded bond moneys for this purpose was an integral element of the terms agreed between the parties in June 2000.'

179 The letter summarised the net financial position, stating that:

In financial terms the total funds received from [ASD] in November 2000, other than those required to meet tax commitments, have been applied to development of the airport and the resort, as follows:

Net additional investment by Marriner since Nov 2000

(The sum 'recovered' is a reference to the third tranche bond monies.)

180 In the letter, Mr Marriner acknowledged that the cost of acquiring the additional freehold land that was formerly leasehold was 'a cost attributable to the purchaser and the amount should therefore be added to the purchase price of the resort as detailed in the heads of agreement dated 30 June 2000.' He reached this conclusion after having deducted the third tranche bond monies of $853,200 from the total costs incurred to date by way of airport development and resort development (leaving a net additional investment by Marriner interests since November 2000 of $4,648,395).

181 Mr Marriner's listing of the relevant '[r]eimbursed Resort Development costs' totalled $871,284. They reflected invoices paid to suppliers such as JJ McDonald (for Marina Road, Haulage Road, roundabout tree planting), the WS Group (for hillside subdivision, Jagabara and Pandanus Golf Courses, quarry site, Lagoon Hotel, Condor Range subdivision and professional services as to planning, environmental, engineering, computing, mapping and surveying), and Wallace & Wallace (for quarry, undeveloped land, general advice, legal, title and planning issues).

182 The letter as drafted appeared to suggest that specific identified creditors of Laguna Australia listed in the schedule were in fact persons paid from the third tranche of bond monies, but this is demonstrably not correct. A perusal of the payment instructions originally provided by Mr Jephson to Mr Penridge on 19 February 2001 makes clear that the schedule attached bore almost no relationship with the schedule of actual payments made by Wallace & Wallace, save that both schedules identified entities such as WS Group, Wallace & Wallace etc as payees. For example, there is no reference in the listing to the payment of $86,500 made to Larkins McCarthy.

183 The matter was raised with Mr Marriner in cross-examination. He was taken to the schedule attached to the letter. Mr Marriner said that he thought it was prepared by Mr Whalley, rather than Mr Jephson as 'it would have been out of his area of skill base.' However, Mr Whalley's evidence was that Mr Jephson gave him the list to attach to the letter. In the course of Mr Marriner answering questions posed by his Honour, it soon became clear that this schedule was not, and did not purport to be, a reconciliation of the third tranche bond monies. Rather, the schedule reflected the third tranche monies that had been applied to fund what they contended were 'freeholding' costs and expenses which permitted the conversion of Crown leasehold to freehold. The task of reconciling where the third tranche bond monies went had in fact been performed by Mr Whalley, and his reconciliation was set out as Table 2 of Schedule B to his witness statement. At the original trial ASD, by its counsel, agreed that was the position.

184 On 5 September 2001, Mr Patience provided some 'focus notes' to Mr Frost, the Chairman of ASD, for consideration in advance of a meeting to be held the next day. These were sent to the board members of ASD. The notes, headed 'Issues to be Considered by ASD Re: Laguna Quays', provided as follows:

• Operational losses while improving will remain in excess of $200K per month. Best position would be in the order $2.5m loss in this trading year.
• True value on the open market for the resort would be of the order of 10-15 million dollars (Colliers)
• A Sale may need under pinning of losses for say 12 months thus reducing the cash received. Say ($10m minus $2.5m losses) = $7.5m received
• The recent article in the Financial Review is probably only the beginning of a series as the journalist has viewed the affidavits from both sides. Affidavits tell an interesting story. Other issues will surface in future articles.
• A time will come when David Marriner believes enough is enough and it is all too hard and walks away from the obsession to own Laguna Quays.
• If David Marriner takes a walk away attitude obviously he would look to ASD for compensation for what he has spent or alleged to have spent. As there was an agreement in place and we allowed him to think a deal would be done once he achieved the approval milestone. This milestone has been achieved.
• Lawyers and history tells when the 'chips' are down David Marriner becomes very litigious.
• Best scenario would be that ultimately David Marriner pays the full amount referred to in the H of A being $26,500,000.
• Second best scenario would be that the recent offer from David Marriner being the Grollo, Starwood and exiting the Victoria Gardens joint venture would may be provide a 'Book' settlement of say $21,000,000 with the balance may be someday!!

It should be noted that the Starwood exiting the City Square may not be in the best interest of our investment at the City Square Hotel so possibly should be rejected.

• For some reason David Marriner is obsessed with the ownership of Laguna Quays, ASD should support this attitude to achieve the resolution of the H of A.
• David Marriner's least cost path would be to walk away from ASD and litigate sit on the sidelines until we attempt to sell the resort by private treaty or Auction and then via a nominee purchase the resort for may be $8 or $10m.

This is quite normal practise in similar situations or in insolvency situations.

• The use of Bond Monies would need to be integrated into the final agreement or used to offset the pending purchase of the Marine area converted to freehold.

Payment to the Queensland Government is due for this freehold conversion this month for approx. $900K.

185 It is part of the Marriner parties' counterclaim that the ASD Board deliberately did not take issue with the bond monies because of their keenness for the sale of Laguna Quays resort to Mr Marriner to reach completion. The Marriner parties contended that after the 5 September 2001 letter was sent, the issue of the bond monies was never again raised with Mr Marriner until these proceedings were brought. The substance of the evidence given by the respective witnesses is canvassed below in some detail in the context of the counterclaims brought by the Marriner parties.

186 The evidence given by the directors and Mr Patience was to the effect that they wished to focus on getting the sale of Laguna Quays completed. To this end, a meeting was arranged between several of the directors of ASD, Messrs Wason, Willis and Frost, and Mr Patience and Messrs Marriner and Whalley on 6 September 2001. Prior to that meeting, Messrs Patience, Frost, Wason and Willis met and discussed the issue of the bond monies and whether the second and third tranches might have been misappropriated. Mr Patience said that the directors decided not to raise these matters with Mr Marriner at the subsequent meeting but instead to focus solely on getting the sale of Laguna Quays completed. They also decided not to pursue interest or other amounts owing to ASD under the 30 June 2000 Heads of Agreement. It is clear that at this point, a decision had not been made by the board to pursue Mr Marriner. The focus notes prepared by Mr Patience were discussed amongst the directors at their meeting but Mr Patience could not say if all of the items recorded in them were discussed. Mr Frost presumed they worked through the focus notes.

187 Mr Frost said that at the meeting of directors they discussed taking action against Mr Marriner but decided not to raise it at the meeting with him. He said that he believes he did not regard the bond monies as an issue that needed to be resolved because at the time they were looking at recovering the monies from the Bank of Queensland or Wallace & Wallace and Mr Marriner would have been third in line. But Mr Frost did not tell Mr Marriner that. He said the bond monies did not impress him as being significant at the time and he did not think raising the bond monies would have derailed the sale. In his view, Mr Marriner had been desperate to buy the resort from March 2000.

188 Mr Wason's evidence was that he, and other directors of ASD, were considering the possibility of ASD taking legal action against Mr Marriner about the electricity guarantee funds by the time of the 6 September meeting. Mr Wason stated that he did not recall any discussion about the electricity guarantee funds at the 6 September meeting with Mr Marriner; rather, the discussions focused on the sale of Laguna Quays. Mr Willis stated that part of the reason for the meeting was 'certainly to conclude the issues with Marriner' as much as they could and 'as quickly as possible'. He denied that he knew what Marriner's attitude would have been if confronted with the bond monies claims at the meeting. He stated that he had been in favour of raising the issue but did not insist as the issue had been raised with Mr Marriner the day before and an argument would have distracted them from resolving the sale issue.

189 Mr Patience also stated that the 6 September meeting was to discuss a proposal for settlement of the purchase of Laguna Quays and that there was no discussion of debt owed by Laguna Investments to ASD, bank guarantee deposits or releases. Mr Patience's evidence was that if the issue had been raised he believes that they would have lost another six months or a year in resolving the problem.

190 After the 6 September meeting, Mr Patience continued to have discussions with Mr Marriner at least every couple of days about completing the sale. However, while the JJ McDonald claim was raised in those discussions, the bond monies and release were not, or at least he could not recall any discussion about them after 5 September. Mr Willis also had numerous conversations with Mr Marriner about the sale between September and October 2001. His evidence was that no releases were mentioned - none were offered and none were asked for - and the bonds were not the subject of discussion with Mr Marriner or a Laguna Australia representative.

191 Following the meeting with the directors of ASD, Mr Marriner wrote to Mr Frost, as Chairman of ASD, by letter dated 6 September 2001 to confirm that Laguna Australia sought to vary his proposal of 16 July 2001 in three key ways. First, adjusting the purchase price to $27,450,000 to reflect the cost of the acquisition by ASD of the additional freehold land ($950,000).[60] Secondly, making provision for CBUS to provide a loan of $5.0 million to Laguna Airport secured by first mortgage over the airport property, to fund construction of the airport infrastructure. Thirdly, in lieu of the participation of Starwood in an equity swap, Laguna Australia would provide $6 million at settlement.

192 In his letter, Mr Marriner also clarified that:

The assets of Laguna Quays include all right, title and interest of ASD and CBUS in the assets comprising Laguna Quays, including

(a) Assets owned by Australian Super Developments (ASD).

ASD shall sell to LA and LA shall buy from ASD all of the assets listed in Annexure 1.

(b) Assets owned by Matelda Oaks Pty Ltd.

MA shall sell to LA and LA shall buy from MA all of the assets listed in Annexure 2.

(c) Assets owned by SDA Laguna Investments.

ASD shall sell to LA and LA shall buy from ASD all of the issued capital in SDA Laguna Investments Pty Ltd and as a result LA shall acquire ownership of the assets listed in Annexure 3.

An adjustment shall be made at settlement for all employee entitlements, rates, taxes and fees and other operating expenses and liabilities accrued, outstanding or owing as at the date of completion with the intent that the Vendors shall be responsible for all such adjustments up to the date of completion and LA shall meet all such payment after that date.

The Vendors shall indemnify LA in respect of all such adjustments and liabilities up to the date of completion whether now in existence or arising after the date of this agreement.

193 As with the earlier proposal, Annexure 1 listed the Laguna Quays - Schedule of Land Holdings & Ownership of ASD and, in addition to the freehold land, specifically included:

The debt owing by [Laguna Investments] to [ASD] representing advances made by ASD to [Laguna Investments].

194 On 10 September 2001, having sought instructions from Mr Frost, Mr Lewis circulated a further memorandum to Messrs Rennie, Wason and Willis, copied to Messrs Frost, Fitzpatrick and Patience, concerning the Amended 30 June 2001 Accounts of ASD. Mr Lewis said the purpose of the memo was two-fold:

1. To set out the instructions given by [Mr Frost] and their impact on the accounts.
2. To seek your comments if you have different views on how any of the transactions should be recorded. I would appreciate receiving your immediate feedback.

The instructions given by Barrie are as follows:

...

Bank of Queensland

Amend the original accounts prepared by Joanne. The P&L should still record the loss of $1,279,800 from the bank account, but an offsetting debtor receivable should be recognized.

196 Mr Patience confirmed that he received a copy of the Lewis memorandum on 10 September 2001 and recalled that the accounting treatment proposed was considered appropriate at the time by the directors.

197 At a meeting of the ASD Board of Directors held on 18 September 2001, the Directors agreed that they would meet on 24 September 2001 to consider detailed schedules of all matters concerning monies considered to be owing to ASD by Mr Marriner. At the meeting on 24 September 2001, Mr Patience presented papers covering the background, chronology and values of the various issues involved. The minutes of meeting record a number of resolutions made by the board, including:

Resolved that all the contracts to complete the sale of the Laguna Quays Resort to David Marriner be prepared by Holding Redlich.

...

Resolved that ASD will take action [redacted] to recover funds paid over by Bank of Queensland to Wallace & Wallace.

198 A document prepared by, or for, Mr Patience summarising 'Outstanding monies due by Mr David Marriner or related companies' dated 21 September 2001, but compiled to 31 August 2001, listed certain amounts pertaining to the purchase of Laguna Quays and the purchase of City Square apartment 1204 as 'outstanding monies in respect to the Heads of Agreement dated 30 June 2000 and 1 November 2000 and other DavidMarriner related issues'. The total financial exposure of Mr Marriner or related companies was stated as being $35,265,778, comprised as follows:

PURCHASE OF LAGUNA QUAYS

(Less deposit $250,000)

PURCHASE OF CITY SQUARE APARTMENT 1204, NOT LESS THAN -

199 On 8 October 2001, Mr Patience circulated a memorandum to the directors of ASD (Messrs Frost, Willis, Rennie, Wason and Fitzpatrick) following up a suggestion from the Chairman that they meet to discuss the proposed resolution of the sale of Laguna Quays resort to Goldworthy/Marriner and associated issues. The memo noted as an 'other issue' that needs to be resolved during this period up to and after 17 January 2002 '[s]ettle or take steps to settle all outstanding debts incurred by David Marriner and associated companies.' He proposed that they meet on 11 October 2001 to discuss these matters with the directors' advisers.

200 Mr Patience gave evidence that he was nervous about raising the bond money issue with Mr Marriner until they had really analysed their position from a legal point of view and other points of view. He had told the board he was not sure of the legal position - they were seeking advice and he said the board probably did not know where they were going with the issue of the bond monies.

201 On 17 October 2001, Mr Patience of ASD wrote to Mr Marriner of Laguna Australia enclosing what he said was the 'final document the directors are willing to proceed with leading to a Sale Contract being signed on 26 October 2001 as agreed.' In essence, the ASD Board indicated in the 'final document' that it would only recommend the proposal to CBUS if Laguna Australia advised ASD in writing by 4.00 pm on 18 October 2001 that it would 'unconditionally accept the proposal without any amendment.' Further, it stated that if Laguna Australia did not do so, ASD would not entertain any further negotiations with Laguna Australia and would terminate the 30 June 2000 Heads of Agreement and reserve all of its rights. The letter set out the ASD proposal, specifying the price ($27,450,000 exclusive of GST and 'to the extent that GST is payable in respect of the sale of the Resort, LA will reimburse ASD for that GST') and the manner of payment. Paragraph 3 provided that:

1. The price will not be subject to adjustment on any basis and, accordingly, no adjustment will be made at completion for employee entitlements (other than long service leave entitlements for staff of the Resort accrued to the date for completion), rates, taxes and fees and other operating expenses and liabilities accrued, outstanding or owing as at the date for completion with the intent that LA will assume full responsibility for all such entitlements, rates, taxes, fees, expenses and liabilities. The amount attributable to long service leave entitlements for staff of the Resort at completion is to be held in escrow and paid to the relevant staff member upon notification by LA that the staff member is entitled to that payment.

The letter also stated that 'the proposal is made on the basis that all of ASD's rights (including but not limited to, its rights under the Heads of Agreement) remain expressly and strictly reserved.'

202 Mr Marriner responded by letter faxed to Mr Frost on 18 October 2001 at 3.55 pm, just before the deadline expired. He stated:

I ... wish to record my concern at the very restrictive deadlines imposed by you on my responses. I note that you yourself have altered elements of your proposal, presumably because you have had more time to reflect. Nevertheless, I believe the proposal is now consistent with the intent of the parties as agreed at our meeting last week.

I remain concerned that your paragraph 3 may not exactly reflect the intent that neither party should be liable for any undisclosed liabilities incurred by the other party. However, following a telephone discussion between Ian Patience and Garry Weaven, I am comforted that that intent can be fully reflected in the final legal documentation.

(emphasis added)

203 Mr Patience's evidence was that a copy of the letter was sent to the directors. He did not otherwise recall the letter or any 'telephone discussion' with Mr Weaven. However, he said that he 'did meet with Gary Weaven several times, talking about coaxing David to come and settle the exercises'.

204 The negotiations were finalised the next day, with the result that the letter of 17 October was re-engrossed with a date of 19 October 2001 and with some minor amendments, including adjustment of the date for unconditional acceptance to 4.00 pm on 19 October 2001. The letter of 19 October was signed that day by Mr Marriner and endorsed on the final page as 'Accepted for and on behalf of Laguna Australia'. The first page was signed by Mr Patience also on 19 October2001.

205 A Special Meeting of the Directors of United Super, the Trustee of the CBUS Fund, was held on 22 October 2001. ASD and Laguna Quays were listed as item 3 of business and the minutes of meeting record Mr Frost, the Chair of ASD, as having explained that the proposal was based on negotiations with Mr Marriner for the sale of Laguna Quays. He outlined its essential features. The minutes also record that the Board resolved 'subject to proper due diligence and legal advice, to give the ASD Board the authority to negotiate the disputed terms and finalise the sale of Laguna Quays on the basis of the broad terms as outlined.'

206 Following that meeting, Mr Patience wrote to Mr Marriner on 23 October 2001 to inform him that the CBUS board had given approval for ASD to enter into the next phase of implementing their proposed sale of Laguna Quays with Laguna Australia. Mr Patience also informed him that once the purchase was completed, ASD would procure CBUS to lend Laguna Airport $5,000,000 for airport construction claims by JJ McDonald or other nominated contractors.

207 The solicitors for the respective parties, Wallace & Wallace for the Marriner interests and Holding Redlich for the ASD interests, then commenced preparation of the documentation to give effect to the proposed sale of the assets comprising Laguna Quays. Wallace & Wallace corresponded with Holding Redlich concerning the provisions of the various agreements. For eg, by letter to Holding Redlich dated 6 November 2001, Mr Penridge made a number of observations on the documentation. In the case of the Deed of Assignment of Debt he stated:

1. It is noted that the assignment fee, name of debtor, date for payment of assignment fee and amount for payment on completion date are yet to be determined. It is assumed that the debtor is ASD-Laguna Investments Pty Ltd; and
2. It is assumed that the final amount of the debt will not be known until the completion date. If this is correct, would you please advise the way in which it is intended to deal with identification of this amount.

Documentation to give effect to the sale of Laguna Quays resort

208 The parties envisaged that 'completion' of the sale would occur contemporaneously with the completion of the 'Land Contracts', the 'Assignment of Debt' and the 'Sale of Shares Agreement'.

209 On 13 November 2001, ASD and Laguna Australia entered into the Sale of Shares Agreement, whereby Laguna Australia agreed to purchase the 10 ordinary shares of Laguna Investments free of encumbrances on the terms and conditions set out in the agreement. It will be recalled that Laguna Investments was a wholly owned subsidiary of ASD, and was responsible for the Laguna Quays project. Laguna Management, a wholly owned subsidiary of Laguna Investments, conducted the day-to-day operations of Laguna Quays as agent for Laguna Investments.

210 The Sale of Shares Agreement was stated to be 'EXECUTED as an agreement', and was executed by Messrs Wason and Frost as directors of ASD and by Messrs Marriner and Whalley, as director and secretary respectively of Laguna Australia.

211 The purchase price for the shares was stated to be $10, but it was to be adjusted in accordance with clause 3.2 which made provision for the adjustment of liabilities and receivables. The expression 'liabilities' in relation to Laguna Investments was defined in clause 1.1 to mean, unless the context clearly indicated otherwise, 'employee entitlements (excluding any Long Service Leave Entitlement), rates, taxes (other than any tax on income or any tax in the nature of a capital gains tax) and fees and other operating expenses and liabilities' (emphasis added). Similarly, 'receivables' was defined in clause 1.1 to mean, unless the context clearly indicated otherwise, 'all amounts owing to [Laguna Investments] for goods or services supplied or provided by [Laguna Investments] in the conduct of its business.'

(b) All Receivables of [Laguna Investments] up to and including the Completion Date (less a full and adequate provision for bad or doubtful debts) will be for the benefit of the Vendor.

...

(d) 5 Business Days prior to Completion, the parties will ascertain the likely amount of:

(i) the Liabilities; and

(ii) the Receivables,

of [Laguna Investments] as at the Completion Date and reach agreement on the provisional amount, if any, by which the Purchase Price will be adjusted so that Liabilities and Receivables are apportioned in accordance with clauses 3.2(a), 3.2(b) and 3.2(c) and the parties will adjust the Purchase Price on the Completion Date in accordance with that agreement.

(e) As soon as practicable after the Completion Date (but not later than 20 Business Days after the Completion Date) the parties will meet to agree on the actual value of the Receivables and the Liabilities of the Company as at the Completion Date and, if necessary, on the final adjustments to be made to the Purchase Price.

The 'Completion Date' was defined to mean 8 February 2002.

213 Clause 3.4 set out a dispute resolution procedure that would apply if the parties were unable to reach agreement on the amount of any adjustment or the existence or amount of any 'Long Service Leave Entitlement'.

214 As the Sale of Shares Agreement was one of several agreements to be executed by the parties, clause 5.3 dealt with the 'Interdependence of Agreements'. In essence, the parties acknowledged that completion would occur simultaneously with completion of the 'Land Contracts' (concerning the parcels of land owned by ASD and Matelda Oaks) and the 'Assignment of Debt' (made between ASD and Fulham Holdings) and for eg, any termination of one would be effective to terminate the other agreements at the same time and without any or any further notice.

215 Warranties given by ASD under clause 7 of the Agreement were set out in a Schedule. Item 7 of the Schedule stated:

7. The Assets of [Laguna Investments] are:

(a) the land described in the Annexure to this Schedule;

(b) shares in various corporations; and

(c) the plant, equipment, fixtures, fittings and chattels owned by [Laguna Investments] at Completion.

216 Under the Agreement, the purchaser made certain 'acknowledgment[s]', as follows:

7.8 The Purchaser:

(a) acknowledges and agrees that it purchases the Shares on an 'as is where is' basis and that the Vendor has not made and does not make any statement, representation, warranty, promise, undertaking or agreement and is not liable to the Purchaser for any Claim arising from or relating to any statement, representation, warranty, promise, undertaking or agreement made by the Vendor or any director or officer of the Vendor or any person having the actual or ostensible authority of the Vendor about or in connection with:

(i) the Shares;

(ii) the Company;

(iii) any of the assets of [Laguna Investments], including the Resort;

(iv) the nature, location or condition of any of [Laguna Investments] including, without limitation, any land comprised in those assets;

...

(viii) the business or financial status of [Laguna Investments]; or

(ix) the past, present, or future business and financial performance of [Laguna Investments] and, without limitation, the accuracy of the accounts, books and records of [Laguna Investments],

made by the Vendor or any person authorised to act on behalf of the Vendor or resulting from or implied by conduct made in the course of communications or negotiations in connection with the sale of the Shares, not expressly included in the Warranties (Excluded Representations); and

(b) waives, to the fullest extent possible, any possible cause of action or rights it may have under or in respect of Part V of the Trade Practices Act 1974 (or any similar legislation) relating to the Excluded Representations.

217 The Agreement also contained an 'Entire agreement' clause, expressed in the following terms:

This agreement constitutes the entire agreement between the parties regarding the matters contained in it and supersedes any prior representations, understandings or arrangements made between the parties, whether oral or written.

218 The Deed of Assignment of Debt was also made on 13 November 2001, between ASD and Fulham Holdings. The Deed recited that the 'Debtor', Laguna Investments, was indebted to the 'Assignor', ASD, in 'the amount of the Debt', being 'the full amount owing by the Debtor to the Assignor on the Completion Date', namely 8 February 2002 and that ASD agreed to assign the Debt to Fulham Holdings on the terms and conditions of the deed.

219 Clause 2 dealt with the Assignment of Debt and provided, relevantly, as follows:

In consideration of the payment of $3,000,000.00 in accordance with clause 2.2, at Completion the Assignor as beneficial owner will assign to the Assignee all of the Assignor's right, title and interest in the Debt.

The Assignee will pay the Assignor the Assignment Fee as fol1ows:

(a) $185,000.00 by cheque on the date of execution of this deed; and

(b) $2,815,000.00 by cheque on the Completion Date.

(i) calculate the exact amount of the Debt as at the Completion Date; and

(ii) deliver to the Assignee a statement of the amount of the Debt as at the Completion Date

by not less than 3 Business Days before the Completion Date.

(b) The Assignor's statement of the amount of the Debt delivered to the Assignee under clause 2.3(a) will be conclusive evidence as to the amount of the Debt for all the purposes of this deed.

(a) acknowledges and agrees that it acquires the Debt on an 'as is where is' basis and that the Assignor has not made and does not make any statement, representation, warranty, promise, undertaking or agreement and is not liable to the Assignee for any Claim arising from or relating to any statement, representation, warranty, promise, undertaking or agreement made by the Assignor or any director or officer of the Assignor or any person having the actual or ostensible authority of the Assignor about or in connection with the Debt or the collectability of the Debt not expressly included in clause 2.4 (Excluded Representations); and

(b) waives, to the fullest extent possible, any possible cause of action or rights it may have under or in respect of Part V of the Trade Practices Act 1974 (or any similar law) relating to the Excluded Representations.

220 Clause 2.6 of the Deed contained an 'Interdependence of Agreements and Termination' clause, expressed in similar terms to clause 5.3 of the Sale of Shares Agreement and clause 5.1 of the Deed contained an 'Entire agreement' clause in similar terms to clause 11.1 of the Sale of Shares Agreement.

This deed constitutes the entire agreement between the parties regarding the matters set out in it and supersedes any prior representations, understandings or arrangements made between the parties, whether orally or in writing.

221 Clause 5.12 of the Deed provided that '[e]ach party must act in good faith towards all other parties and use its best endeavours to comply with the spirit and intention of this deed.' The Deed of Assignment of Debt was stated to be 'EXECUTED as a deed', and was executed by Messrs Wason and Frost as directors of ASD and by Messrs Marriner and Whalley, as director and secretary respectively of Fulham Holdings.

222 By emailed letter dated 5 February 2002, Mr Lovell of Holding Redlich, the solicitors acting for ASD on the sale, wrote to Mr Penridge of Wallace & Wallace and raised several matters in relation to the completion of the sale transaction. In particular, he stated that the amount of the debt to be assigned under the Deed of Assignment of Debt 'will be $16,400,586.54 as at completion.' Mr Penridge responded to the letter that day and in relation to the amount of the debt, he informed Mr Lovell that '[o]ur clients have no reason to dispute this amount nor records upon which to base an opinion on the amount and the amount proposed is accepted on this basis.'

223 On 11 April 2002, Mr Lewis of ASD wrote and informed Mr Marriner of Stage Design that for the purposes of clause 2.3(a) of the Deed of Assignment 'the loan amount owing from [Laguna Investments] to [ASD] as at the adjusted completion date of 17 April 2002 will be $16,592,676.75.'

224 On 17 April 2002, the settlement of the sale of Laguna Quays Resort to the Marriner parties was completed.[61]

Accounting treatment of the Laguna Investments loan book and the treatment of the bond monies in ASD's books

225 Evidence was given by a number of witnesses at the trial about the accounting treatment of the Laguna Investments loan book and the treatment of the bond monies in ASD's books. The Marriner parties contend that representations were made prior to them entering into the Sale of Shares Agreement and Deed of Assignment of Debt which caused them to assume that the subject matter of the sale included the debt owed in respect of the second and third tranches of bond monies and that Fulham Holdings would take an assignment of that debt. These contentions form the basis of their misleading and deceptive conduct, estoppel and unconscionable conduct claims. For convenience, the evidence concerning the accounting treatment of the bond monies is canvassed below in the context of dealing with these claims.

226 For present purposes, it is sufficient to note that the 2001 Annual Report for the ASD unit trust records in the Statement of Financial Performance for the year ended 30 June 2001, as a revenue item 'Legal Claim-Recovery of funds from Bank of Queensland' in the sum of $1,279,800. Note 3, dealing with 'Current Assets - Receivables' provides the following by way of explanation:

Legal Claim - Recovery of funds from Bank of Queensland

The asset 'Legal Claim - recovery of funds from the Bank of Queensland' relates to the legal action that the Directors will launch against the Bank of Queensland for the inappropriate operation of a bank account held by the Trust during the year.

227 The accounts contain an independent audit report from Arthur Andersen dated 25 February 2002, stating that the accounts have been prepared in accordance with the trust deed and give a 'true and fair view' of the entity's financial position in accordance with the relevant accounting policies and mandatory professional reporting requirements and comply with relevant Accounting Standards.

228 The Annual Accounts for Laguna Investments as at 30 June 2002 record the 'receivables' in Note 2 for each of the relevant financial years as follows:

229 There is no evidence to explain why Note 2 of the Laguna Investments accounts records a figure of $1,284,335 rather than the figure of $1,279,800 recorded in Note 3 of the ASD unit trust report for 2001.

230 The issues the subject of the remittal concern the 'third tranche' of the electricity bond monies, being the $853,200 that was received in the solicitor's trust account of Wallace & Wallace on 21 February 2001 by way of a direct deposit made by the Bank of Queensland on the instructions of Mr Jephson as company secretary of Laguna Management. In essence, ASD alleges that Mr Marriner diverted funds held on trust for ASD for his own benefit, or for the benefit of companies controlled by him, by inducing or procuring an innocent breach of trust by a trustee.

231 The pleading of allegations relevant to the alleged 'misappropriation' of the third tranche monies are, for the most part, set out under the following portions of the Further Amended Statement of Claim:

FURTHER MISAPPROPRIATION OF ELECTRICITY GUARANTEE MONEYS

CLAIM AGAINST WALLACE & WALLACE FOR UNAUTHORISED DISBURSEMENT OF TRUST FUNDS

CLAIM AGAINST MARRINER - DISBURSEMENT OF TRUST MONEYS BY WALLACE & WALLACE

CLAIMS AGAINST GOLDWORTHY, LAGUNA AUSTRALIA, LAGUNA AUSTRALIA AIRPORT AND STAGE DESIGN - DISBURSEMENT OF TRUST MONEYS BY WALLACE & WALLACE

232 In the prayer for relief, ASD claims, as against Mr Marriner, relevantly the following relief:

1. An order that Marriner is liable to account to ASD for any loss suffered by it as a consequence of the breach of trust alleged in paragraphs 59 to 62 above.
2. An order that Marriner is liable to account to ASD for knowingly assisting Wallace & Wallace to commit the breach of trust alleged in paragraphs 63 to 65 above.

1. Equitable compensation by reason of the matters alleged in paragraphs ... 59, 60, 61, 62, 63, 64, ... above.

233 In the prayer for relief, ASD also claims, as against Goldworthy, Laguna Australia, Laguna Airport and Stage Design, relevantly the following relief:

1. Damages for breach of trust by reason of the matters alleged in paragraphs 66 to 71 above.
2. Damages for knowingly inducing and assisting Wallace & Wallace [to] commit a breach of trust by reason of the matters alleged in paragraphs 72 to 75 above.

1. Equitable compensation pursuant to the matters alleged in paragraphs 66 to 71 and 72 to 75 above.

234 Of these pleaded claims, ASD has since settled its 'claim against Wallace & Wallace for unauthorised disbursement of trust funds' for the sum of $350,000. The parties are agreed that ASD must give credit for that sum and reduce accordingly the amount now sought to be recovered from the Marriner interests.

235 The pleading of the respective claims and defences have been the subject of much comment by the original trial judge and the Court of Appeal. The pleadings have been described as 'labyrinthine', a view which I share.

236 The Court of Appeal noted that the original trial judge found that the third tranche bond monies were held by Wallace & Wallace on a 'solicitor's trust'.[62] In their reasons, the Court of Appeal referred to and reproduced several passages from the original trial judge's reasons where his Honour dealt with the nature of the solicitor's trust, as follows:

[123] ...He said that:

It is clear on the evidence that Wallace & Wallace received the third tranche funds pursuant to the ordinary trust obligation which a solicitor owes to their client. This obligation was to deal with these funds in accordance with the directions of the client.[63]

[124] His Honour went on to say that:

It is at this point necessary to identify what is the basis and nature of the trust which was said to have been breached. The statement of claim is unhelpful. All that is said is that, when the third tranche funds were paid into the trust account, the funds were 'impressed with a trust for the benefit of ASD. The duty of Wallace & Wallace as trustee was to deal with the money in accordance with the direction of ASD and to account to ASD.[64]

[125] Later in his reasons, his Honour again referred to the unsatisfactory nature of the pleadings.

In the course of the trial, I sought to tease out the nature of this trust. Was it a trust which arose from the receipt of funds which the recipient, Wallace & Wallace, knew were impressed with the Quistclose trust? Was it a trust which a solicitor owes to the client with respect to money received for the client? Counsel for [CBUS] appeared uncertain about this and, in the end, said that it did not matter. In each case, Wallace & Wallace were bound by their trustee obligations to disburse the money only in accordance with the direction of ASD in its capacity as beneficiary under the second or ancillary Quistclose trust or in its capacity as client under the solicitor's trust. I am not at all confident that this distinction can be put to one side in this way. In the former case, ASD would have to establish the existence of the Quistclose trust and then, further, that Wallace & Wallace had the required knowledge that the funds received were impressed with that trust. In the latter case, it is sufficient that the funds were received on trust for the client. On the facts as I have found them, ASD has failed to establish the pre-condition to a breach by the solicitors of their obligations with respect to money coming into their hands impressed with a Quistclose trust. The trust does not exist; the funds in the hands of Wallace & Wallace cannot be subject to such a trust.

Nor is the position very much assisted by the fact that the Marriner parties do not plead to the allegation that the funds when received were impressed with a trust, that the solicitors owed ASD trustee duties or that the solicitors acted in breach of those duties.

With considerable misgiving, therefore, I put the pleadings on this point to one side and address what I was told in final address was the real issue. On behalf of ASD, it was said that the disbursement of the third tranche funds by Wallace & Wallace was not authorised by ASD and that Mr Marriner in various ways was responsible for this. The position adopted by Mr Marriner was that, this may be the case, but that he had nothing to do with it.[65]

237 The conclusion the Court of Appeal reached on the question of whether there was a breach of trust was that his Honour erred in holding that Wallaces were not liable for payments made in breach of the solicitor's trust, because they did not act dishonestly. The Court held that '[a] trustee is strictly liable for any breach of trust, even if the breach is entirely innocent.'[66]

238 Accordingly, against that background, under the orders made by the Court of Appeal, the starting point for the remitted hearing is the breaches of trust committed by Wallace & Wallace, the solicitors.

Are any of the findings of fact made by the original trial judge relevant, binding or to be regarded by the Court as having any significance at all for the determination of the remitted issues? (Issue (v))

239 A question arose at the outset as to what use, if any, the Court hearing the remitted issues may make of the findings made by the original trial judge, where they were not expressly overturned by the Court of Appeal. In other words, are those findings of fact relevant, binding or of any significance on the remitter?

240 Senior Counsel for the Marriner parties contended that the Court of Appeal did not interfere with any of the findings of the original trial judge in relation to the third tranche bond monies other than to find that his Honour was in error in finding that there had been no breach of the solicitor's trust. He said that the matter was remitted to the trial division judge to deal with questions in respect of which his Honour did not make findings, that the trial division judge should not make findings on matters that his Honour made findings on, and that the task of the trial division judge on the remitter was simply to deal, as best one could, with the questions remitted but on the basis that the findings of the learned trial judge remain as findings of fact to the extent that he made them.

241 Senior Counsel for ASD, on the other hand, submitted that because the Court of Appeal had remitted a discrete set of questions in respect of which there are no relevant findings, the trial judge should not start with any presumptions or any of the findings that his Honour made. He said that none of the credit findings and none of the findings of fact that his Honour made are relevant; rather, the only background facts that are relevant are those (agreed) facts established from the decision of the Court of Appeal, and critically, it fell to the judge on the remitter to resolve all debates about the nature of the trust.

242 These competing views were developed by counsel during the course of the hearing. Each referred me to a number of cases dealing with the nature of the hearing on a remittal.

243 Before turning to consider any guidance that may be gleaned from the cases, it is useful to first consider the background to, and the reasons the Court of Appeal gave for, the remittal of issues 3, 4 and 5.

244 The starting point was the Court of Appeal observed that there was considerable evidence before the Court bearing on the question of whether Mr Marriner had authorised Mr Jephson to request Wallace & Wallace to make disbursements from the monies held in trust, 'whilst at the same time knowing of the facts that would have indicated to an honest and reasonable person that the payments would have been made from monies held on trust for ASD'.[67] Against that background, their Honours said as follows:

Issue 3. Did Marriner procure breaches of trust by Jephson in relation to the $853,200 held on trust by Wallaces?

[164] We have considered that evidence, which came primarily from Jephson, Penridge and Marriner, but we do not set it out here because we have concluded that this issue should be remitted to a judge in the trial division. Our principal reasons for reaching that conclusion are:

(i) we do not have the assistance of any fact-finding or analysis by the trial judge on the question whether Marriner procured or induced the innocent breach of trust by Wallaces;

(ii) the arguments on appeal as to the relevant evidence were somewhat fragmentary;

(iii) we have not had the advantage of detailed argument (or indeed much argument at all) as to the nature of the applicable legal principles and their interaction with the fact-findings that might be open.

[165] We think that it would be unfair to both sides to reach any conclusion in those circumstances and it is preferable that they each have an opportunity to fully ventilate these issues before a judge in the trial division.

Issue 4. Did Marriner induce or assist a breach of trust by directing Wallaces to pay $80,000 from the third tranche moneys to a third party?

[166] For the foregoing reasons, we would also remit to the judge the question whether Marriner is liable for procuring or inducing a breach of trust in relation to the $80,000 paid to the WS Group.

Issue 5. Were Goldworthy, Laguna Australia and Stage Design liable for inducing or assisting Wallaces to breach the third tranche trust or as knowing recipients of the proceeds of the breach?

[167] The judge held that these companies were not liable for inducing or assisting Wallaces to breach the trust because there was no evidence that they had any involvement other than by receiving accounts from creditors, which were then directly paid out of the Wallaces' trust account.

[168] His Honour also held that they could not be held liable as knowing recipients of trust proceeds under the first limb in Barnes v Addy. He said:

The critical aspect of this claim is their guilty knowledge. This must be the knowledge of Mr Marriner, as no other person or entity was suggested to have had such knowledge. What then is said to be Mr Marriner's knowledge? I have found that he did not concern himself with matters such as the source of funds within the corporate group for payment of creditors. He certainly knew that substantial sums were due to many if not most or all of the creditors which received payments from Wallace & Wallace. He was doubtless content that the debts should be paid. There is no evidence, however, that he knew that they were paid from the third tranche funds. There is no evidence that he knew at the time of payment that these creditors had in fact been paid. In these circumstances, the knowledge of the companies within the Marriner group, which benefited from the payments, cannot be greater than his. This claim against those companies must therefore fail in turn.[68]

[169] As the question of Marriner's liability is to be remitted, the question of the liability of his companies, which depends on much the same evidence, should also be remitted.[69]

245 Accordingly, the Court of Appeal set aside the orders made by the original trial judge and remitted the specified issues (including the defences and related counterclaims) to 'a judge of the Trial Division'.[70] The orders made also left open the prospect that further evidence may be sought to be adduced at the hearing of the remitted issues.

246 The order for remitter made by the Court of Appeal is a limited one, in the sense that it is not an order for a complete re-trial - the Court of Appeal did not direct or require that the judge was bound to hear the whole case afresh. On the contrary, the orders made and the reasons for judgment delivered envisaged that the parties would 'fully ventilate these issues [ie, issues 3, 4 and 5 and the applicability of any defences and related counterclaims] before a judge in the trial division' who would make findings on the basis of the evidence adduced at the original trial, and any new evidence. These findings would be in addition to such of the findings of the original trial judge that were upheld by the Court of Appeal, and aided by the Court of Appeal's decision on the points of law considered.

247 It is clear that once the Court of Appeal made an order setting aside the orders made by the original trial judge, the findings made by his Honour (save for those upheld by the Court of Appeal) ceased to have any legal binding effect.[71]

248 In my view, of the cases to which I have been referred on this point, the approach taken by Heerey J in Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd (No 8) offers the most useful guidance in the present case.[72] In Cadbury v Darrell Lea (No 8), the Full Court of the Federal Court had upheld an appeal by Cadbury on the ground that the trial judge, Heerey J, wrongly excluded evidence that Cadbury sought to adduce from three expert witnesses.[73] Cadbury sought an order for a new trial but their Honours directed that the matter be remitted to Heerey J for further hearing.[74]

249 On the remittal, a question was raised before Heerey J as to the findings made in his earlier judgment, in circumstances where Cadbury challenged the finding or sought a different finding on the same topic. His Honour found that, because the Full Court had remitted the matter to him for the purpose of 'continuing' the trial and not for the purpose of a new trial, the findings in his earlier judgment would provide an 'analytical framework' for the continuation of the trial but be regarded as 'tentative or provisional' with 'no legal binding effect'. [75]

250 In my view, the position in the present case is not dissimilar. The Court of Appeal has remitted the matter essentially because of an absence of consideration by the original trial judge of issues 3, 4 and 5, and so as to give the parties an opportunity to fully ventilate those matters. To the extent that his Honour made any findings about these issues (save to the extent that they were upheld by the Court of Appeal) they are clearly not binding. But his Honour did have the benefit of seeing the witnesses, and I readily acknowledge the 'natural limitations' that exist in a judge of the trial division proceeding to make findings based wholly on the record, particularly where serious allegations are involved.[76] Accordingly, I propose to regard the findings reached by his Honour 'as tentative or provisional', and whilst clearly not binding, I consider them available to me as part of the analytical framework for determining the issues as raised and argued by the parties on the remitter.

When Wallace & Wallace received the third tranche bond monies, for whom did they hold them on trust? (Issue (i))

251 On the hearing of the remitted issues there was a dispute between the parties about whether the whole of the third tranche bond monies were received by Wallace & Wallace and held on trust for ASD.

252 The Marriner parties contended that the fact that some of the funds from the third tranche were allocated to different client files, as directed by Mr Jephson, meant that those clients were the beneficiaries of the solicitor's trust. ASD on the other hand contended that this was not an issue at all as the Court of Appeal had conclusively determined that the third tranche bond monies were received by Wallace & Wallace in their capacity as solicitors for ASD and that all of the monies were held for ASD as beneficiary regardless of whatever internal accounting entries Wallace & Wallace may have made.

253 It will be recalled from the factual narrative that in February 2001, at about the time when the third tranche bond monies were received by Wallace & Wallace, Mr Jephson sent a fax to Wallace & Wallace and attached a spreadsheet of payments required to be made from the funds transferred from the Bank of Queensland. In August 2001, when Mr Patience requested Mr Penridge of Wallace & Wallace to provide information regarding the disbursement of the third tranche bond monies, Mr Penridge set out a schedule particularising the manner in which these funds were disbursed, as follows:

less PAYMENTS AS DETAILED ON TRUST ACCOUNT STATEMENT (96978)

254 The original trial judge noted that these files and details of the application of the money were described by Mr Penridge as follows:

File 95925 - This file is described as 'Planning and Title Advices Club Villas'. The sum was applied in payment of a Wallace & Wallace account dated 28 December 2000 addressed to Laguna Airport.

File 96835 - This file is described as 'Laguna Quays Airstrip Advices'. The sum was applied in payment of a Wallace & Wallace account dated 29 December 2000 addressed to ASD.

File 98444 - This file is described as 'Laguna Australia Airport Pty Ltd purchased from ASD'. The sum was applied in payment of a Wallace & Wallace account dated 16 January 2001 addressed to Laguna Airport C/- 189 Flinders Lane, Melbourne.

File 96989 - This file is that dealing with the purchase of land for the runway by Laguna Airport from Mr Erbacher. In fact there were two contracts to purchase land from this vendor. This file deals with the purchase of an area of about 11 hectares being part of Lots 16 and 33 which was required for the runway extension. The purchase price was $82,000 and the sum $83,200 allocated to this file was paid into a separate trust account in the name of Erbacher in accordance with Mr Jephson's instruction of 19 February as 'settlement funds for Erbacher transaction.'

Account 96978 - this was described as the 'General Advices File'. The trust ledger for this file shows the client to have been ASD. It was from this account that payments were made at Mr Jephson's direction.[77]

255 At this point in his reasons, his Honour observed that:

For my present purposes, the position is that the third tranche funds were received by Wallace & Wallace for its clients ASD and Laguna Airport, and, with the possible exception of $86,500 which was paid to Mr Marriner's solicitor in Colac, the third tranche funds were applied for the benefit of the Laguna Quays project.[78]

256 He also found that except for one payment, being the sum of $80,000 that was applied at Mr Marriner's own direction on 22 May 2001, the third tranche funds were dealt with by Wallace & Wallace as directed by Mr Jephson.[79]

257 On the remittal, the Marriner parties fastened upon his Honour's 'finding' (set out above) that the third tranche funds were received by Wallace & Wallace for its clients 'ASD and Laguna Airport'. They contended that it is a finding of fact that was not challenged on appeal, and not overturned on appeal, noting that the Court of Appeal actually reproduced that passage from his Honour's judgment in its reasons.[80] The Marriner parties then used this 'finding' as a basis for contending that the fact that the third tranche funds were allocated to different client files, some held in the name of ASD and some in the name of Laguna Airport, rendered the consequence that those respective clients were the beneficiaries of the solicitor's trust arising in respect of the file.

258 I reject this argument. In my view, when regard is had to the whole of the reasons of the Court of Appeal, it is clear that the Court has conclusively determined this issue. The circumstances in which the Village Roadshow bond was replaced and the ASD bond monies came to be held by the Bank of Queensland were set out by the Court of Appeal under the heading 'Undisputed facts' at paragraphs 15-28 of their reasons.[81] In reaching their conclusions on the third tranche bond monies issue, the Court of Appeal separately addressed the question of 'Who was the beneficiary of the solicitor's trust?' The Court of Appeal noted that there was an agreement in place that 'Penridge would act for ASD with respect to the Resort pending completion of the acquisition arrangement'[82] and observed that the 'third tranche bond moneys were received by Wallaces in February 2001, after the 30 June 2000 Heads of Agreement were entered into, but before the sale of the Resort was finally completed in November 2001.'[83] In these circumstances, the Court found that there was no basis for disturbing the original trial judge's finding that the third tranche was held on a solicitor's trust for ASD.[84] The Court of Appeal also noted that in his separately published reasons dismissing Mr Marriner's counterclaim, his Honour reiterated his finding that the third tranche bond monies were held by Wallace & Wallace in their capacity as solicitors for ASD.[85]

259 Against that background, it is difficult to understand how the 'finding' of the original trial judge that is relied upon by the Marriner parties, which appears in his Honour's judgment under the heading 'The Application of the Third Tranche Funds' and was expressed to be made '[f]or my present purposes', can co-exist alongside the Court of Appeal's ultimate finding concerning ASD's ownership of the third tranche bond monies.

260 In my view, the Court of Appeal conclusively determined that the third tranche funds were received by Wallace & Wallace in their capacity as solicitors for ASD. Accordingly, it follows that ASD was relevantly the beneficiary of those funds notwithstanding any internal accounting entries Wallace & Wallace may have made on instructions from Mr Jephson. Furthermore, I do not accept the implicit suggestion of the Marriner parties that a direction from Mr Jephson to Mr Penridge that the monies received into the trust account on behalf of ASD were to be paid or allocated to particular files, could operate to create a trust in favour of the client in whose name the file was held rather than ASD, the beneficiary of the solicitor's trust.

Whether Mr Marriner is liable for knowingly inducing or immediately procuring all or only some of the breaches of trust by Wallace & Wallace? (Issue (viii))

ASD's pleading of the claims for liability under the principle in Eaves v Hickson

261 The claims made against Mr Marriner and his associated companies based on liability under the principle in Eaves v Hickson are pleaded against the background of the claims made against Wallace & Wallace for the unauthorised disbursement of the third tranche bond monies. In essence, in paragraphs 59-61 of the Further Amended Statement of Claim, ASD pleads that:

• Between February 2001 and June 2001 Mr Marriner knew that:

o he had requested Wallace & Wallace to seek the release of the third tranche funds, and Wallace & Wallace had applied to Ergon Energy to do so;

o Ergon Energy had delivered up the Bank Guarantee and the sum of $853,200 had been paid into Wallace & Wallace's trust account without the knowledge, consent or authority of ASD;

o Mr Jephson, on the instructions and directions of Mr Marriner, or of Mr Marriner acting for and on behalf of Goldworthy, Laguna Australia, Laguna Australia Airport and Stage Design, had provided instructions to Wallace & Wallace to make disbursements of the Trust Moneys;

o Mr Marriner himself, or acting for and on behalf of Goldworthy, Laguna Australia, Laguna Australia Airport and Stage Design, had provided instructions to Wallace & Wallace to disburse the sum of $80,000 from the Trust Moneys.

• At all relevant times Mr Marriner knew that the Trust Moneys in the sum of $853,200 were held by Wallace & Wallace on trust for the benefit of ASD.

• In the premises, Mr Marriner 'knowingly induced and procured Wallace & Wallace as trustee of the Trust Moneys to commit a breach of trust and disburse the Trust Moneys without the knowledge, consent or authority of ASD' (emphasis added).

262 ASD contends that Mr Marriner should be held liable for the breaches of trust committed by Wallace & Wallace on the basis that he procured those breaches. ASD says that whilst Wallace & Wallace's breaches of trust were innocent, they were 'immediately procured' by Mr Marriner (in the case of the $80,000 which Marriner directed Wallaces to pay the WS Group) and (in respect of the balance of the monies, being the sum of $773,200) were 'knowingly induced' by him, in circumstances where he had knowledge of matters that would have indicated the relevant facts to an honest and reasonable person. In other words, ASD's case is that Mr Marriner is liable for the breach of trust constituted by his direction to Wallace & Wallace to pay the $80,000 and he is also liable for the breaches of trust directed by Mr Jephson, because (so it contends) Mr Jephson acted with Mr Marriner's authority.

263 In the case of the other Marriner companies, ASD also contends that Goldworthy, Laguna Australia and Stage Design should be held liable to the extent of their involvement as Mr Marriner's knowledge is to be attributed to them.

264 On the remittal, Mr Marriner contends that the case as pleaded and run at trial by ASD was an 'all or nothing case' - in essence, that Mr Marriner was said to be the creator and instigator of the whole scheme; that there was one scheme undertaken by Mr Marriner, and a single breach of trust.

265 Senior Counsel for the Marriner parties submitted that at trial the case against Mr Marriner was never run by ASD as one focussing on the scheme divided into its component parts, where each component part is alleged to have been procured and instigated by Mr Marriner. In these circumstances, he submitted that it is not open to the Court to conclude that Mr Marriner is liable for only some of the breaches, when the case against him was pleaded and conducted on an 'all or nothing' basis.

266 I reject this submission, essentially for the reasons advanced by ASD. First, perusal of the pleading confirms that ASD's case was not pleaded on an 'all or nothing' basis. In context, the pleading of 'a' breach of trust by Wallace & Wallace does not convey the notion that ASD is pursuing only the entirety of the third tranche monies. On the contrary, it is clear that ASD contends that Mr Marriner knowingly induced or procured Wallace & Wallace to disburse the third tranche monies in breach of trust and without ASD's knowledge, consent or authority, and that ASD now seeks to recover compensation from Mr Marriner for that loss and damage. The disbursement of those funds is said to have taken place on the basis of instructions that Mr Jephson provided to Wallace & Wallace 'on the instructions and directions of Mr Marriner' and also on the basis of instructions that Mr Marriner himself provided. To the extent that loss or damage is made out, it seeks recovery from both Mr Marriner and his associated companies.

267 Secondly, it seems clear that the Court of Appeal did not regard ASD as having conducted its case on an 'all or nothing' basis. The Court of Appeal remitted 'Issue 4', which concerned the payment of $80,000 that was the subject of direction by Mr Marriner personally on 22 May 2001, as a separate issue, thereby confirming that the Court did not regard ASD as being precluded from obtaining judgment for some but not all of the third tranche funds.

268 The relevant passages of ASD's pleading identify and give particulars of the alleged conduct on the part of Mr Marriner that ASD relied upon at the original trial for the Eaves v Hickson claims made. In this regard, I note that the oral instructions said to have been given by Mr Marriner to Mr Penridge on 22 May 2001 that are relied upon by ASD for both the claim against Wallace & Wallace and the claims made against Mr Marriner under the Eaves v Hickson principle are stated as being 'to apply $80,000 from the Trust Moneys to purchase land for the benefit of Laguna Australia'. No specific mention is made of Mr Marriner's instructions or 'authorisation', as recorded in Mr Penridge's file note of 22 May 2001, 'to draw a cheque for the sum of $80,000 from the Erbacher file made payable to WS Group.' This was a matter that both the original trial judge and the Court of Appeal specifically mentioned in their reasons.

269 The trial judge noted that 'Mr Marriner's unauthorised instruction of 22 May 2001 directing Wallace & Wallace to apply $80,000 of ASD's funds is not the subject of a separate claim' and thus said he would 'say nothing further about it.'[86] The Court of Appeal also repeated his Honour's observation in their reasons for decision.[87] However, when the Court of Appeal came to consider the grounds of ASD's cross-appeal relating to the third tranche bond monies, their Honours nevertheless stated that those grounds raised the following issues:

(a) If Wallaces held the third tranche on either a solicitor's trust or a Quistclose trust for ASD, should the judge have inferred that Marriner procured or induced a breach of that trust by instructing Jephson to direct the disbursement of the $853,200 held on behalf of ASD in Wallaces trust account (cross-appeal ground 3)? It was contended that his Honour erred in holding that it was necessary to show that Jephson had acted on the specific instruction of Marriner.

(b) Did Marriner's direction to Wallaces to pay $80,000 to the WS Group on 22 May 2001 amount to inducing or assisting Wallaces' breach of trust (cross-appeal ground 2)?[88]

270 In the Court of Appeal's reasons, these issues as framed above, effectively became 'Issue 3' and 'Issue 4' respectively, as follows:

Issue 3. Did Marriner procure breaches of trust by Jephson in relation to the $853,200 held on trust by Wallaces?

Issue 4. Did Marriner induce or assist a breach of trust by directing Wallaces to pay $80,000 from the third tranche moneys to a third party?

271 The identification of 'Issue 4', dealing with the isolated payment of $80,000 to the WS Group on 22 May 2001, as a separate issue clearly suggests that the Court of Appeal did not approach the case advanced by ASD as an 'all or nothing case'. Rather, having noted that Mr Marriner's instruction to Mr Penridge to pay this amount was not the subject of a separate claim, the Court of Appeal nevertheless recognised that two quite separate issues arose in the context of the solicitor's innocent breach of trust, and proceeded to identify, 'Issue 4' as a discrete issue. That this is so is clear from their Honours' introductory comments to the topic of 'What principles determine liability for procuring or inducing an innocent breach of trust?', where they summarised the main point in issue as follows:

We now turn to the main point in issue, which is whether his Honour erred in holding that Marriner was not liable for any breach of trust which occurred as a consequence of Jephson's directions, or for the payment of $80,000 which Marriner directed Wallaces to pay the WS Group. As we have said, this issue was dealt with very briefly by his Honour, because he held that Wallaces had not breached the solicitor's trust.[89]

272 Furthermore, when remitting the further issues to be determined, the Court of Appeal framed its order in terms of the liability of the respective Marriner parties 'for the breaches of trust committed by Wallace & Wallace' (emphasis added).

273 In circumstances where issue 4 has been clearly identified by the Court of Appeal as an issue for separate determination on the remitter, I am not persuaded that ASD is foreclosed or precluded from now arguing that issue as a separate ground. Accordingly, I reject the 'all or nothing argument' advanced by the Marriner parties.

Knowingly inducing or procuring an innocent breach of trust - what are the relevant legal principles?

274 When considering the question of the applicable principles for procuring an innocent breach of trust - in context, plainly a reference to the innocent breaches of trust by Wallace & Wallace - the Court of Appeal observed that:

the state of knowledge required for Marriner to be held liable for the disbursement instructions given by Jephson was not clearly argued at the trial, or, for that matter, on appeal (perhaps due to time constraints).[90]

275 Further, when discussing the question of what level of knowledge is required to be demonstrated where it is alleged that a third person has procured or induced an innocent breach of trust under the principle in Eaves v Hickson, the Court of Appeal noted that in Australia 'it has not been decided whether the level of knowledge which makes a third party liable for procuring a dishonest breach of trust also applies to a third person who procures or induces an innocent breach of trust under the principle in Eaves v Hickson.'[91]

276 The Court of Appeal observed that in Farah Constructions Pty Ltd v Say-Dee Pty Ltd,[92] the High Court expressed reservations about the 'objective standard' formulated by the Privy Council in Royal Brunei Airlines SDN BHD v Tan.[93] In particular, the High Court pointed to the:

distinction between rendering liable a defendant participating with knowledge in a dishonest and fraudulent design, and rendering liable a defendant who dishonestly procures or assists in a breach of trust or fiduciary obligation where the trustee or fiduciary need not have engaged in a dishonest or fraudulent design[94]

as a matter for further consideration in an appropriate case. The High Court stated:

Until such an occasion arises in this Court, Australian courts should continue to observe the distinction mentioned above and, in particular, apply the formulation in the second limb of Barnes v Addy.[95]

277 Thus, in Farah Constructions the High Court found it:

unnecessary to decide now how far Royal Brunei, and subsequent decisions in the House of Lords and Privy Council,[96] have modified the second limb of Barnes v Addy or, rather, restated the form of liability operating antecedently to and independently of Barnes v Addy, and if so, whether these changes should be adopted in Australia.'[97]

278 In addressing the question of liability under the second limb of Barnes v Addy, the High Court referred with approval to the 'Eaves v Hickson line of cases', as follows:

Before Barnes v Addy, there was a line of cases in which it was accepted that a third party might be treated as a participant in a breach of trust where the third party had knowingly induced or immediately procured breaches of duty by a trustee where the trustee had acted with no improper purpose; these were not cases of a third party assisting the trustee in any dishonest and fraudulent design on the part of the trustee.[98]

279 Against that background, in the context of identifying the matters arising for decision in the present case, the Court of Appeal observed as follows:

Given the approach taken by the High Court in Farah Constructions, it is not open to this Court to hold that Marriner could be held liable for inducing an innocent breach of trust because he knew of matters which would have put an honest or reasonable person on inquiry as to whether the disbursements being directed by Jephson were being made out of money held on trust for ASD.

Farah Constructions was concerned with the knowledge required to bring a third party within the second limb in Barnes v Addy. However, in deciding whether Marriner should have been held liable for procuring or inducing an innocent breach of trust by Wallaces, the question posed by the High Court in Farah Constructions may well be relevant in determining whether Marriner could be held liable for procuring that breach of trust.

Assuming that the principles applicable where it is sought to make a person liable under the second limb in Barnes v Addy also apply in the Eaves v Hickson situation, the relevant question would be whether Marriner had knowledge of circumstances which indicated the relevant facts to an honest and reasonable person (rather than merely putting that person on inquiry). Those relevant facts would be that Jephson was directing these payments to be made out of moneys of ASD. ...[99]

280 The Eaves v Hickson line of authorities establishing a separate cause of action for 'knowingly inducing or immediately procuring' a breach of trust are of long-standing. Indeed, Fyler v Fyler,[100] the first case in the Eaves v Hickson line, was decided well before Lord Selborne LC delivered his seminal remarks in Barnes v Addy in 1874.

281 In Eaves v Hickson, the father of two beneficiaries to a will knowingly provided a forged certificate of his marriage to trustees, and as a consequence, the trustees innocently paid out funds to his children, believing that they were legitimate. The father was held liable for the loss because he knew that his actions would result in the funds being paid out in breach of the trust.

282 In Australia, the first reported case to have considered the Eaves v Hickson principle appears to be Elders Trustee and Executor Co Ltd v E G Reeves Pty Ltd.[101] In Elders Trustee, the question arose of whether the respondents, who were not fiduciaries, nevertheless became accountable for breaches of duty by GGI (who was manager of a unit trust) and O'Dea (who was a director of GGI) in not making certain disclosures that the applicant submitted should have been made. The trial judge, Gummow J, described the basis of the liability as follows:

...I turn to consider whether the respondents, although not directly fiduciaries, nevertheless became accountable for breaches of duty by GGI and O'Dea in not making the disclosures Elders submits should have been made.

The respondents would be accountable on this basis if they had knowingly induced or immediately procured breaches of duty by O'Dea and GGI in the sense revealed by such authorities as Eaves v Hickson [1861] EngR 831; (1861) 30 Beav 136; 54 ER 840, and Midgely v Midgely [1893] 3 Ch 282 at 301, 304. On the facts as I have found them Reeves and his company did not act as instigators or persons immediately procuring any of the conduct in question on the part of GGI or O'Dea.

Alternatively, liability might arise from the application of what has come to be regarded as the principles laid down by Lord Selborne LC in Barnes v Addy (1874) LR 9 Ch App 244 at 251-2. The many and complex authorities in this field (including those in Australia) are analysed and discussed by Mr Charles Harpum in his two part article 'The Stranger as Constructive Trustee' (1986) 102 LQR 114, 267, and also in his shorter article 'Liability for Intermeddling with Trusts' (1987) 50 MLR 217. The question here concerns the 'second limb' of Barnes v Addy, namely whether there was participation with knowledge in a dishonest and fraudulent design on the part of O'Dea and GGI.[102]

283 In Elders Trustee, whilst Gummow J was prepared to 'approach the matter on the basis that there were duties of disclosure by GGI and O'Dea and that they were deliberately not observed',[103] his Honour nevertheless found 'on the materials before [him] and in the circumstances of this case' that there was 'no participation on the part of the respondents in any such dishonest and fraudulent design.'[104] He stated:

I find that Reeves and his company, did not have the necessary 'knowledge' of the designs of O'Dea and GGI. This is so whether by knowledge one is identifying (a) actual knowledge, (b) wilful shutting of the eyes to the obvious, or (c) knowledge of circumstances which would indicate the facts to an honest and reasonable man, even if the moral obtuseness of a defendant prevented him from recognising the impropriety involved. Categories (a) and (b) represent what the common law would regard as knowledge in such a case [citations omitted]. Category (c) is drawn from what was said by Gibbs and Stephen JJ (with whom Barwick CJ agreed) in Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373.[105]

Are 'knowingly induced' and 'immediately procured' alternative bases for liability under the principle in Eaves v Hickson? (Issue (iii))

284 ASD contended that there are effectively two limbs to the principle in Eaves v Hickson, as explained by Gummow J in the passage from his judgment in Elders Trustee, set out above.[106] ASD submitted that the first limb, 'knowing inducement', is dependent on knowledge, whereas the second limb, where a party has 'immediately procured' a breach of trust, is not dependent on knowledge. Further, ASD said, in the present case, the Court of Appeal failed to consider the applicability of the second limb as a separate issue, notwithstanding that Gummow J's observations in Elders Trustee indicated that liability would arise if wrongdoers acted as 'instigators or persons immediately procuring' the breaches. That is, so ASD maintained, the concept of 'immediate procurement' or 'instigation' of a breach of trust is not one which depends upon knowledge as a prerequisite to the establishment of liability, save perhaps that it might be necessary for the wrongdoer to know that the funds in question are trust funds held for a beneficiary. Further, ASD contended that in circumstances where the basis for the trustee's liability is strict liability, as the Court of Appeal found here, rather than dishonesty, the liability of the third party is likewise not dependent on dishonesty.

285 The Marriner parties on the other hand contended first, that liability depends on the accessory having knowledge of the breach of trust, and secondly, that the accessory must have instigated or driven a scheme relating to the breach of trust. They contended that the Eaves v Hickson line of cases does not support the existence of two separate bases of liability, only one of which depends on the stranger's knowledge. Further, that the passage from Gummow J's judgment in Elders Trustee does not support ASD's contention that liability for procuring a breach of trust does not depend on the accessory's knowledge.

286 Against the background of those rival contentions, I turn to consider the other cases in the Eaves v Hickson line.

287 In Fyler v Fyler, a trustee invested trust monies in an unauthorised investment, and it was alleged that his solicitors had knowingly induced the trustee to commit that breach for their benefit. Lord Langdale MR, in dealing with the alleged liability of the solicitors, posed the question: 'Did they knowingly induce him [the trustee] to commit a breach of trust?'[107] The claims against the solicitors, on which the plaintiff bore the onus,[108] were dismissed for want of evidence. Lord Langdale MR noted that the breach of trust consisted in the acceptance of a security that was not authorised by the trust rather than in the misapplication of the money given as a consideration for the mortgage. His Lordship continued, to observe:

The trustees having, without authority, procured and accepted in lieu of so much stock, an unauthorised but ample security for so much money, became responsible for any future loss traceable to that first error. Upon consideration it appears to me, that solicitors who knowingly procured this to be done for their own benefit, ought to be considered as partakers in the breach of trust; but the case should be proved, and not founded on uncertain and perhaps altogether untrue inferences.[109]

288 These passages from the judgment suggest that in considering the underlying principle of accessorial liability, Lord Langdale MR did not ascribe fundamentally different meanings to the two limbs of 'knowingly induced' and 'immediately procured'. Indeed, it will be noted that having posed the relevant question in terms of whether the solicitors 'knowingly induce[d]' the breach of trust, his Lordship answered in terms of 'knowingly procured', thus confirming that knowledge is a component of both limbs.

289 A few years later, in Attorney-General v Corporation of Leicester,[110] Lord Langdale MR again had occasion to consider the principle. In that case, a municipal corporation was the trustee of a trust fund and its town clerk, Mr Burbidge, had used trust funds for his own benefit. Lord Langdale MR found that both the municipal corporation and the town clerk were liable for the corporation's breach of trust. His Lordship commenced his judgment by expressing surprise at the points that had been raised before him, observing 'nothing being more clear than the principle on which this Court proceeds.'[111]

290 In describing the sort of conduct that is required to establish the liability of the town clerk as an accessory, Lord Langdale MR did not use the language of 'inducement' or 'procurement' but rather that of 'direction, 'interference' and 'assistance'. He referred to his decision in Fyler v Fyler and said that what mattered was that the intermeddler knew that he was inducing or assisting a breach:

Now, in the first place, it cannot be disputed, that if the agent of a trustee, whether a body corporate or not, knowing that a breach of trust is being committed, interferes and assists in that breach of trust, he is personally answerable, although he may be employed as the agent of the person who directs him to commit that breach of trust. (See Fyler v Fyler, [1841] EngR 463; 3 Beav. 550, and the cases cited.)

...

I am surprised to find that there is any doubt in a case of this kind. ... It seems to me clear that the Corporation were answerable for the misemployment of the trust funds; and it is perfectly clear also that Burbidge is answerable for he, the agent of the trustees, knew and was aware of it all, and he, for his own profit and his own advantage, employs this money in a way contrary to the trust, and at the same time pays to the mayor, contrary to the trust, as it would seem, the interest of this money for his own use. A more gross breach of trust, therefore, I hardly ever heard of than this seems to have been.[112]

Here again, the passage makes clear that Lord Langdale MR regarded Mr Burbidge's knowledge of the breach as being essential to the establishment of the cause of action.

291 In subsequent decisions, the courts have accepted that a person could be held liable for the knowing inducement of an innocent breach of trust. In Alleyne v Darcy,[113] the executrix and trustee lent out funds on an unauthorised security. The loan was negotiated by a solicitor who acted not only for the executrix and trustee but also for the borrowers. The Court held that the solicitor was aware of two key things, namely (1) the nature of the fund and (2) that the loan was a breach of trust.[114] The Lord Chancellor held that, unlike the facts of Fyler v Fyler, where the solicitors did not induce their client to commit a breach of trust, the solicitor in this case had knowingly 'involved himself' in the breach of trust. The Lord Chancellor stated:

I have therefore come to the conclusion that Mr Darcy is not in the mere position of an attorney, but must be considered as having advised Mrs Alleyne to lend this money to parties whose possession of any portion of the fund was in itself a breach of trust, and as having involved himself in the responsibility of the transaction. Upon these grounds, I think Mr Darcy must be held liable to make good the money, and pay the costs of the suit.[115]

Once again, knowledge was regarded as an essential element of the cause of action.

292 Reference has already been made to Eaves v Hickson. There the Court found that Mr Knibbs, the father of the illegitimate children, had sent to the trustees what he 'must have known' to be a forged marriage certificate, so as to induce them to make the payments to his children in breach of trust.[116] Sir John Romilly MR held that Mr Knibbs was liable to replace the fund, to the extent that it was not recovered from his children, and to do so in priority to the liability of the trustees.[117] It is clear that the Master of the Rolls regarded knowledge as an essential element of the cause of action.

293 In Midgely v Midgely,[118] two aunts, acting through their solicitor, Mr Plant, loaned money to a nephew in 1880. When the nephew died in 1891, part of the loan remained outstanding and so in 1892, with Mr Plant's assistance, the aunts sued the executors for the debt. The executors disagreed on the appropriate response - one co-executor, the defendant, wished to pay the debt but the other, the plaintiff, wished to have the Court determine the matter. The latter prevailed and when proceedings were commenced, the Court held the debt was irrecoverable due to lapse of time. Notwithstanding that decision, the defendant, acting at the instigation of Mr Plant, drew a cheque on the executor's account for the amount of the debt in favour of Mr Plant,[119] who cashed it and held the proceeds to the order of the aunts. Thereupon the plaintiff sued the defendant, Mr Plant and the aunts and succeeded in obtaining an order for recovery. As the money was held by Mr Plant, there was no difficulty in recovering it, and so the main question before the Court became the respective liability of the various parties for their costs.

294 Their Lordships were unanimous in upholding the decision of Romer J at first instance that Mr Plant ought be held liable to pay the costs. Lindley LJ held him liable because the money was in his control when the writ was issued and 'the money was got by him by a deliberate scheme to get it paid out of the fund out of which I have already held it was not legally recoverable.'[120] Lindley LJ said Mr Plant was 'the fons et origo of the whole of this mischief' - and in circumstances where he was 'the instigator and schemer of the whole thing', the trial judge was justified in making a decree against him.[121] Lopes LJ reached the same conclusion for similar reasons. He observed that Mr Plant seemed 'to have been the instigator of this matter from beginning to end' - he 'passed the bounds of legitimate zeal' and was 'a great deal more active in the matter than he was called on to be.'[122] A L Smith LJ found that Mr Plant was liable because he was 'the originator of all this' (ie, the scheme in question).[123]

295 In the present case, the Marriner parties contend that the language of the decision in Midgely v Midgely is important in terms of understanding the 'sense' of the conduct required to attract liability under the principle in Eaves v Hickson.[124] They submitted that in Midgely v Midgely and the other cases in the line, 'the liability of the stranger hinged on his knowledge of the breach of trust' and arose in a context where the stranger had embarked upon a deliberate course of conduct designed to achieve a particular end. They contended that putting to one side any differences between 'inducement' and 'procurement', the underlying concept of instigation 'connotes deliberate conduct geared to the achievement of an end (ie, the transfer or payment of trust funds).' They noted that in Fyler v Fyler, 'in particular, there was a question whether the evidence permitted a finding that the stranger was an instigator in this sense'.

296 The Marriner parties also relied on the decision of the Northern Territory Court of Appeal in Syrimi.[125] In that case, Angel J, with whom Martin CJ and Gallop J concurred, applied the principle in the Eaves v Hickson line of cases and found that the Syrimis procured the breach of fiduciary duty on the part of the Uellendahls in transferring the land in question to Allora Pty Ltd and were accountable as fiduciaries. His Honour said:

The Syrimis, undermining the loyalty of the Uellendahls and directly or indirectly gaining thereby, induced the Uellendahls to breach their fiduciary obligation to the Hinds.

They knew of the fiduciary relationship between the Uellendahls and the Hinds, or at least the circumstances indicating the fact of that relationship and such as to indicate to honest people that impropriety was involved: Consul Development Pty Ltd v DPC Estates Ltd [1975] HCA 8; (1975) 132 CLR 373 at 398, 412; Elders Trustee and Executor Co Ltd v E G Reeves Pty Ltd [1987] FCA 332; (1988) 78 ALR 193 at 239. This Court can safely infer the Syrimis knew that a transfer to Allora Pty Ltd would constitute a breach of fiduciary obligation and would be dishonest: (citations omitted).

The Syrimis procured the breach of fiduciary duty on the part of the Uellendahls in transferring the land to Allora Pty Ltd and are accountable as fiduciaries pursuant to such authorities as Eaves v Hickson and Midgely v Midgely (citations omitted)... Whether these authorities are to be treated separately from Barnes v Addy (supra), as Gummow J treated them in Elders Trustee and Executor Co v Reeves [1987] FCA 332; (1988) 78 ALR 193 at 238-239 , or - in Australia at least - as part of a yet to be formulated larger whole is unnecessary to decide. I am of the opinion the Syrimis are liable to the Hinds as fiduciaries.[126]

It is clear that Angel J regarded knowledge as an essential element in the cause of action.

297 A similar view was expressed in Metropolitan Petar v Mitrevski.[127] Brereton J, having cited the relevant passage from the judgment of the plurality in Farah Constructions (at [161]-[164]), stated:

In my view, the effect of what the High Court here said is that quite apart from accessorial liability under the so-called first and second limbs [of Barnes v Addy], a stranger to a trust can still be held liable for breach of trust on the footing of knowingly inducing or immediately procuring a breach of trust. This is consistent with the emphasis that the second limb is not exhaustive. In distinction from the decisions, referred to above, in the Red Book Case,[128] it involves an element of knowledge.

Unlike the so-called first limb, but like the second limb, liability on this basis does not depend on receipt of the trust funds. Accordingly, the 'knowledge' requirement should be treated as the same as that for the second limb. This accords with the High Court's description of this basis of accessorial liability in Say-Dee as 'rendering liable a defendant who dishonestly procures or assists in a breach of trust or fiduciary obligation where the trustee or fiduciary need not have engaged in a dishonest or fraudulent design' [Say-Dee, [163]], which in turn requires 'consciousness of those elements of the transaction which make participation transgress ordinary standards of honest behaviour' [Say-Dee, [165]].[129]

298 More recently, the decision of the Full Court of the Federal Court in Grimaldi also confirms that knowledge is an essential element in this cause of action.[130] In Grimaldi the Full Court considered, amongst other things, a third party's participatory liability in a breach of fiduciary duty and the relevant categories of knowledge. In a joint judgment, their Honours set out the applicable legal principles, relevantly as follows:

It is accepted in this country that Lord Selborne's ex tempore observations in Barnes v Addy did not provide an exhaustive statement of the circumstances in which, and the bases on which, a third party's participation in another's breach of fiduciary duty or breach of trust, could render that person accountable in equity as a 'constructive trustee' (to use the commonly adopted but often unhelpful formula): Farah Constructions at [161].

...

The fact findings in this case reveal, potentially, four quite different manifestations of such participation...

...

The third is where the third party knowingly induces or procures a breach of trust or breach of fiduciary duty whether for his or her own, or for another person's, benefit. As with corporate alter ego cases, it is not necessary to show any dishonest or fraudulent design here [citations omitted].

...

What the above appears to illustrate is that participatory liability as it evolved in equity in cases prior and subsequent to Barnes v Addy was not based on inflexible formulae. Given the variety of circumstances in which, and bases on which, a third party could be characterised as a wrongdoer in equity - and we have not here referred as well to third party participation, for example, in a breach of confidence or the abuse of a relationship of influence: see eg Bank of New South Wales v Rogers [citation omitted] - varying importance has been given to three matters: (i) the nature of the actual fiduciary or trustee wrongdoing in which the third party was a participant; (ii) the nature of the third party's role and participation, eg as alter ago, inducer or procurer, dealer at arm's length, etc; and (iii) the extent of the participant's knowledge or, assumption of the risk of, or indifference to, actual, apprehended or suspected wrongdoing by the fiduciary. [131]

299 In the Harpum article cited in the passage from Grimaldi reproduced above, the author observed:

In cases of knowing inducement and assistance, the stranger may never have received any part of the trust property. The foundation of liability in each case must surely be the stranger's deliberate act in bringing about, either directly or indirectly, a breach of trust. To induce a breach of trust implies an act of conscious volition, which suggests that the stranger must be aware of or wilfully close his eyes to, the existence or terms of the trust.[132]

300 In a recent article titled 'Knowing Assistance',[133] The Hon. William Gummow AC referred to Fyler v Fyler and Eaves v Hickson in the context of considering the mental element required for accessorial liability. In his concluding remarks, he emphasised that the:

over refinement in the English cases of categories of 'knowledge' sufficient for the attribution of third party liability ... would have been avoided by emphasis that what is involved is a 'jury question'. The issue often is one of the sufficiency of evidence for the case to go to the fact finder for decision.

The better view of all species of accessorial or participatory liability is that they are not based upon inflexible formulae, nor are they parasitic upon pre-existing property rights. Rather, the liability is 'fault based', in the sense of responding to what in the eye of a court of equity is unconscientious conduct. The participation of the third party may be presented by a range of circumstances; these may include activity as a participant, inducer or procurer. The morally obtuse, as elsewhere in the law, are not excused, but the rigours of constructive notice do not operate here. [134]

301 Having reviewed the approach taken by the courts in the Eaves v Hickson line of cases, my view is that for strangers to be held accountable in circumstances where they have knowingly induced or immediately procured breaches of duty, the adverb 'knowingly' applies to both the inducement and procurement limbs. Accordingly, I do not accept the point of distinction that ASD advanced in its identification of the two separate limbs.

What knowledge and level of knowledge (if any) is required for inducing and/or procuring an innocent breach of trust? (Issue (ii))

302 Having found that knowledge is an essential element of the cause of action, the question then arises as to what matters the stranger must have knowledge of in order to attract liability. As Harpum noted in his article (referred to above), the principle underlying Eaves v Hickson type liability is that a stranger 'who acts in a manner that is inconsistent with a trust of which he is cognisant, thereby causing loss, or obtaining for himself an unmerited gain, should be accountable',[135] and the foundation of the liability is 'the stranger's deliberate act in bringing about either directly or indirectly, a breach of trust.'[136] Thus, for accessorial liability to be established, it seems clear that the stranger must be aware of the nature of the funds in question; that is, that the funds are trust funds held for a beneficiary. Knowledge of the nature of the funds necessarily carries with it knowledge that the payment the stranger has induced or procured is a breach of trust.

303 The second question is what level of knowledge is required? The early cases in the Eaves v Hickson line referred to above provide some guidance as to what the courts regarded as sufficient to establish the requisite knowledge.

• In Fyler v Fyler, Lord Langdale MR observed that the solicitors 'had the means of knowing, and possibly did know' of the existence of the trust, but this was not proven on the evidence.[137]

• In Attorney-General v Corporation of Leicester, Lord Langdale MR found Mr Burbidge was answerable 'for he, the agent of the trustees, knew and was aware of it all'.[138]

• In Alleyne v Darcy, the Lord Chancellor held that the solicitor was aware of two key things, namely the nature of the fund and that the loan was a breach of trust.[139]

• In Midgely v Midgely, the Court found that the solicitor, Mr Plant 'knew all that transpired' because he was the solicitor for the aunts and was 'the fons et origo' of the whole saga that ensued.[140] That is, the third party was held liable for inducing an innocent breach of trust, in circumstances where the third party had actual knowledge that the breach was occurring and actively instigated it.[141]

• In Elders Trustee, Gummow J found that Reeves and his company did not have the necessary knowledge of the designs of O'Dea and GGI. His Honour said this was so 'whether by knowledge one is identifying (a) actual knowledge, (b) wilful shutting of eyes to the obvious, or (c) knowledge of circumstances which would indicate the facts to an honest and reasonable man, even if the moral obtuseness of a defendant prevented him from recognising the impropriety involved.'[142]

• In Syrimi, Angel J found that the Syrimis knew of the fiduciary relationship between the Uellendahls and the Hinds, or at least the circumstances indicating the fact of that relationship and such as to indicate to honest people that impropriety was involved.[143] Thus the Court could safely infer that the Syrimis knew that a transfer to Allora Pty Ltd would constitute a breach of fiduciary obligation and would be dishonest.

305 In the present case, the Court of Appeal noted that while there remains some controversy about the level of knowledge that is required to be shown in respect of someone who has induced or procured a breach of trust, the High Court has effectively stated that courts should proceed to apply the law or knowledge as laid down in Consul Developments as the relevant test.[144] That is, the 'knowledge' requirement should be treated as being the same as that which applies under the second limb in Barnes v Addy. Accordingly, knowledge of circumstances which would put an honest or reasonable person on inquiry would not make a third person liable for inducing a dishonest breach of trust, but each of the following would be sufficient to establish the requisite knowledge: (1) actual knowledge; (2) a deliberate shutting of one's eyes to the breach; (3) a calculated abstention from making enquiries which an honest and reasonable person would make; or (4) actual knowledge of the facts which, to a reasonable person, would suggest a breach of trust.[145] That is the approach I propose to adopt.

What effect, if any, does the Briginshaw standard have on the standard of proof required to make good ASD's allegation that Mr Marriner knowingly induced or immediately procured the breach(es) of trust by Wallace & Wallace? (Issue (vi))

306 The Marriner parties contended that the allegations made in this proceeding are serious and raise issues of importance and gravity in the Briginshaw v Briginshaw sense.[146] In that regard, the Briginshaw principle,[147] now reflected in s 140(2)(c) of the Evidence Act 2008 (Vic), requires that the Court take into account 'the gravity of the matters alleged.' As a practical matter, what this means is that 'the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove.'[148] Accordingly, the Marriner parties submitted, that while the issues must be determined 'by reference to the balance of probabilities', the Court should be 'conscious of the gravity of the allegations'[149] and ought not be satisfied that a serious allegation has been established unless the preponderance of evidence is so substantial as to establish it clearly.[150] They say that the inference must be 'compelling', whereas ASD contends that the requisite standard of proof remains the balance of probabilities, taking into account the seriousness of the allegations.

307 The allegation that Mr Marriner knowingly induced or procured the innocent breach(es) of trust by Wallace & Wallace constitutes a serious attack on his integrity. Being 'serious' matters, the Court is required to take account of the gravity of the allegations and when assessing the proof available it must look for a degree of confidence commensurate with them. In my view, a Court would not lightly make such a finding.

308 Furthermore, where there is a lack of direct evidence and the case sought to be advanced by the plaintiff is a circumstantial one, based on inferences drawn from actual facts, the test remains the same. What the plaintiff is required to establish is that the inference it seeks to draw is one that arises on the balance of probabilities from the established facts. In Bradshaw v McEwans Pty Ltd,[151] the High Court explained the process the Court undertakes in relation to the assessment of circumstantial evidence, as follows:

Of course as far as logical consistency goes many hypotheses may be put which the evidence does not exclude positively. But this is a civil and not a criminal case. We are concerned with probabilities, not possibilities. The difference between the criminal standard of proof in its application to circumstantial evidence and the civil is that in the former the facts must be such as to exclude reasonable hypotheses consistent with innocence, while in the latter you need only circumstances raising a more probable inference in favour of what is alleged. In questions of this sort, where direct proof is not available, it is enough if the circumstances appearing in evidence give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is mere matter of conjecture: see per Lord Robson, Richard Evans & Co Ltd v Astley (1911) AC 674, at p. 687. But if circumstances are proved in which it is reasonable to find a balance of probabilities in favour of the conclusion sought then, though the conclusion may fall short of certainty, it is not to be regarded as a mere conjecture or surmise: cf. per Lord Loreburn (1911) AC, at p. 678.[152]

309 ASD also referred to Tinkerbell Enterprises v Takeovers Panel [2012] FCA 1272; (2012) 208 FCR 266 where the relevant principles were helpfully summarised by Collier J,[153] by reference to Bradshaw v McEwans Pty Ltd,[154] Luxton v Vines,[155] Holloway v McFeeters,[156] Jones v Dunkel,[157] Girlock (Sales) Pty Ltd v Hurrell,[158] and Trustees of the Property of Cummins v Cummins.[159] ASD submitted that of these various formulations, that set out in Holloway v McFeeters,[160] dealing with the circumstances required to make out a claim against the nominal defendant, is most apt for present purposes. There, Williams, Webb and Taylor JJ said:

Inferences from actual facts that are proved are just as much part of the evidence as those facts themselves. In a civil cause 'you need only circumstances raising a more probable inference in favour of what is alleged . . . where direct proof is not available it is enough if the circumstances appearing in evidence give rise to a reasonable and definite inference; they must do more than give rise to conflicting inferences of equal degree of probability so that the choice between them is mere matter of conjecture: see per Lord Robson, Richard Evans & Co. Ltd. v. Astley (1911) AC 674, at p 687 . . . All that is necessary is that according to the course of common experience the more probable inference from the circumstances that sufficiently appear by evidence or admission, left unexplained, should be that the injury arose from the defendant's negligence. By more probable is meant no more than that upon a balance of probabilities such an inference might reasonably be considered to have some greater degree of likelihood'. These passages are extracted from the unanimous judgment of this Court (Dixon J, as he then was, Williams, Webb, Fullagar and Kitto JJ.), in Bradshaw v. McEwans Pty. Ltd. (Unreported, delivered on 27th April 1951). We should think that, applying these principles to the present case, inferences sufficiently appear from the circumstances to which we have referred that make it at least more probable than not that the unidentified vehicle was being driven in a negligent manner at the time of the accident and that this was the cause of the accident.[161]

310 I do not read the two passages set out above as formulating different tests. In my view, for present purposes, what ASD must demonstrate is that the inference it seeks to draw, namely that Mr Marriner had knowledge of circumstances that would have indicated the relevant facts to an honest and reasonable person, is the more probable one which arises from the established facts.

Whether Mr Marriner had knowledge of circumstances that would have indicated the relevant facts to an honest and reasonable person? (Issue (iv))

311 The gist of the case advanced by ASD was that, even though both Mr Marriner and Mr Jephson denied that Mr Jephson was at all relevant times acting on instructions given by Mr Marriner, nevertheless Mr Marriner unquestionably knew what was happening with respect to the third tranche bond monies. ASD submits that starting with the events in mid-October 2000, when Mr Marriner signed off on the payment arrangement with JJ McDonald, Mr Jephson was, within days, actively seeking out sources of cash with which to make the further payments due to JJ McDonald. ASD says that Mr Jephson was effectively doing Mr Marriner's bidding in seeking out available funds - he found some funds available at the Cumberland resort, and then started looking elsewhere for more. Within weeks he wrote to the Bank of Queensland seeking the release of the electricity bond monies.

312 ASD contends that Mr Marriner knew all about the electricity bond monies, having negotiated the original arrangement whereby they could be repatriated in three tranches. In those circumstances, ASD says it is open to the Court to draw a very strong inference that it was Mr Marriner who told Mr Jephson to look for money - effectively telling him to get his 'hands on the bond money or as much of it as [he] possibly can ASAP'. Further, ASD contends that because of his dealings with the Erbacher transaction, which ASD says 'had Mr Marriner's fingerprints ... all over it from start to finish', the Court can draw the inference that what happened with the third tranche bond monies is the same as happened with the second tranche bond monies - that is, that Mr Marriner was behind it all and had knowledge to the requisite level of what was going on.

313 ASD argued that to establish liability on the part of Mr Marriner in respect of (what it termed) the 'first limb' of Eaves v Hickson, for knowingly inducing a breach of trust, it was not necessary for it to demonstrate that Mr Marriner specifically directed Mr Jephson to instruct Wallace & Wallace to disburse the funds. In this regard, ASD relied upon the observations made by the Court of Appeal in respect of the second tranche of the electricity bond monies, to the effect that:

If the evidence gave rise to the inference that Marriner authorised Jephson to do what he did, knowing that the moneys were to be paid out of the second tranche, this would have been sufficient to make him liable for the breach of trust.[162]

Accordingly, so ASD contended, an inference that Mr Marriner authorised Mr Jephson will be sufficient to show that he knowingly induced the breach of trust by Wallace & Wallace.

314 ASD also relies on what took place after all of the third tranche bond monies had been paid out. It says that inferences can be drawn from that conduct, albeit after the event, to support the inferences ASD contends arise concerning the making of the payments. ASD contends that when Mr Marriner was confronted by Mr Patience and Mr Frost and asked about the way in which the third tranche bond monies were dealt with, he advanced several different explanations as justification for what took place. At first he said that cl 10(d) of the 30 June 2000 Heads of Agreement allowed him to use the bond monies by way of reimbursement for monies spent by the Marriner parties in relation to Laguna Quays. At the trial, however, the defence that was run was effectively that Mr Marriner knew nothing about the receipt by Wallace & Wallace of these trust monies and the payments made from them, contending that it was something that Mr Jephson did on his own initiative. ASD submits that this changing version of events is indicative of Mr Marriner's cognisance of guilt, pointing out that neither of these 'defences' was proffered by Mr Marriner when Mr Patience first raised the matter with him in August 2001.

315 Further, to the extent that Mr Marriner was involved in inducing or procuring the breach of trust, ASD contends so the relevant companies associated with him were also involved.

Summary of Marriner parties' contentions and defences

316 The Marriner parties on the other hand contend that under the principle in Eaves v Hickson the liability of an accessory depends on the stranger having 'knowledge' of the breach of trust and requires that the stranger must have instigated or driven a scheme relating to the breach of trust. They contend that the foundation of the liability is the stranger's deliberate act in bringing about the breach of trust, in circumstances where the stranger must have been aware of or wilfully closes his eyes to the existence of the terms of the trust.

317 The Marriner parties contend that the present case is similar to Fyler v Fyler, in that there is no compelling evidence that Mr Marriner instigated the scheme in question. They submit that ASD's case fails to establish any deliberate conduct on the part of Mr Marriner that was geared to the achievement of a breach of trust. They maintain it is not sufficient to establish liability merely to show that Mr Marriner 'authorised' Mr Jephson to act 'within the scope of his duties' and that Mr Jephson did so when dealing with the third tranche funds.

318 Further, they say, putting the $80,000 payment to one side, the case presented in respect of the balance of the third tranche funds is a circumstantial one, where the evidence is consistent with alternative hypotheses which are at least as likely, if not more likely, than the conclusion for which ASD contends.

319 In the case of the $80,000 payment directed by Mr Marriner, the Marriner parties contend that ASD's claim suffered from a critical deficiency, namely a failure to show that Mr Marriner was aware of the trust. They say the authorities make clear that ASD was required to prove that, when Mr Marriner gave his transfer instructions of 22 May 2001, he was aware that the funds in question were trust funds. However, they contend the evidence does not establish knowledge on the part of Mr Marriner that the funds in the Erbacher account had come from the third tranche funds; rather, the evidence gives rise to a number of conflicting and equally probable inferences, and to choose one inference over another would necessarily entail speculation and conjecture.

320 They further rely on findings made by the original trial judge in respect of the third tranche funds and generally, which they contend were not overturned or otherwise disturbed by the Court of Appeal. In particular, they rely on the following findings:

• The original trial judge was 'unable to find' that, in his dealings with the third tranche funds, Mr Jephson acted in accordance with Mr Marriner's specific instructions;[163]

• There is no evidence that Mr Marriner knew at the time of payment that creditors of his companies were paid from the third tranche bond monies;[164]

• Mr Marriner had no knowledge at the time of payment that these creditors had in fact been paid.[165]

321 The Marriner parties also relied on other findings made by his Honour to the effect that:

• Mr Marriner's 'eye was on the big picture rather than the fine detail and that this applied particularly to his dealings with creditors';[166]

• Mr Jephson was responsible for dealing with Mr Marriner's creditors;[167]

• Mr Marriner's lack of attention to detail, or perhaps as a result of 'a conscious decision on his part not to know too much about these matters' meant that he gave Mr Jephson a 'fairly free rein' in dealing with creditors;[168] and

• There was no evidence to show that Mr Marriner was aware of the source of funds on which Mr Jephson called to pay creditors.

Findings in respect of the third tranche bond monies

322 The relevant question for determination concerning the third tranche bond monies is, as the Court of Appeal noted,[169] whether Mr Marriner had knowledge of circumstances which would have indicated to an honest and reasonable person (rather than merely putting that person on inquiry) that (a) the payments Mr Jephson was directing Wallace & Wallace to make; and (b) the payment of $80,000 that Mr Marriner directed be made, would in each case be made from monies held on trust for ASD.

323 That question falls for determination in a context where there is no evidence of any specific instruction or direction having been given by Mr Marriner to Mr Jephson to contact Wallace & Wallace to make arrangements to pay the third tranche funds to creditors. Similarly, there is no evidence that Mr Marriner knew that creditors had been paid from the third tranche funds.

324 In those circumstances, it is necessary to look at all of the established facts together and then to see what are the probable inferences to be drawn, bearing in mind the gravity of the matters alleged. It is only then that one can proceed to determine whether Mr Marriner relevantly had knowledge of circumstances which would have indicated to an honest and reasonable person that the payment of $80,000 he directed, and the balance of the payments that Mr Jephson directed Wallace & Wallace to make, would be made from monies held on trust for ASD.

Mr Marriner set in train the process for releasing the third tranche bond monies

325 It is clear that Mr Marriner raised directly with Mr Penridge of Wallace & Wallace in late January or early February 2001 the prospect of securing the release of the third tranche bond monies, and Mr Penridge agreed to do whatever was necessary to arrange that. When Mr Marriner initiated and set that process in train, he had no authority to do so on behalf of ASD, in the sense that he had ceased to be a director of ASD, Laguna Investments and Laguna Management on 3 November 2000, following the entry into the November 2000 Heads of Agreement.

Mr Marriner was aware that the approval of the ASD board was required for dealings with the bond monies

326 Mr Marriner was aware from his experience with the release of the first tranche of the electricity bond monies in 1999 that the approval of the ASD board was required in order to deal with the bond monies. On that occasion, Mr Marriner drew the matter to the attention of the board of ASD and sought and obtained permission to spend the first tranche of the bond monies towards the cost of 'sealing a section of the Midge Point Road adjacent to the Resort.'

327 In the case of the third tranche bond monies, Mr Marriner did not inform ASD that he had initiated steps for the cancellation of the bond and release of the third tranche funds. In their defence, however, the Marriner parties deny that Mr Marriner knew that the payment of the balance of the third tranche funds was not done with the knowledge, consent or authority of the board of directors of ASD.

328 On 6 February 2001, in accordance with the instructions he had received from Mr Marriner, Mr Penridge wrote to Ergon Energy, purportedly on behalf of the owners of Laguna Quays, to request the release of the bond. On 12 February 2001, when Mr Penridge became aware that there was no need to have a meeting with Ergon Energy to discuss the matter, he reported back to Mr Marriner to let him know that, and ascertained that Mr Marriner was content for the request to be dealt with on the basis of the letter of request that Wallace & Wallace had sent. The very next day, Mr Jephson contacted Mr Penridge and told him that he would send an authority to Ergon Energy to release the funds to Wallace & Wallace's trust account and give him a list of the accounts to pay with the money received.

329 It seems clear that there must have been some communication between Mr Marriner and Mr Jephson prior to that contact being made - the bond was not due for repayment at that time in the ordinary course, and it is most unlikely that Mr Jephson would have embarked on that course independently and unilaterally, without any prior knowledge of what had transpired between Mr Penridge and Mr Marriner. I note also that Mr Jephson at that point had no authority to act on behalf of Laguna Management, or indeed ASD, having ceased to be the company secretary of each entity on 19 January 2001. By this stage he had commenced employment with one of Mr Marriner's companies, Stage Design, where he reported to Mr Marriner and no one else.

330 The evidence was that Mr Marriner and Mr Jephson worked together for some years. Mr Jephson reported to Mr Marriner. Mr Marriner was a very busy man and he relied on Mr Jephson to perform his role autonomously with a minimum of supervision. Mr Marriner said that he relied extensively on a lot of his senior management. In particular, Mr Marriner relied on Mr Jephson for his knowledge about 'available funds'. It will be recalled that in mid-October 2000, when Mr Marriner was dealing with Dr Greig of JJ McDonald about establishing a payment regime to address the outstanding amounts, Mr Marriner called Mr Jephson on the speakerphone to enquire whether there were funds available to meet ASD's debt to JJ McDonald, before he committed to the letter of 16 October 2000.[170] That exchange suggests that the relationship between them was one where Mr Marriner depended upon Mr Jephson having up to date and accurate information. For that arrangement to be workable, Mr Jephson needed to be kept apprised of developments. In that sense, the prospect of the release of the third tranche bond monies was information that was relevant for Mr Jephson to know.

331 In cross-examination, Mr Jephson said he did not recall any conversation with Mr Marriner before he telephoned Mr Penridge on the morning of 13 February 2001 to discuss making arrangements for the release of the funds to Wallace & Wallace, but he conceded that he may well have spoken with Mr Marriner. In those circumstances, I find the inference is open, and it is reasonable to infer, that Mr Marriner did inform Mr Jephson of the substance of his conversation with Mr Penridge and that Mr Jephson thereby became aware there was no real obstacle to the cancellation of the bond and that it was likely the third tranche funds would be able to be released in the near future.

In mid-February 2001, Mr Jephson effectively took control of the matter

332 From that point, in mid-February 2001, Mr Jephson effectively took control of the matter. As noted in the factual narrative, he telephoned Mr Penridge on 13 February 2001 and said he would arrange to send a letter to the Bank of Queensland requesting the release of the third tranche bond monies to Wallace & Wallace's trust account. Under cross-examination, Mr Marriner denied that he had spoken with Mr Jephson about sending the letter to the Bank of Queensland. He said 'No, I wouldn't have been talking to Peter about this at all'. He did accept, however, that at this point Mr Jephson was working for him and was physically located at Mr Marriner's offices. If it be the case that Mr Marriner did not talk to Mr Jephson about it, then it is likely that was because he did not need to. That is, given their working relationship, which was established over a significant period first with the Marriner organisation and then with ASD during the joint venture, I infer that it was probably sufficient for Mr Marriner to know that Mr Jephson was seized of the matter. In other words, Mr Marriner knew that once Mr Jephson was aware that it was likely the third tranche monies would become available to be released, Mr Jephson would take whatever steps were required for that to happen. It does not follow, however, in my view that Mr Jephson was required to or would have kept Mr Marriner informed of all he did once the third tranche bond monies were released to Wallace & Wallace, or that Mr Marriner would have known of the instructions Mr Jephson gave to Wallace & Wallace in respect of them.

333 Mr Penridge never questioned the authority of Mr Marriner or Mr Jephson to give instructions in relation to the third tranche monies. He said that Mr Marriner (amongst others) had told him that under the arrangements for the sale of Laguna Quays resort, all bond monies were to go to Mr Marriner.

334 After his initial discussion with Mr Marriner about the release of the third tranche funds, Mr Penridge met with Mr Blackwell from WS Group, Mr Marriner, Mr Whalley and Mr Spence at Laguna Quays resort for several hours on 17 February 2001 to discuss a number of matters. Mr Penridge made a file note of the meeting but he could not recall any discussions about the electricity bond having taken place at that meeting. He said that if it had been discussed, he would have made a note of it. This evidence tends to confirm that after the initiating steps were taken in relation to the third tranche bond monies, Mr Marriner was no longer directly involved.

335 Once the Bank of Queensland informed Mr Jephson that the funds were available, he gave instructions to Wallace & Wallace as to how they were to be disbursed. The details of the instructions given are set out in the factual narrative above. Save for the one payment of $80,000 (discussed below) that was applied by Wallace & Wallace at Mr Marriner's own direction, the balance of the third tranche electricity bond monies were disbursed by Wallace & Wallace according to directions given by Mr Jephson. In summary, Mr Jephson directed that various invoices rendered by Wallace & Wallace be paid, that the sum of $86,500 be paid to the trust account of Larkins McCarthy in Colac, and the remaining balance was to be paid to various creditors of Mr Marriner's companies to discharge other debts relating to Laguna Quays for which ASD contended it was not liable.[171]

336 Mr Marriner says that he was unaware of the instructions that Mr Jephson gave to Mr Penridge. There is no direct evidence to show that Mr Marriner was aware of the manner in which Mr Jephson directed Mr Penridge to disburse the third tranche bond monies. Nor is there any direct evidence that Mr Marriner knew the source of funds on which Mr Jephson called to pay creditors or, in particular, any evidence that he knew at the time of payment that creditors of his companies were paid from the third tranche bond monies. Each of Mr Marriner and Mr Jephson denied that Mr Marriner spoke with Mr Jephson about the invoices etc to be paid or the instructions to be given to Wallace & Wallace. None of the documents recording the instructions given by Mr Jephson were endorsed as being copied to Mr Marriner.

337 ASD contends that the inference that Mr Marriner authorised Mr Jephson to effect the payments is compelling. It relied in particular on the fact that Mr Marriner set in train the process for securing the release of the bond monies, and the evidence that Mr Jephson was acting within the scope of his duties and he reported to Mr Marriner and to no-one else. ASD submits that in the absence of any clear and credible explanation from Mr Marriner as to how some of the third tranche funds came to be paid to, among others, his family's solicitors, Larkins McCarthy in Colac, for the benefit of Goldworthy, an associated company, the Court should infer that Mr Marriner authorised Mr Jephson to direct Wallace & Wallace to make the payments, knowing that the bond monies were ASD's.

338 I shall deal with the evidence of each of Mr Jephson and Mr Marriner on this topic in turn.

339 Mr Jephson gave evidence about the payment of accounts. He described his role as company secretarial, preparing reports for the board, general office duties and paying invoices that were submitted to him. Under cross-examination he said that if an invoice 'correctly authorised' was presented to him he would pay it. He was then asked whether he sought guidance from Mr Marriner about the payment of particular accounts or about administrative matters on a day to day basis, to which he responded by saying 'I didn't generally need any guidance.' That response prompted the following exchange:

Are you saying that in reality there was no-one supervising you? Is that what your evidence is?---I didn't need supervision.

You may not have thought you needed it but was anyone in fact performing the role of supervising you?---No.

I suggest to you that it was Mr Marriner. What do you say to that?---Well, I deny that suggestion totally.

I suggest to you that the person that you were reporting to on a regular basis, and the only person, was Mr Marriner. What do you say to that?---No.

No?--- That's not correct. I was reporting to the board of directors.

Mr Jephson then proceeded to explain that directors telephoned him, and they were in and out of the office on a regular basis, but said he did not seek guidance or instruction from them. This response provoked the following line of cross-examination:

You wouldn't ask - there were no matters where you sought to get an approval from a director before you authorised a cheque or did any matter?---No.

No?---No.

You just decided for yourself?---Correct.

If you thought it was appropriate you either paid the amount or took the action that was required; is that your evidence?---Yes

So your evidence is that you were pretty autonomous. Is that what you are saying?---Yes.

340 Mr Jephson said that he would look at budgeted expenditure for a particular project and if the project was within budget he would pay the invoice. He agreed that he did not look to see whether the board approval was for a particular type of expenditure. He said he did not discuss such matters with people like Mr Whalley. It was then put to him that he did report to Mr Marriner on issues such as the expenditure that was being incurred, but he denied that. The cross-examiner continued with this line of questioning, as follows:

So is your evidence to his Honour that whilst you were employed at [ASD] you did not have a conversation with Mr Marriner about expenditure that was being incurred at Laguna Quays? Is that your evidence?---That's correct.

Never once?---No.

341 Mr Jephson was taken to his letter of 14 February 2001, instructing the Bank of Queensland to redeem the bond and forward the funds to Wallace & Wallace. He denied the cross-examiner's suggestion that he wrote this letter at the instruction of Mr Marriner. He agreed with the suggestion that he did this 'off [his] own bat' and without reference to anyone.

342 Mr Jephson was also asked about his fax to Wallace & Wallace of 19 February 2001 directing payments to be made as per the schedule, and was questioned about the payment to be made to Larkins McCarthy. He said from memory they were Mr Marriner's solicitors in Colac but he could not recall what that payment was for. As for the payments listed in the schedule, Mr Jephson said they 'were just the invoices that needed to be paid' but he denied the suggestion that it was Mr Marriner who told him to pay them. He said: ' Nobody's instructed me to pay them. It was just part of my job to pay them.'

343 In response to a question from his Honour about whether the Larkins McCarthy payment was anything to do with Laguna Quays, Mr Jephson said that he could not recall. The cross-examiner then followed up with a series of questions about Mr Jephson's fax to Wallace & Wallace of 20 February 2001, amending the payment details for Larkins McCarthy and Goldworthy, as follows:

You see how your instruction is to reduce the amount going to Goldworthy?

---Yes

Would decrease the Goldworthy payment by $1,500?---Yes.

Making the new figure $6,650, do you see?---Yes, I see that.

You would've spoken with Mr Marriner about that, because [he] was Goldworthy, was he not?---Well, there was no need to speak to Mr Marriner.

344 His Honour also asked Mr Jephson several questions about his payment of bills. The gist of Mr Jephson's evidence in response was that there were many occasions when there were not enough funds to pay the bills, in which event, he said, '[t]he bills just didn't get paid.' Mr Jephson said he would receive letters from creditors threatening action but he did not talk to Mr Marriner or the other directors about it, he 'just managed it' or 'just dealt with it'. He said that ''[i]f there was money in Account A and it was needed in Account B, well, I would make the arrangements to - you know, have that cash used to pay the outstanding bills.' One example he gave of this practice was drawing on the reasonable amount of cash generated by the Cumberland Lorne Resort. In that case he said he may well have discussed the matter with Mr Marriner but could not recall.

345 Later, his Honour asked Mr Jephson why he chose to pay Mr Whalley's invoices for his consulting fees out of monies held in a solicitor's trust account. Mr Jephson's response was that 'the money was just sitting there.' His Honour asked whether this was at a time when he was being pressed for money - Mr Jephson responded '[w]e were always being pressed for money.' A little later, in the context of some questions about cl 10(d) of the 30 June 2000 Heads of Agreement, his Honour asked Mr Jephson:

What was [sic] the money that went to the solicitors in Colac got to do with the expending of money for the purpose of - set out there in Clause 10(d)?---I can't recall your Honour, I honestly can't recall how Larkins McCarthy was involved at that stage, I can't recall.

346 ASD submitted that Mr Jephson's denials and non-responsive answers in cross-examination were absurd and lacked credibility. In this regard, however, I observe that the evidence given by Mr Whalley in his witness statement served to corroborate the thrust of Mr Jephson's evidence. Mr Whalley effectively confirmed the autonomy under which Mr Jephson operated, Mr Marriner's instruction that executive staff were expected to inform him on a 'needs basis' but not on issues of detail, and that they should discharge their responsibilities without constant referral back to him. Mr Whalley said that Mr Jephson's role was to manage the cashflow of each project effectively and to avoid delays in the progress of construction works. He added:

On occasion the surplus in one would be applied to the immediate needs of another by inter company loan. This had always been the manner in which the accounts of ASD assets had been managed and was known to the ASD Board. At various points in the timeline of a construction project large amounts of funding would be required. If there was a delay in funding by C+bus, Jephson often met a pressing demand by funding from income and surpluses from other business activities including inter company loans. These transactions were duly recorded in the relevant ASD accounts.

347 The thrust of Mr Marriner's evidence given in his witness statement was that Mr Jephson dealt with the recovery and application of the bond monies, not him. He denied giving instructions as to how they were to be dealt with and said that neither Mr Jephson nor anyone else discussed the matter with him or informed him what had been done with those monies. Under cross-examination he reiterated that to the best of his knowledge, he had 'little or no involvement in anything to do with the administration or management of the bonds.'

348 His Honour raised with Mr Marriner the question of what interest the Marriner parties may have had in the electricity bond monies, pointing out that if they were to be regarded as repayable to Laguna Investments, rather than ASD, they might have been available to be 'applied towards the costs and expenses of converting such crown leasehold land as is part of Laguna Quays to freehold title in the name of [Laguna Australia]' under cl 10(d) of the 30 June 2000 Heads of Agreement. Mr Marriner effectively acknowledged this in response to further questions asked by his Honour. He agreed that 'freeholding' was the only legitimate application he could make for this bond money assuming it belonged to Laguna Investments. His Honour then sought to clarify how the monies would be handled, and the following exchange ensued:

HIS HONOUR: ... Then you nevertheless would have had some restriction on the use you could make of that money, having regard to the provisions in the heads of agreement that it was available for freeholding?---Yes, Your Honour.

So you couldn't just sort of put it in a general pot of money?---No, of course---

...

At that stage, apart from the payment of the last - perhaps even then too late, I'm not sure whether the $850,000 or $950,000 purchase price had been paid, but everything else had been done, had it not?---No, it hadn't been paid, Your Honour.

Everything but that had been done?---No. In fact they weren't making payments. I was being embarrassed. I was making payments on behalf of the various companies as well. So there was generally quite an extensive, if you like, mixing bowl of where funds were coming in, going to, coming out of.

...

So is that how things stood?---The - we were incurring obligations and costs from representations that I'd been making and we were facilitating those works. In a number of cases we were making those payments with the knowledge that we would be getting reimbursed. So I can't give you the exact breakup or management. At this time I had 1,600 people that I was trying to pay every fortnight. I had a whole array of companies and I'd found myself in this meltdown of a joint venture that I thought I was party to until June 2002. So in that light, Your Honour, I found it extremely difficult and I relied extensively on a lot of my senior management.

349 Mr Marriner was taken to the instructions that Mr Jephson gave to Wallace & Wallace and attention was directed to the payments to be made to Larkins McCarthy and Goldworthy. He said he knew who the firm was. His Honour asked:

...what were they doing in respect of this account?---Well it's been so long

since - - -

You don't remember?---I don't remember, Your Honour.

Is that your answer, Mr Marriner?---No. We tried to research it and we've tried to find out what it retired [sic] to, but we have been unsuccessful.

All right.

The cross-examiner then resumed his questioning of Mr Marriner:

If you go over the page do you see the instruction to Larkins McCarthy trust account?---Yes, I do.

It refers to settlements?---Yes, it does.

The sum of $86,500. Does that jog your memory?---No, it doesn't.

It's likely to be the purchase of land, is it not?---It could very well be, but at this time - no, I think we went down that path and I don't think we found it. No, I don't know to be honest.

You don't know?---I don't know.

Mr Marriner was also taken to the later instruction altering the amounts to be paid, but that did not jog his memory either. He denied that he had spoken with Mr Jephson prior to the instructions going to Mr Penridge. He was then taken through the series of faxed instructions that Mr Jephson sent to Mr Penridge and questioned as follows:

I suggest to you that in relation to each one of them, you in fact did instruct Peter Jephson to send those facsimiles to Paul Penridge at Wallace and Wallace, what do you say to that?---Mr Anderson I did not, I had no involvement whatsoever.

350 At the remitter hearing, ASD contended that Mr Marriner's reference to the 'mixing bowl' of funds was sufficient to enable the Court to find 'level 4 Baden knowledge'[172] for the purposes of this case - that is, knowledge of circumstances that would indicate the facts to an honest and reasonable man, the relevant facts being that there were funds in that mixing bowl that included the third tranche trust monies. I do not accept that proposition. First, there is no evidence that Mr Jephson told Mr Marriner in late February 2001 that the third tranche funds had been received into Wallace & Wallace's trust account or that Mr Jephson had made him aware that he was directing Mr Penridge to make payments to creditors generally from those monies held in trust. Each consistently denied having discussed with the other the instructions given to Mr Penridge. Further, His Honour's questioning of Mr Marriner also elicited the response from Mr Marriner that he was aware the bond monies 'couldn't just sort of [be] put in a general pot of money'.

351 Secondly, as will be apparent from the foregoing summary, the case against Mr Marriner in respect of the balance of the third tranche funds is a circumstantial one based for the most part on inferences to be drawn from what Mr Jephson said or did, and to some extent, Mr Penridge also. What is missing, however, is any demonstrated link, or a proper basis for inferring such a link, between the conduct on the part of Mr Jephson on the one hand and relevant knowledge of it by Mr Marriner, in particular, knowledge that payments were being made to creditors from the third tranche funds.

352 ASD focussed attention on the transaction undertaken with Larkins McCarthy as giving rise to the necessary inference, submitting that it is highly improbable that Mr Jephson would give instructions to Wallace & Wallace to pay Larkins McCarthy and Goldworthy without the knowledge and consent of Mr Marriner. It was said that the Larkins McCarthy matter was one close to him and involving his company, and thus the inference should be drawn that Mr Marriner knew that these financial arrangements were being made using the third tranche bond monies. ASD also relies on the fact that Mr Marriner did not volunteer any explanation for the Larkins McCarthy payment in his witness statement. But Mr Marriner was not obliged to do so. The onus of proof lay with ASD.

353 The Goldworthy transaction with Larkins McCarthy is not explained on the evidence before the Court. It did not appear to have any relevance to Laguna Quays. Neither Mr Marriner nor Mr Jephson could recall what it involved and there was no paperwork in the form of letters or invoices to assist. The information that was provided came from Mr Whalley. If, as he indicated, the payment related to a land purchase involving Goldworthy then some investigation of the transaction should have been possible. But Mr Marriner said 'I think we went down that path and I don't think we found it.' I apprehend that part of the difficulty the witnesses experienced in recalling the detail of what took place is probably due to the fact that this proceeding was not commenced until 2005, and the cross-examination of witnesses took place in August and September 2009 but concerned events that happened in February 2001, more than 8 years earlier. Given the effluxion of time it is perhaps not surprising that they do not recall the detail or circumstances of each payment or transaction. In this regard, I note also that even Mr Penridge, a conscientious solicitor, had difficulty recalling in 2009 the detail of the events that took place in 2001 and 2002.

354 ASD also relies upon the body of evidence that arose when ASD, through Mr Patience, began investigating the fate of the third tranche bond monies. ASD contends that inferences can be drawn from that conduct, albeit taking place after the relevant events, which support the inferences ASD says arise concerning the making of the payments.

355 Mr Penridge gave evidence about his phone conversation with Mr Marriner in early August 2001, which followed the visit by Mr Patience and Mr Lunt to his firm's office seeking information. He said he asked Mr Marriner whether there was a problem about the bond monies and if so, what was it about, because his understanding was that the bond monies were becoming the property of the Marriner companies. His recollection was that Mr Marriner said 'No, there's not. I will have Peter Jephson send you through a letter.' A letter dated 8 August 2001 was sent by Mr Jephson to him following their conversation. The letter, signed by Mr Jephson, effectively stated that the funds disbursed by Wallace & Wallace 'represent reimbursement to Laguna Australia' of the costs and expenses of converting crown land at Laguna Quays to freehold in the name of Laguna Australia, as envisaged by cl 10(d) of the 30 June 2000 Heads of Agreement. Whilst the letter was written by Mr Jephson, following the conversation that took place between Mr Marriner and Mr Penridge, it does not provide a strong basis for drawing any inference about the information available to Mr Marriner in February 2001 when the relevant events took place.

356 Next, there was the letter Mr Penridge wrote to Mr Patience on 9 August 2001, referring to 'instructions received from Mr Peter Jephson on behalf of David Marriner'. Mr Penridge said that statement reflected an assumption on his part - he assumed that Mr Marriner had directed Mr Jephson, but it was Mr Jephson who gave him the written instructions. He said it was 'possible that Mr Marriner just said to me, "Peter Jephson, he looks after all that. I will have him contact you." He could have said that to me.' I note that in his later correspondence with Mr Marriner, dated 5 September 2001, Mr Penridge referred to the instructions that he had received as being 'directions from Mr Peter Jephson to attend to payment of various accounts as directed' and said that '[p]ayment of these monies on various occasions has since been made at the direction or approval of Mr Jephson.' When giving evidence at the trial, Mr Penridge could not recall whether in his conversation with Mr Marriner in early August 2001 there was any suggestion that Mr Marriner had been unaware of the instructions being given for the transfer of the funds.

357 In September 2001, when Mr Frost asked Mr Marriner for an explanation and justification as to what had taken place with the third tranche bond monies, Mr Marriner's response conveyed the impression that, at least by then, he knew what had taken place. However, the evidence was that the 5 September letter was actually drafted by Mr Whalley in consultation with Mr Marriner, and signed by Mr Marriner. Relevant extracts from the letter are set out in the factual narrative above.[173] I note that the reference in Mr Marriner's letter to these third tranche funds as 'being the property of ASD', is perhaps the only formal indication that Mr Marriner was aware that the bond monies were the property of ASD. I say 'perhaps' because it is not clear whether the letter was responding to an assertion made by Mr Frost in those terms. Senior Counsel for ASD accepted that, framed in that way, the statement in the letter could be construed as a reference to property which is 'asserted to' belong to ASD.

358 In my view, the subsequent conduct recorded in the correspondence and relied upon by ASD does not assist to convey the clear, or more probable, impression that at the time the relevant events were taking place, Mr Marriner was aware that Mr Jephson was directing Wallace & Wallace to pay creditors from the third tranche funds that had been repatriated.

359 ASD contends that for knowledge on the part of Mr Marriner to be inferred it is sufficient to show that Mr Jephson was authorised by Mr Marriner. In my view that is not sufficient. The allegations made against Mr Marriner are serious ones. The Court is required to take account of the gravity of those allegations and when assessing the proof available it must look for a degree of confidence commensurate with the allegations. The fact that Mr Jephson was working with Mr Marriner and reported to him does not provide a sufficient foundation for the requisite knowledge to be inferred. That is, in my view, it cannot be said that the circumstances appearing in the evidence 'give rise to a reasonable and definite inference'[174] that the relevant authority Mr Marriner gave to Mr Jephson extended to him making payments to creditors of Laguna Australia and others knowing that they were to be paid out of the third tranche bond monies held on trust with Wallace & Wallace.

360 In this regard, I note that the original trial judge was 'sceptical' about the evidence that each of Mr Marriner and Mr Jephson gave to similar effect in respect of the second tranche of bond monies. His Honour thought it 'exceedingly unlikely that Mr Marriner did not have a good idea of what Mr Jephson was doing to keep the creditors at bay and that, on occasions, it was his decision whether a particular account should be paid and from what source the money should be drawn.'[175] However, his Honour acknowledged that ultimately, this was speculation on his part. In those circumstances, and notwithstanding the reservations he had expressed, his Honour determined that he would act on their uncontradicted evidence, and concluded that Mr Marriner 'did not direct Mr Jephson to apply the second tranche funds as he did' and that 'Mr Jephson, having access to these funds, applied them to such of the creditors with whom he was dealing as he saw fit.'[176]

361 For similar reasons, in the face of their uncontradicted evidence about the third tranche bond monies, I am not satisfied that it is appropriate to draw any inferences that from mid to late February Mr Marriner was aware of the manner in which Mr Jephson had directed Mr Penridge to disburse the third tranche bond monies. Accordingly, I am not satisfied that Mr Marriner directed Mr Jephson to apply the third tranche funds as he did and conclude that Mr Jephson, having access to these funds, applied them to such of the creditors with whom he was dealing as he saw fit. This includes the transfer of the sum of $86,500 from the third tranche funds to Larkins McCarthy. Whilst ASD submitted that it was highly improbable that Mr Jephson would give those instructions without the knowledge and consent of Mr Marriner, I am not satisfied that there is a proper basis for an inference to be drawn that Mr Marriner knew or must have known that these financial arrangements were being made.

The direction Mr Marriner gave to Mr Penridge on 22 May 2001

362 The position is different, however, with the direction given by Mr Marriner to Mr Penridge on 22 May 2001. In the context of those dealings, I am satisfied that there is a proper basis for inferring that from at least 22 May 2001 or thereabouts, Mr Marriner must have had relevant knowledge of the action taken by Mr Jephson or the directions that he had given. As is explained below, this is because Mr Marriner made contact with Mr Penridge on 22 May 2001 and personally gave him instructions to disburse monies held on trust on the Erbacher file and make a payment of $80,000 to WS Group.

363 Mr Penridge said that the $80,000 on the Erbacher file was money that was transferred from the electricity bond monies that Wallace & Wallace received from the Bank of Queensland. However, he believed that at the time when the request was made to transfer the $80,000 he 'did not connect the trust funds credited to the Erbacher file with the bond funds received from the Bank of Queensland.' In those circumstances, it is most unlikely that Mr Penridge would have communicated any information to Mr Marriner about the source of those funds.

364 On 22 May 2001, there was a total of $85,200 standing to the credit of the Erbacher file. This consisted of $83,200, which was transferred on 19 February 2001 at Mr Jephson's direction from the third tranche bond monies, and the stamp duty amount of $2,000, which had been transferred across from the general file maintained by Wallace & Wallace on 5 April 2001 on instructions from Mr Jephson.

365 The evidence Mr Penridge gave about the 22 May direction was based on what was contained in his brief file note headed '[ASD] Purchase Erbacher'. Mr Penridge did not recall what was said during the telephone conversation with Mr Marriner. Nor could he recall why money from the Erbacher file was to be transferred to the WS Group. But he said that he did this because Mr Marriner instructed him to do so and he added, he believed that it was the only occasion when payment instructions were given by him.

366 Mr Penridge's file note does not record any background to the request - for eg, it does not reveal why on this occasion it was Mr Marriner who contacted him, rather than Mr Jephson. It will be recalled, however, that the Erbacher transaction was one that initially was to be undertaken by ASD but when Mr Marriner was informed that the ASD board had not approved it, the purchase contracts were re-engrossed naming an entity associated with Mr Marriner as purchaser.

367 The evidence Mr Marriner gave in his witness statement was that he could not recall the telephone discussion with Mr Penridge on 22 May 2001. He added that Mr Penridge would normally seek authorisation in writing or go through the 'relevant channels' to get authority. In this instance, however, there is no evidence of anything other than a verbal instruction, which was recorded contemporaneously in writing by Mr Penridge in a file note.[177] Later, under cross-examination, when it was put to Mr Marriner that his version of events was false, he appeared to deny having spoken with Mr Penridge at all.[178]

368 Given the contemporaneous evidence in the form of Mr Penridge's file note, I am satisfied that the conversation between Mr Marriner and Mr Penridge took place in the manner and to the effect recorded in the file note.

369 Mr Penridge's file note makes clear that when Mr Marriner contacted him on 22 May 2001 he knew that Wallace & Wallace held monies in its trust account for the Erbacher purchase. There was no evidence that Mr Marriner or any of the Marriner entities had separately deposited any monies with Wallace & Wallace, in trust, pending settlement of the purchase of the Erbacher land. If, as Mr Marriner said when giving evidence at the trial, he had no knowledge of the manner in which Mr Jephson had directed Mr Penridge to disburse the third tranche bond monies, it is not apparent why Mr Marriner would make contact with Mr Penridge at all, let alone to arrange payment of the $80,000 from the Erbacher file. In making that observation, I am not (and should not be taken to be) relying on any aspect of constructive notice as traditionally understood. I am simply pointing to the absence of any obvious, or indeed logical, basis for Mr Marriner to make contact with Mr Penridge and discuss arrangements for the disbursement of monies from the firm's trust account.

370 Furthermore, I note that knowledge on the part of Mr Marriner that Wallace & Wallace held monies in its trust account for the Erbacher purchase is consistent with what is pleaded in paragraph 53(a) (and repeated in paragraph 59(i)) of the Marriner parties' Defence as follows:

(a) say that save for an oral instruction by Marriner to Penridge of Wallace & Wallace given on 22 May 2001 to apply $80,000 of the sum of $83,200 in the Wallace & Wallace Trust account in respect of Erbacher purchase monies to accounts of WS Group they deny that Marriner gave instructions to Jephson or Wallace & Wallace to disburse the Trust Moneys.

371 In cross-examination, it was put to Mr Marriner that he was aware as at May 2001 that Wallace & Wallace were holding monies in respect of the Erbacher file for settlement. He responded in terms that he 'would have perhaps been aware of it in principle' but he was 'not involved in the day to day accounting and financial matters.'[179] If he was aware 'in principle' that funds were held in the Erbacher file with Wallace & Wallace pending settlement, then in my view the inference is open that Mr Marriner must have known that those funds were not his to deal with as he saw fit. As I have noted, there was no evidence that he or any of the Marriner entities had deposited those monies with Wallace & Wallace. Nevertheless, knowing that funds were held in trust by Wallace & Wallace on the Erbacher file, Mr Marriner gave instructions to Mr Penridge to pay the sum of $80,000 to WS Group.

372 In my view, the demonstrated knowledge on the part of Mr Marriner that Wallace & Wallace held monies in its trust account on the Erbacher file, taken together with the evidence of his awareness 'in principle' permits a strong inference to be drawn that Mr Jephson must have informed him of that fact or conveyed information to him at some stage that would lead him to believe that.

373 In order to prove knowledge of circumstances that would indicate the facts to an honest and reasonable person, ASD is not required to establish actual knowledge on the part of Mr Marriner that the funds he directed be paid were sourced from the third tranche bond monies. It is sufficient to establish moral obtuseness of the kind described by Gummow J in Elders Trustee[180] or the Full Court in Grimaldi[181] if the facts permit the Court to infer objectively and on the balance of probabilities that Mr Marriner knew the funds were ASD's (or were otherwise funds to which he had no entitlement) but he nevertheless directed their disbursement.

374 I am satisfied that Mr Marriner 'knew' in the relevant sense that he had no authority to deal with the monies held by Wallace & Wallace on the Erbacher file. Nevertheless, Mr Marriner proceeded to instruct Mr Penridge to pay $80,000 of those trust monies to WS Group. In so doing, he knowingly induced or immediately procured the innocent breach of trust by Wallace & Wallace.

375 Accordingly, in respect of the direction given by Mr Marriner on 22 May 2001, I am satisfied that Mr Marriner had knowledge of circumstances which would indicate to an honest and reasonable person that the monies he directed Mr Penridge to pay to WS Group from the monies held on the Erbacher file in Wallace & Wallace's trust account were not his to use as he saw fit. In my view, knowledge of the nature of the funds necessarily carries with it knowledge that the payment Mr Marriner induced or procured is a breach of trust, and that is so even if his moral obtuseness prevented him from recognising the impropriety involved.

When drawing inferences can the Court follow a path of reasoning that applies the concepts referred to in R v Lane?[182] (Issue (vii))

376 For completeness, I note that ASD also pointed to what it contended were Mr Marriner's 'specific denials', made whilst under cross-examination, that he had spoken with Mr Penridge on 22 May 2001 about the disbursement of funds held in trust. ASD contrasted them with his earlier statements that he did not recall any such conversations. ASD contends that these denials were false, and as such they supported an inference that he knew the money was not his. ASD submitted that the motivation for Mr Marriner's false denial was that he knew that a finding that he had spoken with Mr Penridge would implicate him in having directed the disbursement of trust funds to which he was not entitled. In these circumstances, ASD argues, citing R v Lane,[183] that the false denials are explained by a 'realisation of guilt and fear of the truth' and support the inference that Mr Marriner knew at the time the money was being disbursed on his and Mr Jephson's instructions, that it was not his.

377 In the present case, I have not found it necessary to resort to reasoning of this kind. Rather, I have based the inference drawn (namely, that Mr Marriner knew the money on the Erbacher file being disbursed by Mr Penridge on his instruction was not his to deal with as he saw fit) on the admissions made in paragraphs 53(a) and 59(i) of the Marriner parties' Defence coupled with the absence of any demonstrated or logical basis for holding a belief that Wallace & Wallace held money in trust for the Marriner parties. In these circumstances, it is not necessary for me to determine this issue.

378 Nevertheless, in case the matter may go further, I set out briefly the arguments in response advanced by the Marriner parties. First, they contended that ASD's submissions do not reflect a fair reading of the evidence. There were no specific denials as contended. Rather, they submitted, when the evidence given by Mr Marriner is examined, against the background of what was said in his witness statement, it will be seen that Mr Marriner was denying the cross-examiner's suggestion that the evidence he had given in paragraph 137 of his witness statement was false, rather than denying he had spoken with Mr Penridge 'at all'. A similar position applies to the cross-examination of Mr Marriner concerning paragraph 135 of his witness statement. In denying the cross-examiner's suggestion that what was stated in paragraph 135 was false, it was said that Mr Marriner was denying in effect that he spoke to Mr Penridge 'as to how the third reduction [sic] moneys were to be applied', rather than denying that he had spoken with Mr Penridge at all.

379 When viewed in the context in which those questions were asked and answers were given, I am not satisfied that either answer given by Mr Marriner should be treated as constituting a specific denial or a deliberate lie. I did not have the opportunity to observe Mr Marriner giving his evidence but based on what is recorded in the passages of transcript before me on the remitter I am not satisfied that it would be appropriate to make any such finding.

Whether the various Marriner companies on whose letterhead the instructions to Wallace & Wallace were sent are also liable on the basis that Mr Marriner's knowledge is to be attributed to them? (Issue (ix))

380 I have found that the breach of the solicitor's trust in respect of the $80,000 was knowingly induced or procured by Mr Marriner personally. The relevant conduct did not involve or purport to be undertaken on behalf of any associated company. Accordingly, there is no basis for fixing any of them with responsibility for procuring or inducing the breach of trust. Nor was any such associated company a knowing recipient of the third tranche funds.

To the extent that some of the third tranche funds were applied to pay invoices addressed to ASD, or were spent on Laguna Quays, is ASD's loss to be commensurately reduced? (Issue (x))

381 On the hearing of the remitter, the Marriner parties also relied on the fact that the original trial judge had found that, with the possible exception of $86,500 which was paid to Mr Marriner's solicitor in Colac, the third tranche funds were applied for the benefit of the Laguna Quays project'.[184] This finding became the foundation for a defence by the Marriner parties that was not formally pleaded but was to the effect that if ASD alone (and not ASD and Laguna Airport) was the beneficiary of the solicitor's trust, then no loss was suffered by it because the third tranche bond monies were, for the most part, spent for the benefit of the Laguna Quays project which was owned by the beneficiary, and all of that expenditure was incurred legitimately. Senior Counsel for the Marriner parties submitted that it could not be a breach of trust for money from the electricity bond to be spent on the resort. Further, the Marriner parties contend that the fact that ASD derived a benefit from the third tranche expenditure meant that any loss suffered by ASD must be commensurately reduced.

382 ASD's position was that this matter was not pleaded by Mr Marriner in his defence and there was no evidence that the spending of the third tranche monies gave any benefit to ASD. Indeed, ASD said that the only evidence before the Court was that the value of the resort was falling steadily and it was losing approximately $3 million per annum. ASD contends that if Mr Marriner had wanted to argue that ASD benefited from the expenditure of the third tranche funds, and that his liability should be reduced accordingly, it was incumbent upon Mr Marriner not only to plead that claim but also 'to lead evidence identifying the work done with precision as well as expert valuation evidence to quantify the benefit to ASD that allegedly accrued'.

383 ASD also relied upon the statements made by Mr Marriner in paragraph 138 of his witness statement and in his letter (typed on Laguna Australia letterhead) to Mr Frost, the Chairman of ASD, dated 5 September 2001, explaining that the third tranche funds 'were subsequently disbursed by Wallace & Wallace and utilised for reimbursement of costs outlayed [sic] by Laguna Australia' and that '[s]uch reimbursement was effected by the payment of creditors of Laguna Australia.'

384 ASD submits that as a consequence of this evidence (and in particular the similar evidence of Mr Jephson given under cross-examination) the case was conducted before the original trial judge on the basis that the payments from the third tranche bond monies discharged liabilities of Laguna Australia or other companies controlled by Mr Marriner. ASD submitted that it would be prejudiced if Mr Marriner is now permitted to resile from that position and allege that some of the liabilities discharged were liabilities of ASD (rather than Laguna Australia), because ASD did not lead evidence or cross-examine on the basis that this was an issue.

385 I reject the Marriner parties' submission, essentially for the reasons advanced by ASD. First, the submission involves a defence that was not pleaded. It is brought forward after the trial has been conducted and all of the evidence has been heard. Secondly, the effect of the submission is to put the Marriner parties' case on a different basis to the way the trial was conducted. This new claim effectively seeks to sidestep the Court of Appeal's finding that the third tranche bond monies were paid out by Wallace & Wallace in breach of trust, albeit an innocent breach, and deny ASD the remedies that would ordinarily follow from such a breach. It is said that because the third tranche bond monies were, for the most part, spent for the benefit of the Laguna Quays project which was owned by ASD, and that all of that expenditure was incurred legitimately, ASD must have benefited. But ASD was not consulted about the making of that expenditure and there was no evidence that the spending of the third tranche monies gave any benefit to ASD. It is clear that ASD would be severely prejudiced if the Marriner parties were to be permitted to put forward their case on a different footing at this late stage.

386 The conclusion I have reached on the $80,000 payment to WS Group directed by Mr Marriner assists to demonstrate the point. In oral submissions, the Marriner parties frankly conceded that when it came to the $80,000 paid to WS Group 'we don't know whether that was on the resort or something else'. Senior Counsel for the Marriner parties stated:

[I]t is not known which invoices the $80,000 related to. No-one has been able to ascertain at any time since May 2001 which WS Group invoices were the subject of the payment of $80,000 out of the Erbacher file in May 2001, so there's simply no evidence as to what the money was spent on or who got the benefit.

... [I]t is not known which work WS Group was doing that it was paid for. For example, WS Group surveyors were involved in various aspects of the freeholding, they were involved in various aspects of the subdivisions, which were ongoing as part of the development, they were involved in various aspects of the airport. It is simply not known what the $80,000 was spent on, beyond that it went to WS Group, presumably for surveying work.

Nevertheless, he submitted that 'there would undoubtedly have been documents' that would have indicated such an amount was payable.

387 In those circumstances, even if the new claim were able to be made, it is not possible to test it and subject it to any scrutiny. Furthermore, because I regard the original trial judge's finding as tentative or provisional only, his Honour's finding that for the most part the third tranche funds were applied for the benefit of the Laguna Quays project cannot remedy the absence of any evidence about what works the $80,000 payment to WS Group responded to.

388 In my view, once the third tranche bond monies were deposited in the trust account of Wallace & Wallace they were effectively held on a constructive trust for ASD. As the original trial judge found, the ordinary trust obligation which a solicitor owes to their client required that the solicitor deal with those funds in accordance with the directions of the client.[185] To the extent that those monies were then expended by Wallace & Wallace otherwise than in accordance with ASD's instructions and in pursuance of an innocent breach of trust, ASD as beneficiary is entitled to pursue the wrongdoers for whatever remedy may be appropriate in the circumstances, including seeking equitable compensation to restore it to the position in which it would have been had there been no relevant breach of duty.[186]

389 Accordingly, in the case of the sum of $80,000 that Mr Marriner directed Wallace & Wallace to pay to the WS Group, I am not satisfied that any loss suffered by ASD must be commensurately reduced.

What is the proper construction of clause 10(d) of the 30 June 2000 Heads of Agreement? (Issue (xi))

390 In their written submissions, in the context of an argument about 'freeholding costs', the Marriner parties raised an issue about the proper construction of clause 10(d) of the 30 June 2000 Heads of Agreement. The original trial judge was not attracted to the argument and the Court of Appeal found no error in his Honour's approach. At the remitter hearing, Senior Counsel for the Marriner parties submitted that I should ignore that part of their submissions. As Senior Counsel for ASD did not suggest otherwise, I shall do so.

Affirmative defences relied upon by the Marriner parties as remitted by the Court of Appeal

391 In their reasons, the Court of Appeal referred to the affirmative defences the Marriner parties relied upon at the original trial, that were based upon the alleged misconduct of ASD and United Super in the period leading to the 19 October 2001 agreement.[187] According to these defences, it was alleged that ASD and United Super failed to disclose an intention to recover the bond monies as well as an amount equal to the excess capital expenditure.[188]

392 The Court of Appeal identified the relevant defences by reference to the original trial judge's summary of them, as follows:

The judge summarised these defences as follows:[189]

(xiii) Prior to the entering into of the 19 October 2001 agreement, ASD and United Super made certain representations to Laguna Australia which were false, as a consequence of which Laguna Australia has suffered loss which it sets off against the ASD claims.

(xiv) The representations caused Laguna Australia to assume that the subject-matter of the sale to it included the debt owed by Laguna Investments to ASD in respect of the bond money and that Fulham would later take an assignment of this debt. ASD and United Super are estopped from denying these matters.

(xv) The representations constituted misleading and deceptive conduct contrary to the Trade Practices Act 1974 (Cth) ss 51A and 52, and the Fair Trading Act 1999 ss 4(1) and (9) as a consequence of which Laguna Australia has suffered loss.

(xvi) By an entry in the relevant accounts, on or about January 2002, the asset of ASD, being the debt owed by Laguna Investments to it, representing the second and third tranche funds, was changed to a third party receivable. In the circumstances, this constituted unconscionable conduct in contravention of the Trade Practices Act s 51AA, the Fair Trading Act s 7 and the unwritten law. As a consequence, Laguna Australia and Fulham Holdings Ltd suffered loss which they set-off against the claims of ASD.

[290] The judge dealt with these defences in the following terms:[190]

The representation upon which the Marriner parties rely is that ASD and [CBUS] had or would release all claims against Mr Marriner, Goldworthy, Laguna Australia and Fulham Holdings arising out of or relating to the Laguna Quays project. It is then said that ASD and [CBUS] had no such intention. This defence, to a large extent, depends upon a rather complicated conspiracy theory mounted on behalf of the Marriner defendants, a theory which also underlay the defences of estoppel and that relating to unconscientious conduct.

In brief, it was said that, at the time that [CBUS] and ASD were agreeing the final arrangements for the sale of the Laguna project to Laguna Australia in September and October 2001, they had in mind that they would sue Mr Marriner or his companies to recover the bond money misappropriated and the excess capital expenditure which he had made. They did not disclose this intention at the time. He then caused his company to enter into the October 2001 agreement and the formal agreements entered into on 13 November 2001 to complete the sale, thinking that no such claim might be made.

There are many difficulties with this analysis. Perhaps the most obvious is that I find that ASD and [CBUS] were not guilty of this duplicity. At the time the agreements were entered into in October and November 2001, their thinking was to look to the Bank of Queensland to recover the bond money on the basis that the bank had paid it out inappropriately. Whatever might have been the strength of this contention, it was later seen as without prospect and attention shifted to Mr Marriner. Much evidence was led about a reversal entry in the ASD accounts made in January 2002. The evidence demonstrated that this entry was suggested by the auditors and for good reason. The factual basis for these defences turns out to be totally insubstantial.

393 The Marriner parties then raised lengthy grounds of appeal setting out the bases of their challenges to his Honour's conclusions. The Court of Appeal noted that 'these defences relied upon a complex web of facts and inferences' and observed that the Marriner parties submitted that the original trial judge 'did not grapple at all with the detailed evidence regarding these matters.'[191] Mr Marriner contended that the judge failed to provide adequate reasons for his decision to reject these defences.

394 The Court of Appeal found that his Honour 'failed to provide adequate reasons for rejecting these defences' and their Honours 'reluctantly conclude[d] that he did not evaluate, or fully evaluate, the considerable body of evidence involved.'[192] In those circumstances, the Court remitted this aspect of the matter 'to the same judge in case any of these defences are open to be relied upon (as to which, having regard to the state of the pleadings, we express no opinion).'[193]

395 Mr Marriner, and his associated companies Goldworthy, Laguna Australia and Fulham Holdings also brought a counterclaim, seeking damages and/or declarations against ASD, United Super and Messrs Willis, Wason, Frost and Patience, based on the same or similar matters to those the subject of the remitted defences set out above. Before the Court of Appeal, those parties contended that the original trial judge 'erred in failing to decide the counterclaim or in dismissing the counterclaim without deciding the same'.[194]

396 The Court of Appeal found it was appropriate to remit these matters the subject of the counterclaim on the same basis as before.[195]

The claims arise from a common substratum of facts

397 In oral submissions, Senior Counsel for the Marriner parties provided a 'broad brush' summary of the remitted defences and counterclaims. In essence, each of the misleading and deceptive conduct, estoppel and unconscionable conduct claims is said to arise from a common substratum of facts. In the case of the misleading and deceptive conduct and estoppel claims, the same representations are relied upon. The unconscionable conduct claim, however, does not depend on the Marriner parties making out the alleged representations.

398 At the remitter hearing, the Marriner parties' oral submissions focussed on the unconscionable conduct case. Accordingly, it is convenient to consider that case first before turning to the misleading and deceptive conduct and estoppel claims.

Did ASD engage in unconscionable conduct at common law or under s 51AA of the Trade Practices Act 1974 (Cth) or s 7 of the Fair Trading Act 1999 (Vic) (issue (xiv)) and was Mr Marriner relevantly under any 'special disadvantage' for the purposes of his claims of unconscionable conduct? (Issue (xv))

399 The unconscionable conduct claim is brought by Laguna Australia and Fulham Holdings. Each seeks relief against ASD pursuant to s 51AA of the Trade Practices Act 1974 (Cth) and the unwritten law, and against Mr Frost, Mr Patience, Mr Willis and Mr Wason pursuant to the counterpart provision of the Fair Trading Act 1999 (Vic), s 7, and the unwritten law. Against ASD, Fulham Holdings seeks an order varying the terms of the Deed of Assignment of Debt. In particular, it seeks an order restoring to the debt assigned, the amount that was 'backed out' on 1 August 2001 or some other date. (At the remitter hearing, Senior Counsel for the Marriner parties confirmed that they now relied on 31 January 2002 as the relevant date.) If restoration of the debt was achieved, Laguna Australia and Fulham Holdings contend that ASD would lose its standing to prosecute the claims pleaded against all of the Marriner defendants.

400 Alternatively, against each defendant to the counterclaim, Fulham Holdings seeks damages in the sum of $1,279,000 (being the amount equal to that part of the debt 'backed out' of the loan account). Against each defendant to the counterclaim, Laguna Australia seeks an order setting off its losses against the entitlements of ASD.

Relevant principles concerning 'unconscionable conduct'

401 Section 51AA of the Trade Practices Act 1974 (Cth) provides:

(1) A corporation must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories.

(2) This section does not apply to conduct that is prohibited by section 51AB or 51AC.

(Section 7 of the Fair Trading Act 1999 (Vic) is expressed in similar terms.) The reference to 'unwritten law' in s 51AA is a reference which includes (but is not necessarily limited to), that species of unconscionable conduct identified by the High Court in Blomley v Ryan[196] and Commercial Bank of Australia Ltd v Amadio.[197]

402 The relevant concept of 'unconscionable conduct' was explained by Kitto J in Blomley v Ryan in the following terms:

This is a well-known head of equity. It applies whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands.[198]

403 In Blomley v Ryan, Fullagar J observed that the 'common characteristic' of the circumstances adversely affecting a party which may induce a court of equity to intervene 'seems to be that they have the effect of placing one party at a serious disadvantage vis-à-vis the other.'[199]

404 In Amadio, Mason J referred to the observations of Fullagar J and Kitto J in Blomley v Ryan and observed:

It is made plain enough, especially by Fullagar J, that the situations mentioned are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition of circumstance is placed at a special disadvantage vis-à-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created.[200]

405 Mason J then continued to discuss the notion of 'special disadvantage', explaining that he qualified the word 'disadvantage' by the adjective 'special', in order to:

... disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party.[201]

His Honour added that '[b]ecause times have changed new situations have arisen in which it may be appropriate to invoke the underlying principle.'[202] He referenced, as an example, 'entry into a standard form of contract dictated by a party whose bargaining power is greatly superior'[203] noting however that in 'situations of this kind it is necessary for the plaintiff who seeks relief to establish unconscionable conduct, namely that unconscientious advantage has been taken of his disabling condition or circumstances.'[204]

406 In Kakavas v Crown Melbourne Ltd [2013] HCA 25; (2013) 298 ALR 35 ('Kakavas'), the High Court considered a claim made by a gambler who alleged that the respondent casino had engaged in unconscionable conduct. The appellant, who was a known problem gambler, alleged that the respondent had incited him to gamble at its casino by providing incentives such as rebates on losses and the offer of transport on its corporate jet. The appellant was unsuccessful at trial and on appeal. In the High Court, the thrust of the gambler's case shifted away from the proposition that the respondent had lured or enticed him into its casino, and its focus became one of 'special disadvantage'. In essence, the appellant contended that the respondent exploited 'the appellant's inability, by reason of his pathological urge to gamble, to make worthwhile decisions in his own interests while actually engaged in gambling.'[205] He also relied upon another special disadvantage, arising from the fact that at the time of his losses he was subject to an interstate exclusion order (IEO) made in New South Wales by the Commissioner of Police. Under the IEO, any winnings that were payable to the appellant by the casino as a result of his gambling activities were forfeited to the State of Victoria.

407 The Court dismissed the appellant's appeal, finding that he was not under a special disadvantage by reason of his pathological interest in gambling or by reason of the IEO.[206] In their joint reasons for judgment, their Honours considered the basis in equity for a claim for relief from unconscionable conduct and the principles upon which equitable intervention is warranted. For present purposes, the relevant principles may be summarised as follows:

• Where a claim for relief from unconscionable conduct is presented to the court, there must be 'close consideration of the facts ... in order to determine whether a claim to relief has been established.'[207] The Court said:

The invocation of the conscience of equity requires 'a scrutiny of the exact relations established between the parties' to determine 'the real justice of the case'.[208] Where an appeal is made by a plaintiff to the standards of equity embodied in the Amadio principle, the task of the courts is to determine whether the whole course of dealing between the parties has been such that, as between the parties, responsibility for the plaintiff's loss should be ascribed to unconscientious conduct on the part of the defendant.[209]

• The principle under which a court of equity grants relief from unconscionable conduct is 'not engaged by the circumstance that a plaintiff's transaction with a defendant has resulted in loss to the plaintiff, even loss amounting to hardship'.[210]
• Equitable intervention does not relieve a plaintiff from the consequences of improvident transactions conducted in the ordinary and undistinguished course of a lawful business.[211]
• The demonstration of an 'absence of a reasonable equality of bargaining power by reason of the special disability of one party to a transaction', is not decisive but is important 'given that the concern which engages the principle is to prevent victimisation of the weaker party by the stronger.'[212] In Amadio, Deane J emphasised that 'unconscionable dealing' looks to 'the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so.'[213]
• It is essential to the principle stated by both Mason J and Deane J in Amadio that 'there should be an unconscientious taking advantage by one party of some disabling condition or circumstance that seriously affects the ability of the other party to make a rational judgment as to his or her own best interests' the abiding rationale of the principle being 'to ensure that it is fair, just and reasonable for the stronger party to retain the benefit of the impugned transaction.'[214]
• In light of the above, the Court should not consider the appellant's 'special disadvantage' 'in isolation from the other circumstances of the impugned transactions which bear upon the principle invoked by the appellant'.[215] Rather, the issue as to special disadvantage 'must be considered as part of the broader question' - 'whether the impugned transactions were procured by [the respondent's] taking advantage of an inability on the appellant's part to make worthwhile decisions in his own interests, which inability was sufficiently evident to [the respondent's] employees to render their conduct exploitative'.[216]
• A party seeking equitable intervention to deprive another 'party of the benefit of its bargain on the basis that it was procured by unfair exploitation of the weakness of the other party' will be required to prove 'a predatory state of mind.'[217] Mere 'heedlessness of, or indifference to, the best interests of the other party' will not suffice. The Court said:

The principle is not engaged by mere inadvertence, or even indifference, to the circumstances of the other party to an arm's length commercial transaction. Inadvertence, or indifference, falls short of the victimisation or exploitation with which the principle is concerned.[218]

The 'special disadvantage' contended for by the Marriner parties

408 In the present case, the Marriner parties did not plead what it was they alleged constituted the relevant 'special disadvantage'. In their written submissions, the claim was put on the basis that Mr Marriner's special disadvantage was 'the circumstances or situation in which the plaintiff finds himself'.

409 In oral submissions, Senior Counsel for the Marriner parties contended that the special disadvantage 'doesn't have to be something analogous to a disability, it can be something quite different from that.' He described the relevant 'special disadvantage' that the Marriner parties contend for as being:

...that it was known to ASD that the Marriner parties were not aware of the circumstance being the bond moneys being 'backed out' [of the loan account], ASD was aware of that circumstance and did not disclose it, knowing that it would put the Marriner parties in the position, by reason of that nondisclosure, of not being able to make a proper decision in their own best interests, they didn't have all of the relevant information, and therefore unconscientious advantage was taken of the consequences of ASD withholding that knowledge from the Marriner parties to procure the outcome that ASD wanted...

410 ASD, on the other hand, contended that the relevant 'special disadvantage' must be more akin to a true disability in a legal sense. ASD, relying on Kakavas, reiterated that an essential feature of such a claim is that 'there should be an unconscientious taking advantage by one party of some disabling condition or circumstance that seriously affects the ability of the other party to make a rational judgment as to his or her own best interests.'[219]

411 The decision in Kakavas confirms that the orthodox approach to the determination of cases of unconscionable conduct requires that the question of the plaintiff's special disadvantage not be determined in isolation from the other circumstances of the transaction that is sought to be impugned. Rather it must be considered and determined as part of the broader question, of whether the impugned transactions were 'procured by [the ASD parties] taking advantage of an inability on [Mr Marriner's] part to make worthwhile decisions in his own interests, which inability was sufficiently evident to [the ASD parties] to render their conduct exploitative.'[220] This process requires the Court to undertake 'a precise examination of the particular facts', and 'scrutiny of the exact relations established between the parties' and 'a consideration of the mental capacities, processes and idiosyncracies of the [other party].'[221]

412 Before embarking on that exercise it is useful to recall the observations made by Dawson, Gaudron and McHugh JJ in Louth v Diprose,[222] about weighing competing evidence that is said to give rise to the alleged special disadvantage in the context of a claim of unconscionable conduct. Their Honours explained the process by which courts arrive at a conclusion as to character, credit and disputed matters of fact in a forensic contest. Such an enquiry involves the making of findings based upon the trial judge's assessment of character and credit and which were reached having regard to the demeanour of the parties in the witness box. Their Honours stated:

As is often the case where a person's state of mind is in issue, proof of the respondent's emotional dependence and of the appellant's manipulation of his infatuation depended, in large part, on inferences drawn from other facts and on an assessment of the character of each of the parties. The assessment of character is part of the process involved in determining questions of credit, although, as here, there may be cases in which character assumes a significance of its own.

The process of accepting or rejecting evidence has been described as one that involves an inference based, at least in part, on 'a principle of faith in human veracity sanctioned by experience'. Likewise, the assessment of character, which is often an earlier step in the process of determining issues of credit, may be described as involving an inference based, at least in part, on a principle of faith in human conduct sanctioned by experience. In both cases, the process is one in which the decision maker brings to bear his or her experience of life and, perhaps, his or her personal predilections. Because of this, different people may come to different conclusions about character and credit and, hence, as to disputed matters of fact.

It is precisely because different people may come to different conclusions as to character, credit and disputed matters of fact that, in a forensic contest, findings as to those matters are entrusted to the trial judge (or, in cases of trial by jury, to the jury) in accordance with rules and procedures that guarantee a considerable measure of finality. And in a forensic contest, findings as to those matters will usually be bound up with each other and involve some consideration of demeanour in the witness box - as they did in this case. Thus, the trial judge said, in the context of his 'impressions of the witnesses who gave evidence', that the respondent was 'a strange romantic character' with 'a sustained infatuation for the (appellant)' and that much of his evidence was convincing but that his 'demeanour was not such as to persuade me to accept evidence which I consider to be improbable or which is in conflict with other convincing evidence'. And in the same context, his Honour said that he 'formed the impression that the (appellant) was a calculating witness who was prepared to tailor her evidence in order to advance her case'.

It was the trial judge's assessment of the appellant as 'calculating' when giving her evidence that led to its rejection on several important matters. And it was the assessment of the respondent as a 'strange romantic character' that led to the acceptance of his evidence on some matters which, it is implicit in his Honour's reasons, might have been rejected if given by a more pragmatic person. And the factual findings as to the matters on which the appellant's evidence was rejected and the respondent's accepted led, almost inevitably, to the conclusions challenged in this appeal.

Because of the process involved in the conclusions reached by the trial judge, they are not, as was suggested by Matheson J. in the Full Court, 'inferences (drawn) from ... undisputed facts'. Nor, as his Honour thought, are they inferences which an appeal court is in 'as good a position (to draw) as the judge at the trial'. They are findings which were substantially dependent on the trial judge's assessment of character and credit and which were reached having regard to the demeanour of the parties in the witness box. As such and as the authorities repeatedly acknowledge, they are findings which, unless some error is to be discerned, an appeal court must respect.[223]

(citations omitted)

413 These comments are particularly apposite in a context such as the present, where on the hearing of the remitted issues the Court is required to make findings involving inferences drawn from disputed facts, but in circumstances where there has been no opportunity to observe the witnesses first-hand and assess their character and credit by reference to their demeanour in the witness box. In this context, findings made by the original trial judge about the demeanour of the witnesses are findings which, unless some error is to be discerned, must be accorded 'respect' when performing the task at hand.

414 At the remitter hearing, Senior Counsel for the Marriner parties began with the formulation of their case 'not first as the pleaded case but first in the way [he] wish[ed] to put it'. He said he wished to 'develop the facts we rely on in relation to the unconscionable conduct case and they are the same facts as we rely on in relation to the other defences and the counterclaim'. He also pointed out, however, that in order to succeed on their unconscionable conduct case, it was not necessary for them to make out the pleaded representations upon which they rely for their estoppel and misleading and deceptive conduct case - 'it simply requires that a set of circumstances which amount to unconscionable conduct be established, and in the defence and counterclaim there is a very long pleading, over pages, of those circumstances.'

415 Given the labrynthine nature of the pleadings, and the history of this case, I have determined it would be useful to set out below the essence of the Marriner parties' unconscionable conduct case as it was argued on the remitter, in case the matter should go further. In so doing, however, I also observe that this formulation puts their case at its highest, and in so doing goes beyond the case that was actually pleaded and, perhaps more importantly, responded to by the ASD parties at the original trial. However, as the case presented on the remitter hearing relies only on evidence that was before the original trial judge, in my view it is appropriate for the Court to consider that case in its entirety.

Marriner parties' formulation of the unconscionable conduct case

(a) Evidence that ASD intended to pursue Mr Marriner for the bond monies, on the basis that he was responsible for misappropriating them

416 The Marriner parties contend that by August or September 2001, Mr Marriner was in ASD's sights over the alleged misappropriation of the bond monies and it was clear that ASD intended to pursue Mr Marriner for the bond monies, on the basis that he was responsible for misappropriating them. They relied on the following evidence:

417 By 15 August 2001, the CEO of ASD, Mr Patience, had formed the view that the entire transaction involving the use of the electricity bond monies was 'just inappropriate'. He believed that Mr Marriner had applied the bond monies to his own interests and Mr Patience was conscious that ASD may be able to pursue Mr Marriner for the bond monies.

418 At the meeting of the ASD board on 15 August 2001, the board discussed the schedule of draft adjustments to the accounts that were proposed by Mr Lewis - one of those was the re-classification of the bond monies as a 'third party receivable'. At the same meeting, the board also developed the notion that there was a claim available against Mr Marriner for the bond monies. Mr Willis said that once the directors realised that the bond monies had gone, 'the question arose what do we do about it in terms of attempting to get them back and accounting for them.'

419 Mr Frost gave evidence that accounting entries were made to reflect the fact that ASD intended to recover the funds from Mr Marriner. However, he said those accounting entries were not made for the purpose of enabling recovery of those funds but rather to reflect what was considered to be the correct accounting treatment of the amounts in question, based on the recommendations of ASD's then accountant, Mr Lewis, who he believed had discussed the issue with ASD's auditors.

420 Mr Wason said that by 6 September 2001, when the meeting with Mr Marriner took place, he and he believed other directors of ASD were considering the possibility of ASD taking legal action against Mr Marriner about the electricity guarantee funds. He said the discussions with Mr Marriner focussed on the sale of Laguna Quays and he did not raise the bond monies issue. Mr Frost said that at that stage they 'were looking at recovering the monies from the Bank of Queensland or Wallace & Wallace but not Mr Marriner' - 'Mr Marriner would have been third cab off the rank.' Mr Frost agreed that he had not communicated that to Mr Marriner - he said that he 'didn't tell him anything.'

421 A meeting of the ASD board was held on 18 September 2001. The board noted the amended management results for the year ended 30 June 2001 and that the statutory statements were in the process of being prepared. In discussing the reports, the directors agreed that they would meet on 24 September at 8.30 am 'to consider detailed schedules of all matters concerning monies considered to be owing [to] ASD by Mr Marriner'.

422 Mr Patience prepared a debt schedule dated 21 September 2001 (but compiled to 31 August 2001) which he said showed the 'outstanding monies in respect to the Heads of Agreement dated 30 June 2000 and 1 November 2000 and other David Marriner related issues.' The purchase price of Laguna Quays is shown as $26,250,000. Item 9 was the 'SR Wallace & Wallace, Bank of Queensland funds', and the sum of $853,200 is recorded as monies owing by the Marriner interests. Mr Patience assessed the total financial exposure to be $35,265,778.

423 Mr Frost said that as at 24 September 2001 he held the view that Mr Marriner had misappropriated the bond monies. He said that ASD was by then 'intending to take legal action against Mr Marriner to recover funds that were thought to have been misappropriated by him.'

424 During September and October 2001 Mr Marriner remained in ASD's sights as a recovery target but he was not number one on the list. Mr Frost said that as at 21 and 22 October 2001 there was 'a possibility that there would be some action against the Bank of Queensland, Wallace & Wallace, or Mr Marriner' and 'Mr Marriner would have been third cab off the rank.' He said they always had it 'tucked away that [they] may take some action' but he believed the action was going to be taken against the Bank of Queensland.

425 In my view, when the totality of the evidence concerning the investigation of the bond monies and the potential for claims to be made against third parties is considered, it is clear that in late 2001 and early 2002 ASD had not committed itself to any particular course by way of recovery of the bond monies. Indeed ASD was still seeking advice and analysing their position from a legal and other points of view.

426 At all relevant times, Mr Marriner was well aware that ASD was seeking information as to what had become of the bond monies and was investigating avenues to try and recover them. Mr Marriner was aware of this directly, because ASD had sought an explanation from him, and also indirectly through his communications with Mr Penridge. ASD also pointed to the fact that if Mr Marriner believed that all possible claims, including those in respect of the misappropriated bond monies, were to be resolved by the agreements in relation to the sale of the resort, it was open to him to seek to negotiate that with ASD. But he did not. On the contrary, as ASD submitted, in circumstances where both he, and Mr Penridge, knew that ASD was investigating the bond monies issue, Mr Marriner nevertheless entered into a letter agreement on 19 October 2001 which expressly provided that 'all of ASD's rights ... remain expressly and strictly reserved' and final form agreements that included comprehensive 'entire agreement' and no collateral representation provisions.

(b) Evidence as to whether or not ASD knew that Mr Marriner wanted the bond monies to be dealt with as part of the deal

427 The next step in the Marriner parties' argument was to contend that ASD knew that Mr Marriner wanted the bond monies to be dealt with as part of the sale of Laguna Quays resort and the other joint venture assets. They said that all of the directors were conscious of the bond monies issue and knew it related to the final settlement with Mr Marriner. They relied on the following evidence.

428 Mr Patience prepared his 'focus notes' and gave them to the ASD directors present, namely Messrs Frost, Willis and Wason, before they met with Mr Marriner and Mr Whalley on 6 September 2001. Mr Patience's recommendation was that the bond monies should be incorporated in the final agreement in some way.

429 The focus notes were discussed by those directors at their meeting on 6 September 2001, which was conducted immediately prior to the meeting with Mr Marriner and Mr Whalley. In those notes Mr Patience recommended that the use of the bond monies would need to be integrated into the final agreement or used to offset the pending purchase of the marine area converted to freehold. Mr Willis agreed during cross-examination that the directors of ASD had probably decided not to press the claims against Mr Marriner at that time. Mr Willis was apparently in favour of raising these issues with Mr Marriner when they met with him on 6 September 2001 but other directors did not agree. Mr Willis had indicated that he was not willing to proceed until the lawyers had advised on the Bank of Queensland/bond monies issue. Mr Wason said that he thought the issue was raised but was not sure whether the directors agreed with Mr Patience's recommendation. Mr Frost said in cross-examination that 'the bond moneys weren't part of the final negotiations which were basically close to wrapped up on 19 October [2001] and settled some time the next year.'

430 Mr Patience's 'integration' recommendation was rejected by the ASD board. That rejection took place prior to the meeting between the directors and Mr Marriner and Mr Whalley on 6 September 2001. That left the bond monies issue unresolved as at that date.

431 Following the meeting with the directors on 6 September 2001, Mr Marriner sought to vary his earlier proposal dated 16 July 2001, in particular by increasing the purchase price by $950,000 to reflect the acquisition by ASD of the additional freehold land. Mr Marriner contended that his revised proposal clearly identified the assets of Laguna Quays that he was seeking to purchase - Annexure 1 listed the Laguna Quays - Schedule of Land Holdings & Ownership of ASD and, in addition to the freehold land, specifically included '[t]he debt owing by [Laguna Investments] to [ASD] representing advances made by ASD to [Laguna Investments].' Relevantly, Annexure 1 was framed in the same terms as under the 16 July 2001 proposal which it was said reflected the 'Inter-Company Loan' provision in cl 11 of the 30 June 2000 Heads of Agreement (and cl 11 was not varied in October 2000). The Marriner parties contended that from the outset, and in each of his successive offers, Mr Marriner sought to purchase the entirety of the debt, and in circumstances where the resort was in a negative cash flow situation, that debt would have been increasing over time.

432 On 8 October 2001, Mr Patience circulated a memorandum to the directors of ASD following up on the Chairman's suggestion that they meet to discuss the proposed resolution of the sale of Laguna Quays resort to Goldworthy/Marriner and associated issues. The memo noted as an 'other issue' that needed to be resolved during this period up to and after 17 January 2002 '[s]ettle or take steps to settle all outstanding debts incurred by David Marriner and associated companies.' Mr Patience proposed that they meet on 11 October 2001 to discuss these matters with the directors' advisers.

433 The Marriner parties also relied on the evidence of Mr Patience to the effect that he was very nervous about raising the bond money issue with Mr Marriner until they had really analysed their position from a legal point of view and other points of view. To this point in time he had told the board he was not sure of the legal position and he said the board probably did not know where they were going with the issue at the time.

434 On 17 October 2001, Mr Patience of ASD wrote to Mr Marriner of Laguna Australia enclosing what he said was the 'final document the Directors are willing to proceed with leading to a Sale Contract being signed on 26 October 2001 as agreed.' In essence, the ASD Board indicated in the 'final document' that it would only recommend the proposal to CBUS if Laguna Australia advised ASD in writing by 4.00 pm on 18 October 2001 that it would 'unconditionally accept the proposal without any amendment.' Further, it stated that if Laguna Australia did not do so, ASD would not entertain any further negotiations with Laguna Australia and would terminate the 30 June 2000 Heads of Agreement and reserve all of its rights. The letter set out the ASD proposal, specifying the price ($27,450.000.00 exclusive of GST and 'to the extent that GST is payable in respect of the sale of the Resort, LA will reimburse ASD for that GST') and the manner of payment.

435 Mr Marriner responded promptly by letter faxed to Mr Frost and received at 3.55 pm on 18 October 2001. He expressed concern at the very restrictive deadlines imposed for his response and also stated:

I remain concerned that your paragraph 3 may not exactly reflect the intent that neither party should be liable for any undisclosed liabilities incurred by the other party. However, following a telephone discussion between Ian Patience and Garry Weaven, I am comforted that that intent can be fully reflected in the final legal documentation.

(emphasis added)

436 Mr Patience's evidence was that a copy of Mr Marriner's letter was sent to the directors but he did not otherwise recall the letter, or any telephone discussion with Mr Weaven. Mr Patience said, however, that he did meet with Mr Weaven several times 'talking about coaxing David [Marriner] to come and settle these exercises.' (It will be recalled that Mr Weaven was formerly a Marriner appointee on the board of ASD.)

437 Mr Marriner gave evidence in chief, in addition to what was set out in his witness statement, of his 'concerns' about undisclosed liabilities that he had referred to in his letter. He said he had discussed the matter with Mr Patience - he said he sought assurance that they were addressing all of the liabilities and he was given that assurance. His evidence was that Mr Patience said 'there will be no liabilities going forward, we will address the liabilities, we will settle the liabilities, it will be no liabilities going forward whatsoever.' When cross-examined about his conversation with Messrs Patience and Weaven, Mr Marriner said he was told by Mr Weaven and Mr Patience that:

... there would be a clean break and everything would be brought to account. I was given that assurance and I was comfortable with that assurance, that all of the debts of the [ASD] group were to be wrapped up, tied up neatly and sold to Laguna Australia and I don't think anybody has any question or doubt about that, Your Honour.

438 The ASD letter of 17 October was re-engrossed with a date of 19 October 2001 and with some minor amendments, including adjustment of the date for unconditional acceptance to 4.00 pm on 19 October 2001. The letter of 19 October was signed that day by Mr Marriner. and endorsed on the final page as 'Accepted for and on behalf of Laguna Australia Pty Ltd'. The first page was signed by Mr Patience also on 19 October 2001.

439 Mr Marriner contended that at all times he sought to purchase the entirety of the debt owing by Laguna Investments to ASD. In his witness statement he maintained that 'the purchase of debt was required by me to avoid any future dispute with ASD in relation to the funds provided to, or accounts paid on behalf of [Laguna Investments] by ASD, including the BOQ bond monies.' If, as he contends, the matter was of real importance to him, and he wished to avoid the prospect of any future disputes, it is surprising that he did not raise it directly when he met with the ASD directors on 6 September 2001. This is particularly so in circumstances where he had delivered his explanation to the Chairman of ASD the previous day, but the Chairman made no mention of it at the meeting.

440 When Mr Marriner did apparently seek 'comfort' on this point, it was said to have been given by Mr Patience and Mr Weaven. By then, of course, Mr Weaven was no longer a director of ASD. In those circumstances, it is difficult to see what possible authority he would have had to give any real or effective comfort on behalf of ASD to Mr Marriner on this issue. As for Mr Patience, his Honour questioned him about the reference to comfort in Mr Marriner's letter of 18 October 2001 and Mr Patience said that he did not recall the telephone conversation.

441 Importantly, this alleged conversation or 'comfort' was not pleaded by the Marriner parties in their defence and counterclaim, nor was it mentioned in the witness statement filed by Mr Marriner. Furthermore, the terms in which it was described in his evidence given at trial were considerably more expansive than those stated in his letter. In his letter he took the step of clarifying that there were no 'undisclosed liabilities' but the context in which that enquiry was made demonstrates quite clearly that it was not directed to the potential for a claim to be made in relation to the bond monies. The concern that Mr Marriner expressed in his letter was that the adjustments clause may not reflect the intent that 'neither party should be liable for any undisclosed liabilities incurred by the other party.' The bond monies issue did not satisfy or fall within that description. That is, the issue raised in respect of the bond monies did not concern one of the Marriner parties becoming liable for an undisclosed liability incurred by ASD.

442 It is also difficult to understand how a statement to the effect contended for by Mr Marriner would have been made by Mr Patience in circumstances where Mr Patience well knew that the board of ASD was investigating the third tranche bond monies and had determined not to follow the recommendation he made in his focus notes that the use of the bond monies would need to be integrated into the final agreement or used to offset the pending purchase of the marine area converted to freehold. Mr Patience's evidence was that he adhered to the board's decision.

443 ASD contends that the suggestion made by Mr Marriner that ASD 'well knew that Mr Marriner wanted to incorporate the bond monies issue into the proposed deal' is not only inconsistent with the pleadings but is also contrary to the evidence. Had he wished to do so, his legal and accounting advisers were capable of asking for this to be done, but there was no evidence of this ever being requested. As ASD pointed out, the position contended for by Mr Marriner is also inconsistent with the express provisions of the agreements that were actually entered into, which had comprehensive 'entire agreement' clauses and provisions expressly disavowing any collateral or other representations.

(c) No-one ever told Mr Marriner that he was the object of a potential or probable claim for recovery of the bond monies

444 The Marriner parties also contend that the explanation about the bond monies that Mr Marriner gave to the Chairman of ASD in his letter of 5 September 2001 was not raised with him, nor did any of the directors challenge him about it. Each of Mr Willis, Mr Patience and Mr Frost accepted that. Mr Patience said that if the bond monies issue had been raised with Mr Marriner at the 6 September 2001 meeting '[w]e would have taken another six months or a year in ultimately resolving the problem.' Nevertheless Mr Patience did not accept the explanation that had been given by Mr Marriner and he regarded the entire transaction involving the use of the bond monies as 'just inappropriate' but he said the directors had instructed him not to raise it with Mr Marriner and he adhered to that.

445 The Marriner parties submit that the directors of ASD effectively confirmed that no-one raised the bond monies issue with Mr Marriner after receiving his 5 September 2001 letter. In the course of cross-examination, Mr Whalley corroborated that that was the case. The Marriner parties acknowledged that some evidence to the contrary was given by each of Mr Patience and Mr Frost but they said it did not appear in their witness statements. Mr Patience said that he thought he did raise with Mr Marriner the fact that they were looking at the legal position in relation to the bond monies. He said he 'was very open with David right through all the transactions.' But this may be contrasted with Mr Patience's earlier evidence that he was nervous about raising the bond monies issue until they had legal advice and was concerned that doing so might significantly delay completion of the transaction.

446 It was said by the Marriner parties that ASD was content for Mr Marriner to believe that it had accepted his explanation and for Mr Marriner to believe that there were no outstanding liabilities and there were no bond monies issues. The Marriner parties contend that what ASD gained by inducing that belief in Mr Marriner was that the 19 October letter of agreement was signed, and the deal was done to sell Laguna Quays, which ultimately settled in April 2002. Even then, the Laguna Investments debt was included specifically in that sale.

447 The directors of ASD did not tell Mr Marriner that he was being considered as a 'recovery target' at the time when the sale agreements were being finalised. But the reality was that ASD was still investigating the matter and had not made a decision about recovery at that time. When the totality of the evidence is viewed objectively, nothing was said or done by the ASD parties that could reasonably be taken to have conveyed the impression to Mr Marriner that the matter was at an end. To the extent that Mr Marriner believed that was the position, it was largely self-induced. He knew the matter was under investigation by ASD but was content to rely on the fact that he had responded to the Chairman's request for an explanation. He also knew that the letter of agreement of 19 October 2001 expressly provided that 'all of ASD's rights ... remain expressly and strictly reserved.'

448 The Marriner parties also challenged the accounting treatment that gave rise to the backing out of the bond monies debt. They relied on the following evidence.

449 In his witness statement, Mr Whalley said that at the 6 September 2001 meeting there was no discussion about the use to which the second and third tranche bond monies were put nor were the bond monies mentioned. He also discussed the accounting entries that were made to 're-allocate' the receivable from Laguna Investments to a 'Third Party Receivable' in the books of account of ASD. He said that no mention was made of these entries before or after sale of Laguna Quays resort until immediately prior to the commencement of this proceeding.

450 In his witness statement, Mr Marriner also addressed what took place at the 6 September 2001 meeting. He said that following the meeting, the proposals they discussed were confirmed in a letter from Laguna Australia to ASD which summarised the assets to be acquired as including the debt owing by Laguna Investments to ASD representing advances made by ASD to it. He said that the purchase of the debt was required 'to avoid any future dispute with ASD in relation to funds provided to, or accounts paid on behalf of [Laguna Investments] by ASD, including the BOQ bond monies.' Further, he said that the bond monies matter was never raised again by Patience, Willis or Frost until he received a letter of demand in 2005 prior to the commencement of this proceeding.

451 Under cross-examination, Mr Whalley was asked why it was that he did not raise any queries when he received the notice from Mr Lovell of Holding Redlich setting out the amount of the debt as at settlement. He said that he had 'no reason to believe that it was other than a correct straightforward accounting'. He said that what was important was 'the composition of the debt', but he accepted that he did not ask Mr Lovell for a calculation and itemisation because he 'wouldn't have known if something had been omitted from it'. He said that what Mr Marriner had always undertaken to acquire was all of the advances that had been made by ASD to Laguna Investments.

452 It was put to Mr Frost, in cross-examination, that it would have been of interest to Mr Marriner 'to know whether there had been any material changes to the [Laguna Investments] loan account in the period after he ceased to be a director of that company and ASD?' Mr Frost responded in terms: 'I would imagine it would be Mr Marriner's position that he would need to check everything and certainly I am not aware of anything being kept from Mr Marriner if he wanted to make enquiries.' Mr Frost accepted that he did not personally tell Mr Marriner about the reversal in relation to the bond monies. He said that ASD people, probably Mr Patience, followed up with him to ask about what he had done with the bond monies.

453 Mr Whalley said that as at 6 September 2001 the bond monies as a cash deposit had been recovered but in terms of the accounting for the bond monies, his expectation was 'that no entries would have been made and that they would remain as part of the loan from ASD to [Laguna Investments].' He said his expectation was based on the fact that they 'hadn't been told otherwise and it had always been part of the offer and negotiation that any advances made by ASD to [Laguna Investments] would form part of those items, being the contract of sale.' He did not believe the matter was discussed at the meeting with the directors on 6 September 2001.

454 Mr Patience wrote to Mr Marriner on 23 October 2001 to inform him that the CBUS board had given approval for ASD to enter into the next phase of implementing their proposed sale of Laguna Quays with Laguna Australia. Mr Patience also informed him that once the purchase was completed, ASD would procure CBUS to lend Laguna Airport $5,000,000 for airport construction claims by JJ McDonald or other nominated contractors. No mention was made of the bond monies issue and the steps that the board of ASD had taken to re-classify the debt.

455 By this point, Mr Penridge of Wallace & Wallace was acting for the Marriner parties. Mr Penridge was well aware of what had taken place with the third tranche of bond monies. No step was taken by him to clarify that there was no potential for any claim to be made against the Marriner parties. Indeed, Mr Penridge's observations on the Deed of Assignment of Debt set out in his letter to Holding Redlich dated 6 November 2001 do not convey any of the sense of the importance that Mr Marriner now contends he attached to the composition of the debt and, in particular, the need to acquire the debt in respect of the second and third tranches of the bond monies. Mr Whalley was also said to be concerned to ensure that the Marriner parties were not 'dudded' on the deal, given his dissatisfaction about what had earlier transpired with GST adjustments, but even when he was presented with the relevant figures for the debt, no question was raised. Mr Whalley never sought to clarify that the debt in relation to the second and third tranche bond monies was being acquired by the Marriner parties. Neither did Mr Penridge or Mr Marriner. Indeed, when Mr Penridge was first notified by ASD's solicitors on 5 February 2002 of the amount of the debt to be assigned under the Deed of Assignment of Debt as at completion, he responded without demur stating '[o]ur clients have no reason to dispute this amount nor records upon which to base an opinion on the amount and the amount proposed is accepted on this basis.' Furthermore, there is no evidence to suggest that Mr Penridge was aware of the 'comfort' that Mr Marriner alleged he was given by Mr Weaven and Mr Patience in his discussions with them prior to the signing of the letter agreement.

(e) Processing of the removal entries in the accounts

456 The next step in the Marriner parties' argument was to challenge the accounting treatment and the entries made in the accounts. They relied on the following evidence.

457 Following the 15 August meeting of the ASD Board, Mr Lewis prepared a memorandum concerning the 2001 Accounts of ASD and presented it to the Chairman, Mr Frost, on 4 September 2001. The memorandum is labelled 'Draft' but Mr Lewis' handwritten note records that an '[e]xact copy given to Barry 4/9/01'. In the memo, Mr Lewis was seeking the direction of the Directors of ASD on the issues listed, which included matters such as the possible liability for GST on the sale of the Airport to Mr Marriner's company and the treatment of the electricity bond monies. The substance of the memorandum is set out in the factual narrative above.

458 In fact the bond monies amount were 'backed out' of the loan account and treated as a third party debtor receivable. Under cross-examination, Mr Willis said that he was not aware of what had happened in the ledger until years later but was aware of the decision the board made 'about a third party receivable and expensing the item in the P & L.' He said it was 'probably the case' that Mr Marriner was not aware this issue existed. Mr Wason did not know whether Mr Marriner was ever told about the reversal of the loan account entry - he said that he 'never told him' and didn't know whether anyone else did. Mr Frost said he did not tell Mr Marriner about the reversal in relation to the bond monies.

459 The Deed of Assignment of Debt was made between ASD and Fulham Holdings on 13 November 2001. The Deed recited that the 'Debtor', Laguna Investments, was indebted to the 'Assignor', ASD, in 'the amount of the Debt', being 'the full amount owing by the Debtor to the Assignor on the Completion Date', namely 8 February 2002 (see definitions in clause 1.1); and that ASD agreed to assign the Debt to Fulham Holdings on the terms and conditions of the deed.

460 Clause 2 dealt with the assignment of debt. The relevant provisions are set out in the factual narrative above, but in essence, under cl 2.3(a) the Assignor was required to calculate the exact amount of the debt 'as at the Completion Date' and deliver it to the Assignee in advance of the Completion Date. Clause 2.3(b) provided that '[t]he Assignor's statement of the amount of the Debt delivered to the Assignee under clause 2.3(a) will be conclusive evidence as to the amount of the Debt for all the purposes of this deed'.

461 Under cl 2.5(a), the Assignee expressly acknowledged and agreed that it acquired the Debt on an 'as is where is' basis and that no 'statement, representation, warranty, promise, undertaking or agreement' had been made by the Assignor and that the Assignor was:

not liable to the Assignee for any Claim arising from or relating to any statement, representation, warranty, promise, undertaking or agreement made by the Assignor or any director or officer of the Assignor or any person having the actual or ostensible authority of the Assignor about or in connection with the Debt or the collectability of the Debt not expressly included in clause 2.4 (Excluded Representations).

462 Under cl 2.5(b), the Assignee waived, 'to the fullest extent possible, any possible cause of action or rights it may have under or in respect of Part V of the Trade Practices Act 1974 (or any similar law) relating to the Excluded Representations.'

463 Clause 5.12 of the Deed provided that '[e]ach party must act in good faith towards all other parties and use its best endeavours to comply with the spirit and intention of this deed.'

464 The Marriner parties contend that it was a consistent theme of the various agreements made between the parties from the 30 June 2000 Heads of Agreement through to the 19 October 2001 acceptance of Mr Marriner's proposal, that one of the assets being purchased by the Marriner parties was '[t]he debt owing by [Laguna Investments] to [ASD] representing advances made by ASD to [Laguna Investments].' Mr Marriner had agreed with ASD that he would pay $3 million for that debt. The Marriner parties say that ASD, knowing that Mr Marriner intended that the debts of Laguna Investments would include the bond monies debt, nevertheless backed out the bond monies debt and did not tell Mr Marriner about it in order that the transaction would proceed. They say that it was that conduct, unknown to Mr Marriner, that induced the transaction to go ahead. In those circumstances they contend that the conclusive evidence provision in clause 2.3(b) and the acknowledgment in clause 2.5 are no answer to a claim of estoppel by representation or unconscionable conduct.

465 By emailed letter dated 5 February 2002, Mr Lovell of Holding Redlich, the solicitors acting for ASD on the sale, wrote to Mr Penridge of Wallace & Wallace and raised several matters in relation to the completion of the sale transaction. In particular, he noted that the amount of the debt to be assigned under the Deed of Assignment of Debt 'will be $16,400,586.54 as at completion.' As noted above, Mr Penridge responded to the letter that day and in relation to the amount of the debt, he informed Mr Lovell that '[o]ur clients have no reason to dispute this amount nor records upon which to base an opinion on the amount and the amount proposed is accepted on this basis.'

466 The Marriner parties also referred to the ledger of Laguna Management for the financial years ended 2000, 2001 and 2002, which was referred to in an annexure to Mr Whalley's witness statement.[224] The ledger for 2002 recorded the crediting on 31 January 2002 of the amount of the bond monies, namely $1.61 million. The Marriner parties contend that the bond monies were backed out by the making of this entry, on the apparent instructions of Mr Lewis.

467 As ASD pointed out, the Marriner parties effectively ignored the evidence that each of Mr Willis, Mr Frost and Mr Patience gave evidence at the trial concerning the accounting treatment. Their evidence, the effect of which was to explain that no accounting entries were made for the purpose of enlivening claims against Mr Marriner and to reject the notion that anything that took place concerning those entries was done 'surreptitiously', was accepted by the original trial judge.

468 In his witness statement, Mr Willis gave evidence about the accounting entries made, to the effect that he considered the accounting treatment that was given to have been appropriate. At the original trial, Mr Willis was cross-examined extensively about this issue. Senior Counsel for the Marriner parties put to him that the intercompany loan account no 1-7080 should have remained as it was prior to the reversal entry being made. Mr Willis disagreed, and the following response ensued:

[MR BICK:] And therefore, the loan account should have remained as it appears on page 1214; do you agree?---No.

Why not?---Because we had already made a decision as a board that we should pursue the legal recovery of these moneys. They were due back to ASD and they had not - they had been dissipated and therefore we wanted to pursue those moneys and in the course of that we had to consider how we would treat it in the accounts. It was put to us that the appropriate way was to expense the loss of the moneys so that that would be an expense in the profit and loss account and so we did that, and that we should then establish a receivable which would be from the body which we would take legal action so at that time that was the Bank of Queensland. So we had an expensed loss because of the disappearance of the moneys and receivable in the accounts to get the money back and that seemed to me to be the appropriate way in which to account for what had happened.

...

Do you accept that until such time as [Laguna Investments] repaid the loan of those moneys to ASD there should remain in the ASD accounts a receivable being that sum owed by [Laguna Investments]?---Well, no, I don't.

I am suggesting to you, Mr Willis, that it's entirely consistent with your earlier answers and it's also consistent with proper accounting?---Well, I think it's consistent with proper accounting that once we had decided to establish a receivable from a third party, the Bank of Queensland, then we could not have in ASD's accounts another receivable from [Laguna Investments], otherwise we would have double counted.

The receivable in ASD was from [Laguna Investments], was it not, Mr Willis?---Yes.

That loan was never repaid by [Laguna Investments]?---Well, once the moneys had disappeared then obviously that loan - loans for that amount of money were not going to come back from [Laguna Investments] which is why it seemed reasonable to me to - for the account to have been altered to back out the amount of the loan.

I suggest to you that's incorrect accounting?---I am suggesting to you it seems very good accounting from us - for us as directors of ASD.

Mr Willis - - - ?---And it was also the view of our accounting staff and it was okay by our auditors.

We will come to your auditors in due course. So far as your accounting staff were concerned, they looked to the directors for guidance and approval on the accounting treatment of the $1.279 million, didn't they?---I am sorry, who did?

Your accounting staff sought guidance and approval from the board in respect of the accounting treatment of the $1.279 million?---Yes, they did, yes. That is in respect of establishing a receivable, a third party receivable and expensing the loss of moneys in the accounts. That I recall.

The board, including yourself, gave that approval?---Yes, we did.

The effect was to reverse a loan from ASD to [Laguna Investments]. Do you accept that?---Yes.

469 The cross-examiner returned to this topic with Mr Willis the following day. In response to a question framed in terms of 'If the board of ASD formed the view' that a receivable from a subsidiary was irrecoverable, what would be the appropriate way of recording it in ASD's books, Mr Willis responded as follows:

Well, since we had lost the asset we obviously need to reflect that in some way. What the directors did was to say that we should pursue a legal action to recover the moneys and therefore, that would show as an asset in the balance sheet and that raises the question then about, I guess, the loan issue. I don't recall us discussing that but subsequently the adjustment to the loan account was made in conformity with that decision.

The cross-examiner followed up, and the following exchange ensued:

So far as the books of [Laguna] Management are concerned, if those funds are gone what would be the appropriate entry in its books to record that what was an asset, being a bank deposit, no longer existed?---Well, I am not here as an accounting professional, Mr Bick, so to my mind the issue was quite simple. We had lost an asset, we have a third party receivable instead and if we don't reduce the loan from [Laguna Investments] or from the subsidiary company then we get a double count in the balance sheet; we will have a receivable from two parties for the same moneys.

If the bank deposit - - -?---Can I just finish? Although we never discussed that issue that I can recall, when that - I found out that that had happened that seemed to me to have been a thoroughly logical thing to have done because otherwise we would have had a double receivable in the balance sheet.

470 Mr Willis' evidence was also corroborated by the contemporaneous documents, in particular the minutes of the meeting of the ASD board on 15 August 2001, the memorandum from Mr Lewis of 10 September 2001 (which attached the memo of 4 September 2001) and the audited accounts of ASD for the year ended 30 June 2001, signed on 25 February 2002, which recorded as an asset the sum of $1,279,800 in respect of 'Legal Claim-Recovery of funds from Bank of Queensland'.[225]

471 An independent accounting expert, Mr Gregory Blashki, was called by the Marriner parties to give evidence at the trial. In cross-examination, the evidence given by Mr Blashki was to the effect that, on the assumption the bond monies belonged to ASD, the accounting treatment as described by Mr Willis was correct, as follows:

Mr Blashki I am not asking you to speculate on matters which may or may not be the case, I am asking you if money belonging to ASD was misappropriated?---Yes.

Would it be appropriate, or inappropriate from an accounting perspective to recognise an expense in ASD'[s] profit and loss account, reflecting the loss of the money?---Generally it would be appropriate if ASD had lost the money, it should record a receivable, amount receivable in ASD from the person who took the money, then if that was not recoverable then it would have to write it off and it would be an expense in ASD's books under those circumstances.

Thank you.

HIS HONOUR: Would that appear in the profit and loss?---Yes, Your Honour.

What heading would it appear under in the profit and loss, the expenses?

---Effectively, a bad debt, Your Honour.

Bad debt, yes. I see.

MR BROADFOOT: It may also be appropriate, depending on the view taken by the directors of the company, if the moneys had been loaned, to write off the debt?---If it was not recoverable, yes.

And reduce the amount of any loan entries which had been made?---If it had a debt that was owed to it from somebody else, a third party, and that debt was not recoverable, then the only appropriate thing to do is to write it off and treat it as an expense.

472 In my view, in circumstances where the matter which Mr Blashki was asked to assume has been found by the original trial judge as a fact, and confirmed by the Court of Appeal, there is no basis upon which it would be open or indeed appropriate for the Court on the remitter to infer that the accounting treatment undertaken by ASD was other than appropriate.

473 The Marriner parties contend that ASD embarked on a strategy of non-disclosure, coupled with 'sharp conduct' so as to cause Laguna Australia to enter into the agreements. They relied upon the following matters.

474 From the time of entry into the 30 June 2000 Heads of Agreement the value of the resort had declined, and trading losses were continuing. In their June 2000 valuation for the resort, conducted on a going concern and orderly sale basis, Jones Lang LaSalle Hotels adopted a value of $22.6 million. In their 2001 valuation, Jones Lang LaSalle Hotels reported that the recoverable value on a going concern and orderly sale basis ranged from $13 to $18 million - and Jones Lang LaSalle Hotels adopted a value of $16 million. Mr Willis also gave evidence about this decline in the value of the resort, which he said he assumed was 'because of the ongoing losses'.

475 By 5 September 2001, ASD had received a further open market valuation, this time from Colliers, which suggested a further decline in value. In his focus notes, Mr Patience referred the ASD board to the Colliers' valuation, noting that the '[t]rue value on the open market for the resort would be of the order of 10-15 million dollars.'

476 Mr Patience said that from 28 February 2001, when Mr Marriner had failed to pay the instalment due, he understood that the ASD board nevertheless wanted to press on with the sale of the resort on terms acceptable to the board, as soon as could reasonably be achieved 'because the asset was performing poorly (losing in the vicinity of $3 million per annum)'. Mr Willis agreed that the fact that the resort was losing money diminished its saleability in the open market and he was of the view that a sale to Mr Marriner was clearly desirable. He said that from September 2001, the board of ASD was looking to conclude the issues with Mr Marriner as quickly as possible. Mr Wason said that '[w]e wanted to realise our money and stop having to put $300,000 a month into the resort.' Mr Frost said that the meeting on 6 September 2001 was to conclude the purchase of Laguna Quays - '[w]e wanted Laguna Quays out of the way, we wanted it sold or not sold; it didn't really matter. We wanted it finalised. That was the meeting to finalise it.'

477 Mr Patience was given the task of achieving the sale of the resort as soon as could reasonably be achieved. ASD knew that Mr Marriner remained keen to purchase the resort. Mr Frost said that he did not tell Mr Marriner about the bond monies because the bond monies did not 'impress [him] as being significant at all.'

478 In his focus notes, Mr Patience described Mr Marriner as being 'obsessed with the ownership of Laguna Quays' and he recommended to the directors that 'ASD should support this attitude to achieve the resolution of the H of A.' But he also pointed out in his note that '[a] time will come when David Marriner believes enough is enough and it is all too hard and walks away from the obsession to own Laguna Quays.' That is, Mr Patience clearly recognised that if the bond monies issue was raised with Mr Marriner, the sale of the resort would be delayed considerably - 'we would have lost another six months or a year in ultimately resolving the problem' - or thwarted.

479 The Marriner parties contend that Mr Willis appeared to have appreciated the delicacy of the situation. Under cross-examination Mr Willis said that he did not know what Mr Marriner's attitude would have been if he had been confronted with the claims that he had misappropriated the bond monies. Whilst Mr Willis maintained that Mr Frost had raised the issue with Mr Marriner on 5 September, it was said that Mr Willis nevertheless appeared to recognise that there was potential to have a big argument over the issue with Mr Marriner and that would have distracted them from the sale. That was against a background where Mr Willis had been in favour of the directors raising the issue with Mr Marriner when they met with him on 6 September 2001 but he accepted Mr Frost's decision not to do so.

480 Prior to the 19 October 2001 agreement being finalised, Mr Marriner had responded to Mr Frost by letter faxed on 18 October 2001 to express and record his concern that ASD's proposed clause 3 'may not exactly reflect the intent that neither party should be liable for any undisclosed liabilities incurred by the other party.'

481 It was said that the finalisation of the sale agreements followed but all the while the ASD parties withheld from Mr Marriner the fact that he was in their sights as a recovery target.

482 The Marriner parties contended that this was not a case where, during negotiations, one party had overlooked important matters or simply neglected to protect its interests. Rather, they said, Mr Marriner had directly raised the issue of claims and liabilities and that placed ASD under a positive duty to respond accurately and truthfully to his enquiry. The Marriner parties submitted ASD did not discharge that duty - on the contrary, 'it hid the plan to pursue the Marriner parties; it focused instead on doing what was required to 'coax' Mr Marriner into the proposed deal.'

483 The Marriner parties contend that as a result of ASD's unconscionable conduct, Mr Marriner signed the relevant agreements in late 2001.

484 The Marriner parties' submissions are predicated on a non-acceptance of what the evidence has demonstrated to be the correct accounting treatment for the dealings with the second and third tranches of the bond monies. Once it emerged that it was no longer appropriate for those monies to be recorded as an asset in ASD's books, the board sought advice about the appropriate entries to be made. The independent evidence called by the Marriner parties effectively confirmed the appropriateness of the accounting treatment that was adopted. The note to the accounts (as audited) records that the third party receivable related to a legal action that the directors proposed be launched against the Bank of Queensland for the inappropriate operation of a bank account.

485 Under the Deed of Assignment of Debt, ASD was obliged to calculate the exact amount of the debt as at the 'Completion Date' and notify Fulham Holdings accordingly. The statement of the amount of the debt was, so the parties agreed, conclusive evidence as to the amount of the debt for all the purposes of the deed.

486 ASD did not inform Mr Marriner about the steps that were taken to implement the recording of the bank guarantee as a third party recoverable in the accounts. ASD was not relevantly under any duty or obligation to do so. Each party had its own advisers and negotiated in its own best interests. There was no absence or inequality of bargaining power, nor was there any predatory state of mind evident on the part of ASD. Mr Marriner was not foreclosed from making any proper enquiries - he and his advisers had been involved in negotiating the terms of the agreements with ASD but had not raised the bond monies issue with ASD directly, nor raised any question about the composition of the debt or the quantum of the debt for the purposes of the deed. He now contends that it was a matter of real importance to him, but it is telling that he never raised it directly with the board of ASD.

487 In circumstances where an issue about the expenditure of the second and third tranches of the bond monies had been raised clearly by the Chairman, it was a matter for Mr Marriner to take appropriate steps to clarify, and if necessary, protect his position. In an arms' length commercial transaction, it is clear that indifference on the part of ASD to Mr Marriner's position is not sufficient to engage the principle under which a court of equity grants relief for unconscientious or unconscionable conduct.

(g) Evidence as to what Mr Marriner would have done in the event of disclosure

488 The Marriner parties sought to rely on evidence given at trial about what Mr Marriner would have done if the ASD representatives had informed him that ASD held the view that he had misappropriated the bond monies. In his witness statement, Mr Marriner stated that he would 'have disputed any such suggestion and attempted to get to the bottom of why such a misunderstanding had occurred' and 'would have investigated what had happened to the bond monies.' On the assumption that upon investigation he would have discovered what he has since learned, he said he 'would have told the ASD representatives the monies had been applied as contemplated by the June 2000 Heads of Agreement.' If he was unable to change their view, he would have sought professional advice. He said that he 'most definitely would not have proceeded with the purchase of Laguna Quays unless the bond monies matter had been addressed and resolved in [his] favour.' Mr Whalley also gave evidence to similar effect.

489 Under cross-examination, Mr Patience acknowledged that if the bond monies issue had been raised with Mr Marriner at the 6 September 2001 meeting '[w]e would have lost another six months or a year in ultimately resolving the problem.' He agreed that there would have been an argument about it or they would do 'a deal somehow.' When it was put to him that he 'had every good reason not to raise the issue with [Mr Marriner], he responded by saying 'Well, that was the agreement from the board and I followed that agreement.'

490 The evidence about what would have been done by Mr Marriner whilst hypothetical, nevertheless serves to highlight the reasons why, once he was on notice that the matter was being investigated by the board of ASD, it was in his interests to pro-actively deal with the bond monies issue. But he failed to do so.

491 The evidence in the case also demonstrates that Mr Marriner did not share the pessimism of the other directors of ASD about the long-term prospects of the Laguna Quays project and he remained very keen to purchase it notwithstanding its decline in value and the ongoing losses being suffered. The sale of the resort was sought and negotiated by Mr Marriner from the outset, on attractive terms that provided that all but $5 million would be funded by vendor finance. The proposal set out in the letter agreement of 19 October 2001 was expressed to be 'final and not negotiable'. It was put to Mr Marriner by ASD as one that would be recommended to the board of CBUS only if Laguna Australia advised ASD that it would 'unconditionally accept the proposal without any amendment', failing which the 30 June 2000 Heads of Agreement would be terminated. The proposal was expressly 'made on the basis that all of ASD's rights ... remain expressly and strictly reserved.' Mr Marriner accepted the proposal and proceeded on that basis.

ASD's submissions on the unconscionable conduct case

492 The thrust of ASD's submissions in response to the unconscionable conduct case advanced was to contend that no special disadvantage was made out nor was any unconscionable conduct established. Furthermore, it says there is no evidence that any accounting entries were made for an improper purpose. No evidence was adduced to support the pleaded allegation that accounting entries were made 'for the purpose of removing surreptitiously part of the debt owed by [Laguna Investments] to ASD'. The evidence of Mr Willis, Mr Frost and Mr Patience made clear that no accounting entries were made for the purpose of enlivening claims against Mr Marriner, let alone 'surreptitiously'. The original trial judge accepted that evidence and found that ASD and CBUS were not guilty of the duplicity alleged.[226] That finding was not disturbed by the Court of Appeal.

Conclusions on the unconscionable conduct case - no 'special disadvantage' on the part of Mr Marriner was established

493 When the whole of the facts in the present case are considered, I am satisfied that no relevant 'special disadvantage' on the part of Mr Marriner is made out and no unconscionable conduct is established.

494 It is for the plaintiff who seeks to impugn the transaction to establish his disabling condition or circumstances. In the present case, however, the evidence adduced falls short of doing so. This is not a case where the plaintiff contends he suffered from a special disadvantage by reason of any infirmity, weakness or deficiency. Rather, the special disadvantage is said to be 'situational' in terms of 'the circumstances or situation in which the plaintiff finds himself.' In oral submissions that was elaborated upon as Mr Marriner being unaware of the circumstance that the bond monies were being 'backed out' of the loan account, which was something the ASD parties knew but did not disclose, knowing that it would put the Marriner parties in the position of not having all of the relevant information necessary for them to make a proper decision in their own best interests.

495 The starting point is that Mr Marriner is a very experienced business man. In his witness statement, Mr Marriner described his professional background in terms which convey his significant experience in business, gained over many years especially as a property developer, investor and proprietor in a variety of industries including live theatre, retailing, hotel management and property. I note also that the board of ASD clearly respected Mr Marriner's ability in the property development sphere - that was the expertise that he brought to the joint venture and when he first expressed interest in purchasing Laguna Quays resort, the board delegated to him the task of negotiating the sale of the resort to his associated company. Mr Marriner was represented by Mr Penridge and assisted by Mr Whalley. There was no inequality of bargaining power between the contracting parties.

496 In my view, the Marriner parties have failed to establish that Mr Marriner relevantly suffered from any disabling condition or circumstance or 'situational' disadvantage that seriously affected his ability to make a judgment in the best interests of the Marriner parties. I am not satisfied that there is evidence of a predatory state of mind on the part of ASD or that there is anything about the course of conduct upon which ASD embarked vis-à-vis Mr Marriner that would clothe it with an exploitative quality and suggest the agreements in question were procured by an unfair exploitation of a weakness or vulnerability on the part of Mr Marriner. Nor, as will be apparent from the foregoing observations, am I satisfied that the accounting entries were made for the purpose of enlivening claims against Mr Marriner, let alone 'surreptitiously'.

497 Finally, I note that the findings made by the original trial judge would not suggest any different or other outcome should be arrived at. These findings are of some relevance given that his Honour had the opportunity to observe the witnesses giving their evidence. In that regard, I note that in his separate reasons on the Counterclaim, the original trial judge commented on the evidence given by Mr Frost, as follows:

Much of the evidence relied upon by the Marriner parties is to be found in the answers of Mr Frost to questions in cross-examination regarding the treatment of this debt in the accounts. For the reason which I indicated to counsel at trial I do not place weight on much of his evidence. This is, as I said at the time, not due to my perception that he was deliberately misleading the court or being evasive; it was, perhaps, due to his age or infirmity or perhaps the passage of time that he appeared ready to accede to suggestions made to him without appreciating their significance in the context of his own evidence and in the contemporary document before the court.[227]

His Honour's comments provide an additional reason to prefer and place weight upon the evidence given by Mr Willis rather than that of Mr Frost about the accounting treatment for the bond monies debt in the accounts.

Whether the representations pleaded in paragraph 114 of the counterclaim were made and, if so whether they constituted misleading or deceptive conduct? (Issue (xii))

498 The Marriner parties also seek to set off against the claims made by ASD, the loss that Laguna Australia says it suffered as a result of certain representations allegedly made by ASD and United Super, being the sum of $1,279,200 (which is referable to the debt arising in respect of the second and third tranche electricity bond payments).[228] There is also a counterclaim by the Marriner parties seeking damages based on those defences.

The representations relied on by the Marriner parties'

499 The representations relied upon by the Marriner parties for their misleading and deceptive conduct case also form the basis for their estoppel case.

500 For present purposes, the relevant 'representations' are pleaded as follows:

1. Further or alternatively prior to entry into the 19 October Agreement, and in order to induce entry into the 19 October Agreement and to procure purchase by the Marriner interests of Laguna Quays for the price of $27,450,000.00, ASD and United Super represented to Laguna Australia and its nominees:

(a) That ASD and United Super as trustee of CBUS would sell for $27,450,000.00 and Laguna Australia would purchase, all of the interests of ASD and United Super as trustee of CBUS in Laguna Quays including the debt owed by [Laguna Investments] to ASD (which included the Bank Guarantee[229] deposit).

...[230]

(c) That the assets comprising the interest of ASD and United Super as trustee of CBUS in Laguna Quays would be transferred to Laguna Australia and/or some other nominee of the Marriner Defendants,

('the representations').

PARTICULARS

The representations were partly oral, partly contained in or evidenced by writing and partly to be implied.

Insofar as they were in writing, they were comprised in Laguna Australia's letter to ASD dated 6 September 2001 and the 19 October Agreement, and the 31 [sic] June Heads of Agreement copies of which may be inspected by appointment.

Insofar as they were oral, they were comprised in statements made by Willis, Frost, Wason and Patience on behalf of ASD and United Super to Marriner and Whalley on behalf of the plaintiffs by counterclaim, the material substance of which was to the effect alleged. The statements were made at a meeting at the premises of CBUS on 6 September 2001 and in subsequent conversations between Willis, Frost, Wason and Patience of the one part and Marriner of the other part taking place in the period between 6 September and 19 October 2001.

Insofar as the representations were to be implied, they were to be implied from the terms of the Heads of Agreement dated 31 October 2000, the 30 June Heads of Agreement, and to give commercial efficacy to the intentions of the parties to bring about the matters referred to in paragraph 113 hereof.

501 In their written submissions for the remitter hearing, however, the Marriner parties alleged representations that differed from those pleaded in the counterclaim and they sought to rely upon facts which were not pleaded and were not the subject of the trial before the original trial judge and the Court of Appeal. For eg, in 'Part E2: The representations on which the Marriner parties rely', the Marriner parties asserted:

Here, in the period from 5 September 2001 to the conclusion of the relevant agreements, ASD represented to the Marriner parties that:

(a) Laguna Australia would acquire inter alia the release of the claims herein as well as the debt the subject of loan account 1-7080 (which debt included the amount in respect of the second and third tranche of electricity bond monies).

(b) Fulham would become entitled in place of ASD to the full benefit of the debt the subject of loan account 1-7080 (which debt included the amount in respect of the second and third tranche of electricity bond monies).

502 In 'Part E3: Non-disclosure of the bond monies claim', it is asserted:

In the course of the negotiations, ASD represented that it would not pursue the Marriner parties in respect of the electricity bond monies (ie, the claims herein). The representation did not occur in a vacuum. It has to be considered in context.

Reference is then made to a host of contextual matters, most if not all of which they failed to set out in their pleading as the basis for the representations relied upon for the conduct alleged to be misleading or deceptive. For eg, the Marriner parties contend that the non-disclosure of the bond monies claim 'was not mere oversight on the part of ASD's directors and officers' but rather was 'the product of a deliberate and calculated strategy, one which was geared to the quickest possible sale of the resort whilst preserving the right to pursue Mr Marriner in respect of the bond monies.'

503 In their written submissions, reliance is also placed on the 'good faith' and 'best endeavours' provision contained in clause 5.12 of the Deed of Assignment of Debt dated 13 November 2001 of which there is no mention in the pleading. The Marriner parties asserted:

The existence of this contractually binding obligation of good faith is sufficient to have required ASD to disclose the change or impending change in the composition of the loan account prior to settlement and to support the reliance of the Marriner parties on ASD transferring the full [Laguna Investments] debt as ASD knew the Marriner parties to understand it as at the date of their 5 September 2001 offer to purchase Laguna Quays and acquire the debt.

504 In their written submissions, the Marriner parties also asserted that '[w]hen the conduct of the ASD parties is looked at as a whole and all the surrounding circumstances are taken into account, there is a strong basis for the representations alleged.' However, precisely what conduct, by which ASD parties, and what relevant 'surrounding circumstances' were relied upon was left unstated.

505 In their written submissions, the Marriner parties also acknowledged that an express contractual promise or representation will only constitute a representation for the purposes of s 52 of the Trade Practices Act 1974 (Cth) 'if the party making the promise or representation had no intention or capability of carrying it out at the time it was made.' They submitted that:

The present case falls within this exception. In terms of the falsity of the representations alleged, Laguna Australia and Fulham rely upon the facts and matters supporting the estoppel claim including the silence of the ASD parties in the circumstances outlined. The combination of what was said and what was left unsaid misled and deceived Laguna Australia and Fulham. In the full circumstances of this case, the relevant silence of the ASD parties attracts the operation of section 52 of the TPA.

506 The allegations concerning 'silence' were pleaded in paragraphs 127A and 128 of the counterclaim, as follows:

[127A] In ignorance of the matters pleaded in paragraph 126A above and in reliance on the silence of the defendants by counterclaim as to these matters and retainer of the claims herein Laguna Australia agreed to purchase Laguna Quays and Fulham executed the deed of assignment of debt on 3 November 2001.

[128] Further or alternatively, in ignorance of the 31 January 2002 reversal and in reliance on the silence of the defendants by counterclaim as to the 31 January 2002 reversal and retainer of the claims herein Laguna Australia settled the sale of Laguna Quays and paid the price in respect thereof and Fulham took an assignment of the debt owed by [Laguna Investments] to ASD.

Paragraph 126A relevantly pleaded:

[126A] Further or alternatively -

(a) As at 5 September 2001, each of the defendants by counterclaim was aware that the Marriner defendants wanted to acquire from ASD the debt owed by [Laguna Investments] to ASD (including the Bank Guarantee deposit amount forming part of that debt).

PARTICULARS

[not reproduced]

(b) [Mr Frost] without informing Laguna Australia or its nominee in about September 2001 instructed Peter Lewis to record the Bank Guarantee deposit as a 'third party recoverable' owed to ASD ('the instruction'), the effect of which required the 31 January 2002 reversal.

PARTICULARS

[not reproduced]

(c) The instruction was given with the knowledge and/or approval of the other defendants by counterclaim, alternatively it was subsequently approved by the other defendants by counterclaim.

PARTICULARS

[not reproduced]

(d) The instruction was given for the purpose of removing surreptitiously part of the debt owed by [Laguna Investments] to ASD (as recorded in the ASD/[Laguna Investments] loan account no. 1-7080).

PARTICULARS

[not reproduced]

(e) Alternatively to subparagraph (d), the instruction was given for the purpose of permitting or supporting a putative claim against the Marriner Defendants (the fulfilment of which purpose required the 31 January 2002 reversal).

PARTICULARS

[not reproduced]

(f) The defendants by counterclaim did not disclose these matters to the Marriner Defendants before the formation of the 19 October Agreement or the execution of the various deeds on 3 November 2001.

507 At the remitter hearing, Senior Counsel for the Marriner parties confirmed that the misleading and deceptive conduct claim as pressed by Laguna Australia and Fulham Holdings, rests upon the representations pleaded in paragraph 114 of their Defence and Counterclaim, which, he said, accord substantially with the representations on which the Marriner parties' estoppel claim also rests. No application was made at any stage to amend their pleading. Accordingly, I propose to deal with the case on the basis of the representations pleaded by the Marriner parties in their Defence and Counterclaim.[231]

508 Dealing first with the allegation that the pleaded representations were made orally, ASD submitted that '[n]o evidence whatsoever was led by Mr Marriner to support the pleaded allegations of oral representations.' In their witness statements, ASD's witnesses gave evidence in the form of witness statements from Mr Willis, Mr Patience and Mr Frost, that 'categorically denied the representations alleged by [Mr Marriner]' and '[t]heir denials were not challenged in cross-examination.' Accordingly, they argued, that insofar as the alleged representations were alleged to be oral, they were not established on the evidence.

509 Insofar as the alleged representations were said to be in writing, three documents were mentioned in the particulars: Laguna Australia's letter to ASD dated 6 September 2001, the 19 October Agreement, and the 31 [sic] June Heads of Agreement. The 6 September 2001 letter from Laguna Australia was the letter Mr Marriner wrote to Mr Frost, seeking to vary his proposal of 16 July 2001. ASD contended that it 'plainly could not have contained representations made to him.' Reference to the letter confirms that it does not contain a representation by ASD in the terms pleaded in paragraphs 114(a) or (b). Relevantly, the 'liabilities' were defined in the Share Sale Agreement, which built in a mechanism for settlement adjustments. This clause was further amended in later correspondence,[232] but even as framed it does not assist the Marriner parties' case. Even if the reference to 'liabilities accrued' could be interpreted as a reference to liability for the bond monies, the clause required the Vendor (ie, ASD) to be responsible for all such adjustments up to the date of completion.

510 ASD then pointed to Mr Marriner's letter to Mr Frost on 18 October 2001 by way of response to his letter of 17 October and to complain about the restrictive deadlines imposed by ASD, he referred to the adjustment provision and said that he 'remain[ed] concerned that [it] may not exactly reflect the intent that neither party should be liable for any undisclosed liabilities incurred by the other party.' In his letter, Mr Marriner continued, by referring to a 'telephone discussion Mr Patience and Mr Weaven', and said that following that conversation he was 'comforted that that intent can be fully reflected in the final legal documentation.' ASD said that this letter makes clear that Mr Marriner's concern at that time was not with the level of debt, which was fluctuating over time, but rather with 'undisclosed' liabilities incurred by the other party. Mr Marriner made no reference to the debt in respect of the bond monies and no concern was expressed about the level of indebtedness of Laguna Investments to ASD.

511 When Mr Marriner was cross-examined about the letter of 18 October 2001, he referred to an earlier dispute between Mr Whalley and Mr Patience over a GST adjustment issue and said that as a result of that, Mr Whalley 'was paranoid on making sure that all of the debts and liabilities were covered and brought up together.' In response to a question from his Honour, Mr Marriner added that he 'wanted to be absolutely clear moving forward we had no concerns on any undisclosed liabilities and debts of the company.' His Honour then elicited from Mr Marriner what he contended was said in the discussion conversation with Mr Patience and Mr Weaven (as noted above). ASD contended that what was said could not possibly amount to the express representation that is sought to be relied upon. Furthermore, ASD noted that the conversation between Mr Weaven and Mr Patience was not mentioned in the particulars given in the Marriner parties' pleading, nor in Mr Marriner's witness statement as the basis for the representation.

512 ASD submitted that the 19 October 2001 Letter Agreement was drafted in clear and categorical terms - the proposal as presented was expressed to be 'final and not negotiable' and it contained very comprehensive waivers and releases.[233]. Wallace & Wallace were representing the Marriner interests during the course of these negotiations and the settlement of the transaction. ASD also submitted that the Court of Appeal had rejected a submission made by the Marriner parties that the 19 October 2001 Letter Agreement contained any release relating to the bond monies claim, or any release of Mr Marriner or any other non-parties to it, and rejected Mr Marriner's allegation of an implied release of all claims.[234]

513 Similarly, ASD submitted the 30 June 2000 Heads of Agreement did not contain any representations of the kind pleaded nor did it provide a foundation upon which to imply them. The bond monies were mentioned in cl 10(d) of the agreement and cl 11 dealt with the 'Inter-Company Loan', and provided as follows:

The parties acknowledge that [Laguna Investments] is presently indebted to [ASD] in the sum of approximately $10 million. The parties further acknowledge that the purchase price payable pursuant to this agreement is inclusive of the repayment of that sum. The parties agree that they will confer as to the appropriate manner of dealing with that debt and agree that payment of the sum of $26.5 million, will be apportioned in repaying any such debt to [ASD] and thereafter the balance of such moneys shall be apportioned between the assets sold by the Vendors pursuant to this agreement.

514 Insofar as the representations were to be implied, the Marriner parties sought to imply them from the terms of the Heads of Agreement dated 31 October 2000 and the 30 June 2000 Heads of Agreement. They also sought to give commercial efficacy to the intentions of the parties to bring about the matters referred to in paragraph 113 of the counterclaim, namely 'for the purpose of bringing to an end the 1993 Shareholders Agreement, the Joint Venture between United Super and Goldworthy in ASD and the other joint ventures and business arrangements between the [Marriner parties] of the one part and ASD of the other part, and for the purpose of selling and transferring all of ASD's and United Super's interest in and in relation to Laguna Quays.' ASD said that neither of those documents provides a foundation for implying any of the pleaded representations.

515 ASD also pointed to the Deed of Assignment of Debt dated 13 November 2001. Therein the 'Debt' was clearly defined as 'the full amount owing by the Debtor [Laguna Investments] to the Assignor [ASD] on the Completion Date.' ASD submitted that no attempt was made at any point in the negotiations to either specify what the amount of the debt would be at the settlement or to provide that the debt be comprised of any particular component parts, including, for example, the so-called part that was referable to the original advance of the electricity bond monies. Furthermore, the deed in terms provided that it was for the assignor alone to calculate the amount of the debt - that is, under clause 2.3 it was for ASD to calculate the exact amount, deliver a statement to Mr Marriner, and then that statement would be conclusive as to the amount. Under clause 2.5(a), the assignee acknowledged that the debt was being acquired on an 'as is where is' basis and that ASD 'does not make any statement, representation, warranty, promise, undertaking'. Furthermore, under clause 2.5(b), the assignee waived 'to the fullest extent possible' any possible cause of action in relation thereto. Clause 5.1 contained an entire agreement clause confirming that the deed constitutes the entire agreement between the parties and supersedes any prior representations, whether made orally or in writing.

516 In these circumstances, ASD submitted that the Court should find that the representations pleaded were not made out.

517 I am not satisfied that the pleaded representations were made. For the reasons advanced by the ASD parties as summarised above, I find that no clear and unambiguous representations to the effect alleged were made by them. Nor were any such representations made by them by silence or otherwise to the effect that ASD would not pursue Mr Marriner in respect of the second and third tranche bond monies. This is not a case where it can be said that 'silence' on the part of the ASD parties was such as reasonably to induce in the mind of Mr Marriner and his associated companies a belief or a particular state of mind which was known to be untrue, and in consequence of which the relevant Marriner companies entered into the sale agreement and have thereby suffered detriment. The position was that Mr Marriner knew from at least August 2001 that ASD was investigating what had taken place with the third tranche bond monies, and that it was an issue of some concern to the board. Yet once he delivered his explanation to the Chairman, by letter dated 5 September 2001, he took no steps directed to clarifying the position concerning the bond monies during the course of the negotiation of the sale agreements or in the lead up to the settlement. In effect, he was content to assume that all was well.

518 Furthermore, as ASD pointed out, when the documents were being drafted, Mr Marriner never queried the formulation of the 'Debt' the subject of the deed of assignment nor did he seek to clarify that the debt was comprised of any particular component parts, or to specify what the amount of the debt would be at the settlement. Neither Mr Whalley nor Mr Penridge raised any enquiry as to the amount of the debt or how it was arrived at, despite the fact that each was afforded an opportunity to do so.

519 That conclusion means that the Marriner parties' misleading and deceptive conduct case and their estoppel case fall at the first hurdle.

Whether Mr Marriner relied on any representations made that are permitted to be relied upon and if so what facts constituted any relevant act of reliance? (Issue (xiii))

520 In his further reasons concerning the counterclaim, the original trial judge noted that '[r]eliance upon the representations is alleged in paragraph 115 to have been, not by Mr Marriner or Goldworthy or Laguna Airport or Staged Design, but by Laguna Australia and Fulham Holdings' and the 'estoppel is said to have affected Laguna Australia and Fulham Holdings and the misleading and deceptive conduct is said to have caused loss to Laguna Australia and Fulham Holdings'.[235] In those circumstances, his Honour observed it is 'difficult to see how such a claim, if successful, could be effective as a set-off against a claim against any of the defendants to the ASD claims'.[236] I share that view.

521 The Marriner parties effectively acknowledged the absence of any direct evidence of reliance for either their estoppel or misleading and deceptive conduct cases. They contended, however, that the absence of direct evidence does not necessarily preclude a finding of reliance, it being legitimate for the Court to draw an inference of reliance. They asserted that there was 'ample evidence of reliance here and the reliance was exactly what ASD expected and hoped it would be.' Then they pointed to what they said was the 'obvious inference' to be drawn, namely, that 'in reliance upon the representations of the ASD parties, Laguna Australia and Fulham entered into the relevant agreements in November 2001.'

522 Certainly the Marriner parties entered into the agreements but I am not satisfied that they did so on the basis of and in reliance upon the alleged representations. Having found that those representations are not made out, and in circumstances where no direct enquiry was raised by Mr Marriner or his advisers as to the amount of the debt, its composition or how it was arrived at (despite being afforded an opportunity to do so), no proper foundation has been demonstrated that would permit the Court to draw an inference of reliance.

Whether ASD is estopped by representation from pursuing the bond monies claim? (Issue (xvi))

523 The estoppel by representation case suffers from the same essential difficulties as the misleading and deceptive conduct case. Even though I have found that the representations relied on have not been made out, lest the matter go further I shall deal briefly with the two assumptions that the Marriner parties plead were induced by those representations. In paragraph 117, they plead the relevant assumptions as follows:

[117] Further, as was at all material times well known to the defendants by counterclaim and each of them the representation induced in Laguna Australia the assumptions that:

(a) What was being sold for $27,450,000.00 to Laguna Australia was all of the interest of ASD and United Super as trustee of CBUS in Laguna Quays including the debt owed by [Laguna Investments] to ASD including the debt in respect of the Bank Guarantee deposit and release of the claims herein;

(b) Fulham as nominee of Laguna Australia to take the assignment of the debt owed by [Laguna Investments] to ASD would become entitled in place of ASD to the full benefit of the debt owed by [Laguna Investments] including in relation to the Bank Guarantee deposit.

524 Simply stated, it will be seen that the assumptions contended for by the Marriner parties suffer from the same basic flaws as the representations themselves. No proper foundation has been established for the Court to find that those assumptions were induced by the ASD parties.

525 In their written and oral submissions the Marriner parties relied upon the following passages from the judgment of Kerr LJ (delivering the judgment of the Court of Appeal, Oliver, Kerr and Lloyd LJJ) in K Locumal & Sons (London) Ltd v Lotte Shipping Co Pte Ltd,[237] dealing with the nature and effect of an estoppel by convention. In that case, the parties fell into 'what may be described as a mutual mistake, each believing that the other was to take a certain step and neither being aware of the other's erroneous belief; and the party seeking to set up the estoppel by convention did not act, or omit to act, in reliance upon anything said or done by his adversary.'[238] In those circumstances, their Lordships said:

All estoppels must involve some statement or conduct by the party alleged to be estopped on which the alleged representee was entitled to rely and did rely. In this sense all estoppels may be regarded as requiring some manifest representation which crosses the line between the representor and representee, either by statement or conduct. It may be an express statement or it may be implied from conduct, eg a failure by the alleged representor to react to something said or done by the alleged representee so as to imply a manifestation of assent which leads to an estoppel by silence or acquiescence. Similarly, in cases of so-called estoppels by convention, there must be some mutually manifest conduct by the parties which is based on a common but mistaken assumption. The alleged representor's participation in this conduct can then be relied upon by the representee as a basis for this form of estoppel.[239]

...

There cannot be any estoppel unless the alleged representor has said or done something, or failed to do something, with the result that - across the line between the parties - his action or inaction has produced some belief or expectation in the mind of the alleged representee, so that, depending on the circumstances, it would thereafter no longer be right to allow the alleged representor to resile by challenging the belief or expectation which he has engendered. To that extent at least, therefore, the alleged representor must be open to criticism. [240]

526 The Marriner parties accepted that what is required over and above agreement itself is that the person sought to be estopped must have contributed in some active way towards engendering or perpetuating the mistaken belief about the basis on which the parties are conducting their dealings, thus making it unconscionable to allow that party to later resile from the stance he or she has taken. They acknowledged that, as McHugh JA pointed out in Coghlan, estoppel is not concerned with a self-induced mistake.[241]

527 In the present case, the assumption that Mr Marriner made was effectively self-induced. In circumstances where he knew that ASD was investigating what had taken place with the bond monies, and he had provided a response to the Chairman, he chose to believe that his explanation had been accepted, and contented himself throughout the negotiations by apparently believing just that. However, his erroneous belief that his explanation had been accepted was not induced by the ASD parties, and it would have been a simple thing for him to have clarified what the position was had he wished to do so. Indeed, as I have noted, in circumstances where he now says he regarded the non-pursuit of the claim and the composition of the debt as being of real importance, the failure to make any, or any prudent enquiry, about these matters during the negotiations is telling.

528 It follows that, in my view, ASD is not estopped by representation from pursuing the bond monies claim.

Did the Deed of Assignment of Debt operate to assign from ASD to Fulham Holdings the chose in action the subject of ASD's primary claim, thereby disentitling ASD from making the bond monies claim? (Issue (xvii))

529 In circumstances where I have concluded that the Marriner parties' claims concerning unconscionable conduct, misleading and deceptive conduct and estoppel by representation are not made out, the Deed of Assignment of Debt falls to be construed according to its terms. It follows, and I so find, that the Deed of Assignment of Debt did not operate to assign from ASD to Fulham Holdings the chose in action the subject of ASD's primary claim. The accounting entries that were made reflected the fact that the bond monies had been repaid, such that at the time of assignment, there was no longer any bond monies debt in existence between Laguna Investments and ASD.

Whether the terms of the sale agreements made on 13 November 2001 (and in particular, cls 2.3(b), 2.5(a), 2.5(b) and 5.1 of the Deed of Assignment of Debt, and cls 7.8(a), 7.8 (b) and 11.1 of the Share Sale Agreement preclude Mr Marriner and his associated companies from bringing the claims he now seeks to make? (Issue (xviii))

530 Similarly, for the reasons set out above, I have found that the provisions of the Deed of Assignment of Debt and the Share Sale Agreement are effective according to their terms. Accordingly, I find that by their terms they preclude Mr Marriner and his associated companies from bringing the claims they now seek to make.

Whether there is any basis for ASD's directors and Mr Patience to be held liable to Mr Marriner and, if so, what are the facts relevant to each individual and what amount is each individual liable for and in respect of what causes of action? (Issue (xix))

531 Similarly, for the reasons set out above, I have not found any basis for ASD's directors and Mr Patience to be held liable to Mr Marriner.

Ruling on documents sought to be tendered at the remitter hearing that were not included in the Court Book

532 In the course of making their submissions, Senior Counsel for the Marriner parties sought to tender some additional documents. The first document, identified as 'document D-328', was produced in Court on 2 September 2013. It was a general ledger listing for Laguna Management as of 30 June 2001 and was referred to in Schedule C to Mr Whalley's witness statement, entitled 'Financial Documents relevant to the accounting of the Electricity Guarantee Monies'.

533 Document 'D-328' was omitted from the Court Book that the parties prepared for the hearing of the remitted issues. The transcript of the first trial records that reference was made to the documents in Schedule C to Mr Whalley's witness statement and they appear to have been included as part of Exhibit 231 at the trial.[242]

534 The third page of Document 'D-328' contains a listing of what purport to be alterations made to the ledger of Laguna Management in 2002. It records a credit entry for 31 January 2002 in the sum of $1,610,000 with a reference of 'P Lewis.' Mr Bick submitted that this document provided evidence of the date of 31 January 2002 that is referred to in the Marriner parties' pleading as the date on which the bond monies were 'backed out'.

535 Senior Counsel for ASD, Mr O'Bryan SC, objected to the tender of document D-328, initially on wider grounds but he later revised that to (only) on grounds of relevance.

536 In my view, the document is conceivably of some relevance in establishing a basis for the Marriner parties' contention that an adjustment was made to the general ledger of Laguna Management on 31 January 2002. Accordingly, I will overrule the objection.

537 On 21 August 2013, Mr Bick QC handed up a document summarising the evidence concerning the JJ McDonald expenditure. He said that it was an updated version of a document they had prepared for the trial before the original trial judge as an aid to his Honour knowing where the evidence was and what it said. He added that he had attached 'some documents that were in the earlier court book but not in this court book, just for completeness' and did not believe that any of this would be controversial. He continued by saying that the document was 'simply a summary of the evidence that the original trial judge had before him' and he did not wish to say any more about it, but added:

For completeness, perhaps I can tender that to get in the missing documents that are on the back. Perhaps if Your Honour could take the summary as an aid to understanding the evidence but receive it as tendered documents, the additional documents from the old court book that are attached.

538 The documents attached were 8 pages bearing what appeared to be Court Book references for the original trial.

539 Senior Counsel for ASD objected to their tender and submitted that if the documents were not tendered at trial, they were required to be proved. I indicated that I would not rule on the documents until counsel had consulted and worked out whether or not these documents were tendered as exhibits at the original trial. The following exchange then ensued:

MR BICK: Yes, certainly; I will do that, Your Honour. Nothing really turns on McDonald in this round in any event, Your Honour. Your Honour was told there was only one small McDonald payment out of the third tranche, from memory I think it is $1,500, and it's not a major issue.

MR O'BRYAN: Then I have a different objection. It is irrelevant.

HER HONOUR: I will leave this to be sorted out next week.

540 On 2 September 2013, as Mr Bick QC was closing the submissions made on behalf of the Marriner parties, I raised the matter of the proposed tender of the documents attached to the 'JJ McDonald Expenditure-Summary', whereupon Mr Bick QC sought to tender them. Mr O'Bryan SC then stated that he maintained his objection on the basis that the documents were not included in the original trial Court Book. Mr Bick QC responded, and the following exchange ensued:

MR BICK: The summary, Your Honour, we prepared to assist His Honour at trial as an aide-memoire, and it's put forward as no more than that now. In relation to documents attached to it, I'd have to look at them again and refresh my memory, Your Honour.

HER HONOUR: I won't rule on that until you have had another look at the document. But if you can identify - it would be helpful if you could identify where you contend the documents were part of the court book, if that's your case, and where you also, on the transcript, handed up the summary to Byrne J as an aide-memoire.

MR BICK: Yes.

HER HONOUR: And then I'll deal with that once you have had an opportunity to do that, I won't rule on it until you have done that.

MR O'BRYAN: Your Honour, just to clarify. It may have been in the documents before Byrne J but it was not tendered, is our understanding. It was not received in evidence before Byrne J and we object to it, Your Honour, on that basis.

541 The matter was not raised again during the remitter hearing. Nor was it sought to be raised by the parties following the conclusion of the hearing.

542 Perusal of the document reveals that it is an (updated) aide-memoire summarising the expenditure associated with work undertaken by JJ McDonald. As Senior Counsel for the Marriner parties acknowledged, there was only one small payment made to JJ McDonald out of the third tranche, and it is by no means a major issue on the remitter. The earlier version of the aide-memoire may have assisted the original trial judge but the updated version is not of obvious assistance on the remitter. Senior Counsel for the Marriner parties made no attempt to demonstrate its relevance, or to re-agitate the issue of whether the additional documents were tendered at the trial. In the circumstances, I will allow the objection to the tender of the (updated) aide-memoire and associated documents.

543 I will hear the parties on the precise form of the appropriate orders, including on the question of costs of the hearing before the original trial judge and on the remitter.

Diagram 1: Pre separation of JV - February 1993 - November 2000

Diagram 2: Post separation of JV - From November 2000

Diagram 3: Post sale of Laguna Quays Resort - 17 April 2002

AUSTRALIAN SUPER DEVELOPMENTS PTY LTD (ACN 058 626 761)

AUSTRALIAN SUPER DEVELOPMENTS PTY LTD (ACN 058 626 761)

[1] Marriner v Australian Super Developments Pty Ltd [2012] VSCA 171 (3 August 2012) ('Court of Appeal's Reasons'), 5 [10] - agreed fact.

[2] Australian Super Developments Pty Ltd v Marriner [2010] VSC 41 (26 February 2010) ('Trial Judge's Reasons') 22 [60].

[3] There were originally three claims, but one of these was resolved: see ibid 2 [4].

[4] Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567.

[5] See Australian Super Developments Pty Ltd v Marriner (No 2) [2010] VSC 66 (16 April 2010) ('Trial Judge's Reasons (No 2)').

[6] Trial Judge's Reasons [2010] VSC 41 (26 February 2010), 56 [171].

[7] The amount claimed on the cross-appeal was $929,800, made up of the second tranche sum of $426,600 plus the third tranche sum of $853,200, which was said to be the amount to which the cross-appellants were entitled, minus the sum of $350,000 received from Wallace & Wallace by way of settlement, plus statutory interest.

[8] Court of Appeal's Reasons [2012] VSCA 171 (3 August 2012).

[9] Court of Appeal's Reasons [2012] VSCA 290 (5 December 2012) ('Court of Appeal's Reasons (No 2)'), 2 [5].

[10] Court of Appeal's Reasons [2012] VSCA 171 (3 August 2012), 47 [147].

[12] Court of Appeal's Reasons (No 2) [2012] VSCA 290 (5 December 2012).

[13] Order made by the Court of Appeal, 3 August 2012.

[14] [1861] EngR 831; (1861) 30 Beav 136; 54 ER 840.

[15] (1874) LR 9 Ch App 244.

[16] Thus far, no submissions have been made concerning the question of the costs of the original trial.

[17] [2011] NSWCCA 157 (14 July 2011), 25 [56] (Simpson J).

[18] See paragraphs [532]-[538] below.

[19] The Court Book for the remitted hearing included:

(a) the witness statements of Mr Willis, Mr Wason, Mr Patience and Mr Frost that were filed on behalf of ASD; and

(b) the witness statements of Mr Whalley, Mr Jephson, Mr Blashki and Mr Marriner that were filed on behalf of the Marriner parties and the witness statement of Mr Penridge. (ASD called Mr Penridge to give evidence at the original trial but his witness statement (filed on behalf of the seventh to fourteenth defendants, the Wallace & Wallace parties) was tendered by the Marriner parties.)

[20] Mr Penridge was the fourteenth defendant to the original proceeding, but having settled with the plaintiff he was not a party to the remitted proceedings.

[21] Laguna Airport is also mentioned in ASD's pleading but it is not included in the remitter orders made by the Court of Appeal.

[22] See Court of Appeal's Reasons [2012] VSCA 171 (3 August 2012), 62-63 [186] - agreed fact.

[24] Trial Judge's Reasons [2010] VSC 41 (26 February 2010), 23 [63].

[29] Court of Appeal's Reasons [2012] VSCA 171 (3 August 2012), 8 [26] - agreed fact.

[33] Ibid 63 [188] (emphasis in original).

[35] Trial Judge's Reasons [2010] VSC 41 (26 February 2010), 18 [45].

[37] Court of Appeal's Reasons [2012] VSCA 171 (3 August 2012), 88 [275(1)] - agreed fact.

[38] See paragraph [63] above.

[39] Court of Appeal's Reasons [2012] VSCA 171 (3 August 2012), 31-32 [89].

[40] The content of the phone conversation is referred to in Trial Judge's Reasons [2010] VSC 41 (26 February 2010), 34 [98]. The content of the conversation and the effect of the agreement was said by the parties in their agreed summary of facts prepared for the Court of Appeal to be contentious between them.

[41] Court of Appeal's Reasons [2012] VSCA 171 (3 August 2012), 39 [117] - agreed fact.

[44] Ibid 39 [117] citing Trial Judge's Reasons [201] VSC 41 (26 February 2014) 33-34 [98].

[45] Court of Appeal's Reasons [2012] VSCA 171 (3 August 2012) 88 [275(3)] - agreed fact.

[47] Court of Appeal's Reasons [2012] VSCA 171 (3 August 2012), 56 [174] - agreed fact.

[48] Trial Judge's Resaons [2010] VSC 41, 45 [137].

[49] Court of Appeal's Reasons [2012] VSCA 171 (3 August 2012) 9 [32] - agreed fact.

[50] Court of Appeal's Reasons [2012] VSCA 171 (3 August 2012), 58 [179(iii)].

[52] Trial Judge's Reasons [2010] VSC 41 (26 February 2010), 6 [22].

[53] Court of Appeal Reasons [2012] VSCA 171 (3 August 2012), 9 [31] - agreed fact.

[57] Ibid 42 [127]-[128] - agreed fact.

[59] The variation to the 30 June 2000 Heads of Agreement was confirmed in a letter dated 31 October 2000 signed by Mr Frost for and on behalf of ASD, Matelda Oaks and Laguna Investments and Mr Marriner for and on behalf of Laguna Australia.

[60] The reference to '6 July' is presumably a reference to the proposal Mr Marriner submitted to the Chairman of CBUS, Mr Willis, dated 16 July 2001.

[61] Trial Judge's Reasons [2010] VSC 41 (26 February 2010), 22 [60].

[62] Court of Appeal's Reasons [2012] VSCA 171 (3 August 2012), 41 [123].

[63] Trial Judge's Reasons [2010] VSC 41, 41-42 [124].

[65] Ibid 49 [146]-[148] (citations omitted).

[66] Court of Appeal's Reasons [2012] VSCA 171 (3 August 2012), 47 [147].

[67] Court of Appeal's Reasons [2012] VSCA 171 (3 August 2012), 53 [163].

[68] Trial Judge's Reasons [2010] VSC 41 (26 Feburary 2010), 51 [154].

[69] Court of Appeal's Reasons [2012] VSCA 171 (3 August 2012), 53-55 [164]-[169].

[70] Rule 64.23 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) relevantly provides:

(1) If upon the hearing of an appeal it appears to the Court of Appeal that there ought to be a new trial, the Court of Appeal may order that the judgment or the verdict and judgment be set aside, and that there be a new trial.

(5) A new trial may be ordered on any question, whatever be the grounds for the new trial, without interfering with the decision upon any other question.

[71] Bankstown Football Club Ltd v CIC Insurance Ltd (1998) 10 ANZ Ins Cas 61-406; Wilson v Madden (Unreported, New South Wales Court of Appeal, Kirby P, Handley and Mahoney JA, 5 June 1992) (Handley JA, with whom Kirby P and Mahoney JA agreed). See also AMP Henderson Global Investors Ltd v Valuer-General [2006] NSWLEC 16, [33]-[37].

[72] [2008] FCA 470; (2008) 75 IPR 557 ('Cadbury v Darrell Lea (No 8)').

[73] See Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd [2007] FCAFC 70; (2007) 159 FCR 397.

[74] Cadbury then brought on a motion to the Full Court seeking an order that the previous order be varied to provide that the matter be remitted to the trial judge for a new trial. The Full Court rejected Cadbury's motion on the basis that it did not consider that a new trial was justified. The proceeding was remitted 'on the basis that it would be before the primary judge as though the case was part heard': Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd (No 2) [2007] FCAFC 102 (9 July 2007), 2 [7].

[75] Cadbury v Darrell Lea (No 8) [2008] FCA 470; (2008) 75 IPR 557, 561 [11]-[12].

[76] See Fox v Percy [2003] HCA 22; (2003) 214 CLR 118, 125-126 [23], where Gleeson CJ, Gummow and Kirby JJ noted, in the context of an appellate court, that these limitations include 'the disadvantage that the appellate court has when compared with the trial judge in respect of the evaluation of witnesses' credibility and of the "feeling" of a case which an appellate court, reading the transcript, cannot always fully share' (citation omitted).

[77] Trial Judge's Reasons [2010] VSC 41 (26 February 2010), 42-43 [125].

[80] Court of Appeal's Reasons [2012] VSCA 171 (3 August 2012), 10-11 [33].

[81] Those facts are also agreed facts between the parties.

[82] Court of Appeal's Reasons [2012] VSCA 171 (3 August 2012), 47 [146].

[85] Ibid 42 [126] citing Australian Super Developments Pty Ltd v Marriner (No 2) [2010] VSC 66 (16 April 2010), 4 [10].

[86] Trial Judge's Reasons [2010] VSC 41 (26 February 2010), 51 [155].

[87] Court of Appeal's Reasons [2012] VSCA 171 (3 August 2012), 12 [35].

[92] [2007] HCA 22; (2007) 230 CLR 89 ('Farah Constructions').

[93] [1995] UKPC 4; [1995] 2 AC 378 ('Royal Brunei').

[94] [2007] HCA 22; (2007) 230 CLR 89, 160 [163].

[96] Twinsectra Ltd v Yardley [2002] UKHL 12; [2002] 2 AC 164; Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd [2005] UKPC 37; [2006] 1 WLR 1476.

[97] [2007] HCA 22; (2007) 230 CLR 89, 160-161 [164].

[98] [2007] HCA 22; (2007) 230 CLR 89, 159 [161]. The 'line of cases' referred to by the High Court cited, as examples, the decisions of Fyler v Fyler [1841] EngR 463; (1841) 3 Beav 550, 561-562, 567-568; [1841] EngR 463; 49 ER 216, 221, 223, 224 (Lord Langdale MR); Alleyne v Darcy (1854) 4 I Ch R 199, 209 and Eaves v Hickson [1861] EngR 831; (1861) 30 Beav 136; 54 ER 840 (Sir John Romilly MR).