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

Australian Super Developments Pty Ltd v David Wellesley Marriner & Ors [2014] VSC 464 - VSC 2014 case summary — Zoe

[130]

[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.

[143]

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]
Sale price of $26.5M;
Initial deposit of $250k payable on signing;
Balance of deposit payable on 1 July 2000, making total deposit equal to 20% of the sale price;
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
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
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
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
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
CBUS and [ASD] approval will be required for any significant capital works affecting secured assets
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

[404]

[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]

[683]

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:

[692]

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)

[757]

[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.

[816]

[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.

At a glance

Court

Decision date

Before

Source

Judgment (1049 paragraphs)

Parties

Legislation Cited (16)

Cases Cited (30)