Club of the Clubs Pty Limited v King Network Group Pty Limited [2006] NSWSC 1138 | Case summary | Zoe

NSWNSWSC

Club of the Clubs Pty Limited v King Network Group Pty Limited

[2006] NSWSC 1138

Supreme Court of NSW|2006-06-22|Before: Bergin J

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Source facts

Court

Supreme Court of NSW

Decision date

2006-06-22

Before

Bergin J

Source

Original judgment source is linked above.

Judgment (631 paragraphs)

[1]

Introduction 1 This litigation arises out of a dispute between the participants in a joint venture, the aim of which was to acquire land and construct a resort style development consisting of residential and commercial premises with leisure facilities, including an 18 hole golf course (the Joint Venture). The land comprised Lots 194, 301 and 312 in DP 755701 in the Parish of Cudgen, County of Rous, in South Kingscliff on the North Coast of New South Wales (the Land). The Land abutted the Pacific Ocean coastline with a seafront frontage of 1.184 km. Lenen Pty Limited (Lenen), the directors and shareholders of which at the relevant time were Ian Barclay and Donald Barclay, was the registered proprietor of the Land. The corporate vehicle involved in the Joint Venture was KingsHeath Club of the Clubs Limited (KCOTC) incorporated on 24 August 1999. 2 The Land was not developed pursuant to the Joint Venture and ultimately one of the parties in the Joint Venture purported to assume total ownership of the Land to the exclusion of the other parties to the Joint Venture. It is that conduct and the consequential purported sale of the Land that is at the heart of the issues between the parties to this litigation. The relevant events occurred during the period 1999 to 2003 and the proceedings were not commenced until 2004. Many of the people involved in these events have not given evidence and the claims and counter claims have required a lengthy analysis of the documents and the evidence of those parties who did give evidence. The parties and the claims 3 The first plaintiff, Club of the Clubs Pty Limited (COTC), is a company of which Ray William Dalglish (Dalglish) and his wife, Maja Dalglish (Mrs Dalglish), are shareholders and directors. It was a party to the Joint Venture. Dalglish was a director of KCOTC from 26 August 1999. The second plaintiff, IMF (Australia) Limited (IMF), claims that KCOTC has assigned certain causes of action in respect of the Joint Venture to it. It purports to bring the causes of action that KCOTC had against the defendants and I will refer to those as KCOTC's various claims. There is an issue as to whether IMF is entitled to bring these causes of action and I will deal with that aspect of the matter separately. 4 The first defendant, King Network Group Pty Limited (KNG), was a party to the Joint Venture. The second defendant, Harry Stamoulis (Stamoulis), is the son of the fourth defendant, Spiros Stamoulis (S Stamoulis). Stamoulis was a director of KCOTC from 26 August 1999 and a director and shareholder of KNG from 3 September 1999. The third defendant, King Development Group Pty Limited (KDG), is a company of which S Stamoulis was a director and of which he and Stamoulis were equal shareholders from 22 November 2001. 5 There are a number of agreements between COTC and KNG and the other participants in the Joint Venture with which I will deal in detail later in this judgment. Ultimately the Joint Venture did not proceed as originally planned and the Land was acquired by KNG from Lenen for $20.2 million and sold to South Kingscliff Developments Pty Limited (SKD) for $25 million. KDG entered into a subsequent joint venture with SKD to acquire and develop the Land. The shareholders of SKD, in equal shares, were KDG, Hopper No 1 Pty Limited (of which Steven Papadopoulos (a director of Macquarie Bank) was a director, and Macquarie Bank was a shareholder), and Kingscliff South Pty Limited (of which Brian Ray of the Ray Group was a director and shareholder). This second joint venture has been referred to as the Macquarie Joint Venture.

[2]

6 The plaintiffs have amended their Summons on four occasions, the last amendment having been made on the fourth day of the trial. The claims the plaintiffs finally maintained are conveniently summarised in the plaintiffs' final submissions as: (1) COTC claims that KNG breached its fiduciary duty to it by selling the Land to SKD. It is claimed that there was a conflict between KNG's duty to the participants in the Joint Venture and KNG's private interests arising from the participation of "a Stamoulis company" in the Macquarie Bank Joint Venture (COTC claim against Stamoulis for breach of fiduciary duty); (2) KCOTC claims that Stamoulis, as a director of KCOTC, breached his fiduciary duty to KCOTC by causing KCOTC to nominate KNG to exercise the Put and Call Option whereby KCOTC transferred a valuable asset, the Land, to KNG for no consideration (KCOTC claim against KNG for breach of fiduciary duty); (3) COTC claims that KNG has breached its contract with COTC by reason of: (a) its failure to share the profits from the sale of the Land on a pari passu basis; and (b) the sale of the Land to SKD at an undervalue (COTC claim against KNG for breach of contract); (4) COTC and KCOTC claim that KNG has breached its contract in failing to honour contractual undertakings to indemnify KCOTC in relation to debts incurred (COTC and KCOTC debt claims against KNG); and (5) COTC makes claims against various parties for assisting KNG and Stamoulis in breaches of fiduciary duties (Accessorial claims). 7 The defendants deny, on various bases referred to later in this judgment, the plaintiffs' entitlement to any relief and claim that KNG had an irrevocable right to deal with the Land, that there have been no breaches of fiduciary duties and that the plaintiffs have not suffered any loss or damage. The defendants deny that KNG is obliged to pay any proportion of KCOTC's unpaid debts. The defendants also make a claim that COTC is estopped from making the various claims and/or asserting that one of the agreements in the Joint Venture pursuant to which KNG purported to sell the Land is invalid, illegal or of no effect on the basis that it consented to that agreement. THE FACTS

[6]

The Executive Summary 12 On 20 January 1999 Dalglish presented what has been referred to in the litigation as the COTC Executive Summary and Marketing Concept (the Executive Summary) to the Barclays. COTC was described in the Executive Summary as a special purpose vehicle formed for the purpose of sponsoring and taking an interest in an unlisted public company to be incorporated as KCOTC that was to be the "Single Responsible Entity 'KingsHeath' ". The Executive Summary claimed that Dalglish and Mrs Dalglish were the owners of intellectual property of the model contained in the Executive Summary that was in turn based on the intellectual property to the Coolum Resort that was also resident in their intellectual property. The Executive Summary also included a statement that $2.5 million had been expended in the process of market research; searching out and taking steps to acquire suitable sites; developing the concept; compiling a design brief and preliminary costings in conjunction with project managers and consultants up to "ready to construct state" to commence during 1999; and adapting the Hyatt Coolum Sales, Marketing and Corporate Structure to the requirements of the relevant present day legislation. It also recorded that the $2.5m had been provided by Dalglish and Mrs Dalglish and would be reflected in the accounts of COTC as its subscription of foundation capital to KingsHeath for a 25% shareholding in KCOTC when incorporated. 13 The Executive Summary described the "Club of the Clubs theme" as "understated elegance, least grandiose construction, simplest possible architectural design, brilliant landscaping architecture for topographical absorption of building in order to create KingsHeath as a themed variation of the Hyatt Coolum, suited to the Clubs' market, as a Clubs' Club and Club Members Residential Club" (par (9)). It also referred to the Land and COTC's wish to be involved in Lenen's fresh Development Application to the Tweed Shire Council. It suggested that as a condition precedent to COTC receiving a "sponsor and general counsellor" for the KCOTC project, it wished to enter into a purchase option agreement with Lenen "which at the appropriate time will be assigned to Kingsheath" (par (4)). 14 The Executive Summary recorded the following in relation to class V members: foundation members/financial partners/stakeholders, rights attached to interests owners of the KingsHeath CLUB of the CLUBS Limited are not entitled to exercise voting rights on their own account in an election of nominated persons to the Board of Governors, but by their own ballot, elect the Board of Directors of the KingsHeath CLUB of the CLUBS Limited (in compliance with the Managed Investments Act). This Single Responsible Entity will exercise its administration and management rights of and to the location, as Trustee/Manager for all classes of membership, and will appoint custodian(s) as and if necessary. Introduction to Mancuso/Arts 15 In January 1999 Dalglish and Shannon were introduced to Salvatore Mancuso (Mancuso) who was associated with or controlled Arts Investments Pty Limited (Arts). Mancuso advised that he had a wide range of contacts in the business community in Melbourne and that he had a "come and go facility" with the St George Bank. Mancuso advised Dalglish and Shannon that he may be able to help them in their search for investors in "several sites for a clubs style resort". In late January 1999 Dalglish, Shannon and David Nott from KPMG made a presentation to Mancuso at a meeting in KPMG's offices in Sydney. At this meeting Dalglish advised Mancuso that he would be prepared to consider recommending that Mancuso receive a 2.5% interest in any subsequent joint venture if he were to find an equity investor.

[33]

6 Steering Committee (a) The Participants agree to establish the Steering Committee, whose function will be to: (i) procure and ensure that the Joint Venture pursues and achieves its purposes as stated in clause 2.1; (ii) oversee the conduct and progress of the Project; (iii) make decisions on behalf of the Participants regarding all matters arising in the course of the Project; (iv) procure the preparation of the accounts and financial statements recording the revenue, expenditure and activities of the Project; (v) liaise with the Manager, and receive progress reports in relation to the Project; (vi) determine all business and other policies relating to the conduct of the Project and dealings with the Site after the Project is completed; and (vii) such other functions as the Participants may delegate to the Steering Committee from time to time. (b) The Steering Committee will, unless otherwise agreed, consist of five (5) persons. Each of the Participants will be entitled to nominate one representative to the Steering Committee, and the fifth representative will be a person nominated by KPMG Corporate Finance (Australia) Pty Ltd ( KPMG) . The person so nominated by KPMG will be the Chairman of the Steering Committee. Each member of the Steering Committee appointed by the respective Participants will hold office until such time as the Participant that appointed him or her removes his or her nomination to the Steering Committee. (c) If a particular member of the Steering Committee retires, is removed or is unable to attend meetings of the Steering Committee, a person nominated by the Participant who originally nominated that member will replace him or her. (d) Each member of the Steering Committee, save for the person nominated by KPMG, will be entitled to cast one vote in relation to any resolution put to the Steering Committee. In the event that there is an equality of votes in relation to a given resolution put to the Steering Committee, the person nominated by KPMG will have a casting vote, and the Participants agree to be bound by the casting vote of that person.

[54]

Form a Steering Committee on which all participants in the KingsHeath JV are represented and to appoint a Manager, then as the owner of the land comprising the KingsHeath development site located at South Kingscliff and fronting the South Pacific Ocean, and taking into account its historical background, to bring into effect contemporaneously the following objectives: a. Make application for Development Consent (through Lenen Pty Ltd) incorporating a Plan of Subdivision which will optimize income and minimize costs to the joint venture participants. b. Steer the majority of the land subdivided into a development contract with an unlisted public company which the KingsHeath JV Steering Committee Manager will have incorporated, and to be known as KingsHeath Club of the Clubs Limited "KingsHeath Ltd". The development contract will also contain a Trust Agreement and a Trustee Management Agreement between the parties. Thus, KingsHeath Ltd will be empowered to act as the Single Responsible Entity (SRE), that is both trustee and manager for all stakeholders in the development, including residential and other classes of members. The shareholdings in KingsHeath Ltd are to be held by the KingsHeath Syndicated JV participants in the same proportions as their joint venture participation. The purpose being that the Syndicated JV participants will: - share the income of the KingsHeath CotC development as it materializes after payment of costs; - gain unfettered control of the proportionate interests which will materialize when appropriate in the form of residential allotment entitlements which in themselves arise from permission in the development consent for quality medium density residential development as ancillary and incidental to the primary intent for the zone of tourism development. 2. Proceed with the compilation and registration of a printed and electronic Prospectus, timely with the issue of development consent, for the sale of residential memberships. 3. Set up and train a sales force in terms of the residential memberships marketing plan, as well as to other principle of mutuality organizations.

[74]

Funding problems 30 Although under the Joint Venture Agreement, Arts agreed that it would procure a guarantee for a minimum amount of $4 million on or before 13 August 1999, it did not do so. AWD was only required to procure or provide a standby letter of credit in the amount of $2 million once Arts procured the guarantee. Clause 3.1 of the Put and Call Option dated 18 August 1999 required "COTCJV" (being COTC, Jandawn, AWD and Arts) to provide within seven days of the date of the Put and Call Option an irrevocable Bank Guarantee for $4 million in a form required by Lenen. Lenen had the discretion to accept a Letter of Credit Facility in lieu of the Bank Guarantee. On 30 August 1999 Lenen's solicitor, David Beattie advised KPMG that Lenen would not accept a Letter of Credit from any insurance company and that it required a Bank Guarantee. It is apparent that the Joint Venturers, through KPMG, were making enquiries with HIH Insurance for the provision of a guarantee. Mr Beattie advised that Lenen was willing to extend the time within which to provide a guarantee but that it would not accept a guarantee from HIH Insurance because it did not meet its criteria. 31 On 23 September 1999 KPMG wrote to Dalglish, Shannon, Mancuso and Stamoulis and advised that various consultants had been engaged on the assumption that the financial arrangements agreed to by Stamoulis for a $2 million operating account "are in place pursuant to an ANZ Bank Guarantee". This appears to be a reference to AWD's obligation under clause 3.1(a)(ii) of the Joint Venture Agreement. At this stage of course, Arts had not complied with its obligation to procure a $4 million bank guarantee and AWD's obligation was only triggered after Arts provided its guarantee. The condition precedent under the Put and Call option was that the Joint Venture would provide the $4 million guarantee within 7 days of 18 August 2000 (cl 3.1). KPMG noted that no Bank Guarantee was in place and that it was "critical" to focus on putting the necessary financial arrangements in place before committing further to the Project. KPMG advised that unless Stamoulis was willing to commit funds immediately, they could not recommend that any consultants be formally engaged or committed to by KCOTC. 32 On 6 October 1999 Lenen agreed to an extension of time until 18 October 1999 for the provision of the guarantee. On 14 October 1999 KPMG wrote to Stamoulis advising that it understood, from discussions with Dalglish, that Stamoulis would be willing to authorise the release of the Guarantee obtained from ANZ Bank for the purpose of funding the Project upon receipt of confirmation from Lenen that it was willing to release title upon payment of $8 million. Stamoulis wrote back on 15 October 1999 suggesting that Dalglish had misunderstood his comments regarding his obligations to the Joint Venture. He advised that once Lenen was satisfied as per the terms of the Put and Call Option Agreement he would then provide the Bank Guarantee required. 33 On 14 October 1999 KPMG also wrote to Lenen advising of the plans to put in place security pursuant to the Put and Call Option Agreement. Lenen responded on 18 October 1999 with complaints about its directors' inability to make contact with Dalglish and Mancuso. That letter included the following: The agreement between our companies requires as a condition precedent the lodgement of a bank guarantee acceptable to us and this was due to be lodged by the 25 August, 1999. We have previously advised you of a standard bank guarantee format that is acceptable to us and that we require such a guarantee to be issued by a recognised Australian bank.

[95]

The most pressing need we have to get the RMIT design platform up to date. Allow $150,000. Then pre-selling can begin. 38 On 9 December 1999 KPMG wrote again to the directors of KCOTC with a revised basis of financial arrangements for the Joint Venture. On this occasion KPMG advised that both structures now contemplated that the Stamoulis interest would pay $2 million (10% of the purchase price, excluding any amounts under the Works Agreement) to Lenen by 10 December 1999. KPMG advised that on this basis KCOTC would have control over the Project. It was noted that the Stamoulis interests would concurrently provide a cheque to KCOTC for $250,000 to enable funding of the Project. This revised structure anticipated a new equity shareholder and KPMG advised that if that new shareholder required more than 15% but less than 20%, the additional 5% would be contributed pari passu from the Dalglish/Shannon and Mancuso interests. If the new participant required greater than 20% shareholding then the share in excess of 20% would be provided pari passu by all shareholders. Structure 2 referred to in the 8 December 1999 letter changed to accommodate the payment of $2 million to Lenen with a change in shareholding to Stamoulis at 75%, Dalglish at 12.5%, Shannon at 7.5% and Mancuso at 5%. The letter continued: The one proviso to the Stamoulis interests having the sole right to deal with the property as a real estate transaction only, shall only be triggered in the circumstances where firm commitments to pre-sales equivalent to 40% of the cost to construct have not been achieved by 1 July 2000. This cost base is to be estimated by Rider Hunt pursuant to the final Development Approval issued by the Tweed Shire. s KPMG will agree to cap its total fees recoverable from the Joint Venture at $500,000 subject only to it having first charge over the net assets of KingsHeath Club of the Clubs Limited, after satisfying the vendor (Lenen), in the event the Stamoulis interests proceed under Point 3 above [the real estate transaction]. 39 On 10 December 1999 KPMG advised that it would draft a new agreement to reflect the changes to the structure of the Joint Venture. There had been continuing debate about the need to pay creditors and KPMG strongly recommended that $250,000 be paid into the account promptly to facilitate the early payment to outstanding creditors "utilising the structure and methods for authorisation of payment already in place". There was also continuing debate about the payment of KPMG's fees. At the meeting of KCOTC directors on 13 December 1999 the matter of KPMG's fees was clarified. It was noted that KPMG had agreed to cap their fees at $500,000 in the event that the Project did not proceed and became a "land sell off/wind up of the company". $2 million paid 40 KNG paid $2 million to Lenen by 10 December 1999. On 15 December 1999 Mr Beattie confirmed that he had arranged for the sum of $2 million to be placed on fixed deposit with the ANZ Bank for the period of one month and that KCOTC had the right to substitute that cash deposit with a $4 million Bank Guarantee at any time prior to 10 March 2000 or 7 business days after the granting of development approval, whichever was the later. Mr Beattie confirmed that if the substitution did not occur and if the Put and Call Option was exercised the $2 million would be applied as a deposit equal to 10% of the purchase price under each Contract. Mr Beattie also advised that in view of the new arrangements Lenen required new agreements rather than assigning or novating the existing agreements. KPMG advised that the directors of KCOTC objected to the drafting of new agreements as an unnecessary incursion of costs. Supplemental Joint Venture Agreement - 10 February 2000 41 KPMG drafted a "Supplemental Agreement Kingsheath, Club of the Clubs Joint Venture" (the Supplemental Agreement) for execution by the directors of KCOTC, COTC, Jandawn, KNG (replacing AWD) and Arts. The Minutes of a meeting of directors of KCOTC on 17 January 2000 record that Mr Holland from KPMG requested a motion to adopt the Supplemental Agreement so that it could be used in discussions with builders and hoteliers. The Minutes record that Dalglish moved that the Supplemental Agreement be adopted. After Mancuso suggested some changes to the proposed clauses, Shannon seconded the Motion moved by Dalglish. The Minutes do not record a resolution adopting the Supplemental Agreement but it is apparent that each of COTC, Jandawn, KNG and Arts signed the Agreement that is dated 17 January 2000. For reasons that are a mystery, the parties signed the Supplemental Agreement again on 10 February 2000. The Minutes of the meeting of directors of KCOTC on 10 February 2000 record that the Supplemental Agreement was "tabled for agreement/signing/sealing" and that "all copies were signed". I will refer to the Supplemental Agreement as having the date of 10 February 2000.

[111]

6 Confirmation of Joint Venture Agreement For the avoidance of any doubt, but subject to the provisions of this Agreement, the parties to this Agreement acknowledge and confirm the continuance of the Joint Venture Agreement and all rights accruing to, and obligations binding, the Joint Venturers under the Joint Venture Agreement. 43 On 24 January 2000 COTC, Jandawn, AWD and Arts lodged a caveat over the Land in which the nature of the estate or interest in the Land was described as an equitable interest pursuant to the Put and Call Option Agreement dated 18 August 1999. Problems encountered - February to May 2000 44 Between 10 February 2000 and 27 May 2000 a number of problems were encountered. Although negotiations with builders and hoteliers proceeded, it was clear that Baulderstone Hornibrook Pty Limited (BHE) wanted to know what the level of interest from the Clubs was before it committed to appointment as the builder for the Project. There were problems in respect of the Development Approval in that Lenen had applied for a subdivision of the land into six Precincts. The directors of KCOTC thought that such plan may be beneficial to the Joint Venture and that in the circumstances the Directors may wish to change the structure of the payments in relation to the new subdivision. It is apparent that the Council provided Draft Consent Conditions on 13 March 2000 but it was not clear when the Council would formally approve the DA. 45 KPMG were also negotiating with Mr Beattie in respect of amendments to the Put and Call Option. On 10 April 2000 the Directors of KCOTC met for a lengthy meeting that was adjourned to 11 April 2000. The Minutes of the meeting of 11 April 2000 noted Dalglish's objection to proceeding without Stamoulis. Dalglish requested the Board to address the issue of funding the Project. The Minutes record "no funding - no project". KPMG and Dalglish worked on the tax implications in respect of the Project and a document entitled "Information Memorandum" was prepared for the purposes of providing due diligence material to the proposed builder and hotelier. 46 By late May 2000 neither a builder nor a hotelier had been appointed and it is clear that some of the Directors, in particular Stamoulis, were expressing concern about that delay. At meetings of the Directors of KCOTC on 22 and 23 May 2000 these concerns were discussed. At the meeting on 22 May 2000 Stamoulis stated that he had areas of concern in relation to putting forward the $4m guarantee. His areas of concern included not knowing the level of interest in the Project from the Clubs; the lack of commitment from BHE; and the fact that an hotelier had not been appointed. Stamoulis informed the meeting that he would particularly like to see the market testing done, however Shannon observed that if KCOTC did not have Stamoulis' financial backing the Joint Venture could not go forward, and in particular, "market test" without funds. Stamoulis advised the meeting that "there will not be a Bank Guarantee provided within 7 days" but he did not think that the Project would "fall over". 47 At this meeting Mr Holland referred to the outstanding invoices and in particular the amount owed to KPMG which was in excess of $750,000. Mr Holland advised that unless KPMG's invoice for $400,000 was paid, together with those of other consultants, KPMG would not be involved in the Project any further. Stamoulis advised that he felt that the whole process of the appointment of an hotelier and a builder had dragged on for too long. The Minutes record the following: He [Stamoulis] further explained that he is not walking away from the project but he (and his family) would like a greater level of comfort before committing further.

[143]

3.3 The Vendor shall not be obliged to complete this Contract unless all amounts owing to Richtech Pty Ltd by the Grantee under the Works Contract have been paid. Extension of time 54 On 25 August 2000 Lenen wrote to Mancuso confirming its offer and acceptance by Mancuso and the Joint Venture partners for an extension of the date for the provision $4 million instalment payment referred to in clause 3.2 of the Special Conditions of the Contract for the sale of the Land which was due on 1 September 2000. Lenen granted an extension to Friday 29 September 2000 on the terms and conditions set out in that letter as follows: 1. As a consideration for this extension of time Lenen will require the purchase price in respect of lots 1 & 2 to be increased from $8.0 million to $8.2 million with the increase in price of $200,000 payable on 1st April 2001. 2. The $4.0 million payment due on 1st September 2000 to be varied by CotCJV, providing an unconditional and unlimited in time Bank Guarantee acceptable to Lenen for $10.7 million and on receipt of same Lenen will return the existing $4.0 million bank guarantee previously provided by CotCJV. 3. On 1st April 2001 CotCJV to pay to Lenen $8.2 million in cash as settlement for lots 1 and 2 and $2.5 million in cash to Richtech Pty Ltd in settlement of the works agreement. If these payments in cash have not been received by both Lenen and Richtech, Lenen will be entitled to cash the $10.7 million bank guarantee. 4. On 1st April 2001 CotCJV to provide bank guarantee/s to the value of $12 million as security for the settlement on or before 22/08/2002 of contracts for the remaining lots 3, 4, 5 and 6 and on receipt of those bank guarantees Lenen will hand over title to lots 1 and 2 if available. 5. As an alternative to 4 above CotCJV to settle all remaining contracts for lots 3, 4, 5 and 6 by paying a further $11.5 million in cash to Lenen Pty Ltd on 1 April 2001. Lenen then will hand over all titles and return any bank guarantees to CotCJV held by it as security. Based on phone acceptance by yourself and your joint venture partners of the foregoing variations to the existing agreements between us, we will now instruct our solicitor David Beattie to amend his existing draft Deed of Variation as forwarded to Genevieve Overell on 18/08/2000 with appropriate amendments to include the foregoing to enable signing by all parties on or before 1st September 2000. Clubs commitment unlikely 55 On 5 September 2000 KPMG wrote to the directors of KCOTC in relation to "market testing" of the Club of the Clubs Concept undertaken by it in conjunction of the Joint Venture participants on 22 and 23 August 2000 at KPMG's offices in Parramatta. KPMG reported that it had made its own inquiries with the Clubs represented in the market testing presentation and advised that it wished to detail its concerns and recommendations to the Joint Venture with respect to a strategy for proceeding with the development of the Land. KPMG advised that its seemed "unlikely" that Clubs would commit to Foundation Membership to the value of $27.5 million, through 55 clubs subscribing a minimum of $500,000, in the short term or at all. KPMG made the following recommendation: In view of the above, we recommend the JV give very careful consideration to formulating alternative strategies for the development of the land, either in whole or in parts given the uncertainty of the CotC Project being realised in the short to medium term. We cannot recommend progressing with the preparation of an Offering Memorandum nor a Prospectus until these issues are resolved.

[249]

It has been resolved by both the Joint Venture Partners and the Directors of Kingsheath Club of the Clubs Limited that it wishes to invoke the provisions of Condition 6 of the Put and Call Option Agreement whereby the King Network Group Pty Ltd … is to be appointed the Nominee to exercise the Call Option. 92 Stamoulis then requested that the new agreement be entered into "forthwith" and that KNG be appointed as nominee simultaneously with the entry into the new agreement. There was evidence that at the meeting of participants on 13 November 2000 the matter in paragraph 2 was the subject of resolution in Dalglish's absence. There was no resolution at either the meeting of participants or the meeting of directors of KCOTC on 13 November 2000 in relation to the matter in paragraph 1 of that letter. Mr Barclay requested proof of the current status of the Joint Venture and on 13 December 2000 Stamoulis sent to Mr Barclay copies of various documents including the Joint Venture Agreement; the Supplemental Agreement; the May Agreement; the OSJVA; and various Minutes of Meetings of the Directors of KCOTC. 93 At about this time Shannon was dealing with the Ray Group seeking to interest it, with Macquarie Bank, in a new Joint Venture. On 15 December 2000 Shannon wrote to Brian Ray of the Ray Group in terms that included the following: An important feature of the Club of the Clubs (CotC) concept sits within its marketing and sales strategy which is unique to CotC and is demonstrated in the formal documentation, which details how the entire project can be funded on little more than the cost of the land and the cost of the super precinct subdivision and planning and marketing costs, much of which is Bank Guarantee funded. 94 Shannon suggested the following: A newly formed entity (including part or whole of the original owning group) express their interest in remaining with the Club of the Clubs concept and with all future Club of the Clubs projects. The CotC entity would wish to pursue the development of the Clubs Services Plan (in conjunction with Macquarie) to the formation of a 'smart (credit) card' facility, as a development plan proposal by CotC. 95 Shannon obviously spoke with Stamoulis about his interest in selling KNG's interest in the Land and on 11 January 2001 Stamoulis advised Shannon that KNG was prepared to consider selling its interest in the land for an amount not less than $16.5 million. Shannon advised Dalglish of this information on the same day with a breakdown of that figure as $2.25 million cash, $10.7 million land, $500,000 loan and $3.050 million costs. 96 On 21 January 2001 Shannon wrote to KPMG (Mark Holland) advising that Stamoulis had nominated a Land Play and had indicated that he would sell his interest for $16.5 million on terms to be negotiated. Shannon advised Mr Holland that Dalglish and he wished to take 15% each and put a proposal to him based on an Offering Memorandum synopsis for a 70% equity participation at $37 million. 97 In late January 2001 Stamoulis made contact with a representative of Lenen, Frank Wilson (Mr Wilson), and suggested that termination of the existing Put and Call Option and contract of sale arrangements on the Land would "best suit the interests of the parties". On 25 January 2001 Mr Wilson wrote to the Barclay Brothers in the following terms: Following our meeting in Sydney, I received a telephone call from Harry Stamoulis.

[251]

Arrangements as per the attached outline are proposed. 98 On 16 February 2001 Stamoulis advised Shannon that Lenen had indicated that they believed the Joint Venture was in "disarray". He informed Shannon that he had assured Lenen that resolutions had been passed by the Joint Venture parties/shareholders to enable the purchase to proceed in accordance with the Put and Call Option Agreement. This communication with Shannon seems a little at odds with Stamoulis having advised Lenen that it should terminate the agreements in the "best interests" of the parties. 99 On 21 February 2001 Lenen signed a Put and Call Option between it and KCOTC for the purchase and sale of the Land at $20.2 million. Clause 5 of that Agreement provided that KCOTC could appoint a nominee to exercise the Call Option and that if a nominee was appointed KCOTC would guarantee the performance by the nominee purchaser. That agreement was conditional upon the valid termination or rescission by Lenen of the Put and Call Option dated 18 August 1999 and the Contract for sale dated 15 June 2000. Lenen agreed that it would "as quickly as possible" take the necessary steps to rescind or terminate those agreements. Also on 21 February 2001 KNG entered into a Guarantee and an Indemnity Deed with Lenen guaranteeing payment of the purchase price to Lenen. The Recitals to the Indemnity Deed (the Guarantee) included the following: A. By a Put and Call Option ("the First Put and Call Option") dated 18 August 1999 as varied by Deeds of Variation dated 15 June 2000 and 6 September 2000 certain options were granted by Lenen in favour of Clubs of the Clubs Pty Limited A C N 078 792 391, Jandawn Pty Limited A C N 010 854 887, Arts Investments Pty Limited A C N 078 937 729 and KNG (hereinafter together referred to as COTCJV) in respect of the Land described in Folio Identifiers 194, 301 and 312/755701 ("the Land"). B. By a Contract hereunder called the ("the First Contract") dated 15 June 2000 as varied by Deed of Variation dated 6 September 2000 Lenen agreed to sell to COTCJV Lots 1 and 2 on the Plan attached to the First Contract upon the terms and conditions therein contained. C. KNG has requested Lenen to enter into a new Put and Call Option (the Second Put and Call Option) with Kingsheath Club of the Clubs Limited ("Kingsheath") in respect of the Land upon the due exercise of which Lenen would enter into a Contract ("the Second Contract") for the sale of the Land to Kingsheath or its nominee upon the terms of the Contract annexed to the Second Put and Call Option. Notice of Rescission of Land Contract 100 Lenen issued to COTC, Jandawn, KNG and Arts a Notice of Rescission dated 28th February 2001 in the following terms: In the matter of a Contract ("the Contract") dated 15th day of June 2000 as varied by a Deed of Variation dated 6 September 2000 made between you as Purchaser and Lenen Pty Limited ACN 001 045 816 of 6/1990 Logan Road, Mt Gravatt, Queensland ("Lenen") as Vendor relating to Lots 1 and 2 on the Plan attached to the Contract and being part of Folio Identifiers hundred 194, 301 and 312/755701 ("the Land").

[284]

111 A further letter from KPS to Stamoulis' solicitors, GPZ Lawyers (GPZ), dated 22 May 2001 included the following: Our client's financiers in Singapore are awaiting confirmation of the exact amount that is required for our client to assume 100% ownership of the land at Kings Heath and it is imperative that we receive correspondence from you as requested, without delay. 112 GPZ wrote to KPS on 22 May 2001 in terms that included the following: In relation to the proposed offer to purchase the land we are instructed on a without prejudice basis to advise that King Network Group Pty Ltd is agreeable to selling the land at Kingscliff, New South Wales for the sum of $37.5 million. If this offer is accepted our client will agree to indemnify your client against any claims, which may be brought by Arts Investments Pty Ltd and Jandawn Pty Ltd and furthermore will agree to deal with the liabilities owing by Kingsheath Club of the Clubs Ltd. 113 On 23 May 2001 KPS wrote to GPZ asking for the details of the liabilities that KNG was willing to pay. Communications between the solicitors broke down and on 8 June 2001 KNG lodged a caveat over the Land. Macquarie Joint Venture 114 On 9 July 2001 KNG, entered into a Memorandum of Understanding (MOU) with Macquarie Bank and the Ray Group in which it was agreed that the three parties would undertake certain due diligence investigations. The MOU recorded the fact that on 21 June 2001 the Ray Group had presented a proposal for the joint development of the Land and other land known as Koala Beach, of which the Ray Group was joint venture partner and equitable owner with a company, Cinereus Beach Pty Limited. The MOU also recorded that KNG had proposed that each of the parties should contribute $11 million to the proposed joint venture as initial capital and that the Land be acquired for $25 million on entering into the proposed joint venture or 30 June 2002. The MOU also recorded that the parties had not agreed to these proposals. However it was agreed that KNG would not during the due diligence investigation period grant to any other party a legal or equitable interest in the Land or undertake any negotiations with any other party to grant such an interest in the Land. 115 On 23 January 2002 a Joint Venture Deed was executed by South Kingscliff Developments (SKD) the new joint venture vehicle, Hopper No 1 Pty Limited, Kingscliff South Pty Limited, a company associated with Brian Ray, King Development Group (KDG), KNG, Macquarie Bank, Brian Ray and various Ray Group companies, S Stamoulis and Ryssal-One Pty Limited. The Recitals to that Joint Venture Deed recorded that KNG was the owner of the Land and that it had funded the acquisition of the Land and paid all holding costs using funds lent to it by interests related to it. The Recitals also recorded that Hopper, Kingscliff South and KDG intended to constitute themselves as joint venturers to facilitate the development of the Project on the Land. KNG was not to be a party in the joint venture but was a party to the Deed for the purpose of the promise to enter into the put and call option in relation to the Land. "Project" was defined as "the proposed development known as 'Kingscliff South' (or such other name as the Joint Venturers may from time to time agree) comprising a resort apartment hotel and a mixture of medium density and residential lots as shown in the Master Plan in the form of the New Scheme or the Old Scheme as the case may be". The New and Old Scheme provided respectively for 1105 dwellings or 799 dwellings. 116 On the same day KNG granted to those Joint Venturers a Call Option to purchase the Land. That Option was granted pursuant to a Call Option Deed, clause 2.3 of which provided that upon the exercise of the Call Option KNG and the Joint Venture nominee would be immediately bound as vendor and purchaser respectively on the terms of the Contract that was annexed to the Deed. The Contract annexed to the Deed was between KNG and SKD at a price of $25 million. 117 There were various other agreements and deeds signed on the same day with provision for the Ray Group to become the manager of the new development and for Macquarie to become the financier of the development. KNG also executed a Power of Attorney in favour of SKD operative from the date of the Joint Venture Deed to the Termination Date, which was defined to mean the date that KNG's obligations to SKD and the Joint Venture under the Macquarie Joint Venture Deed ceased. 118 The Macquarie Joint Venture proceeded to develop the Land and on 11 November 2003 a Deed was executed whereby KDG and Macquarie Bank agreed to transfer their interests in the Joint Venture to the Ray Group. The consideration for the sale of the interests was $20 million. Assignment of Causes of Action to IMF 119 On 16 August 2001 KCOTC was placed into liquidation and Mr Keith Sutherland was appointed liquidator.

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136 At the core of this litigation is the issue of the validity of the OSJVA. If it is not a valid and binding contract then there is no real issue that the only provisions governing the "real estate transaction only" are in the Supplemental Agreement (read with the Joint Venture Agreement) and any relevant provisions of the May Agreement and the Put and Call Option and the variations thereto. There have been a number of expressions used in the various Agreements and resolutions that are appropriate to clarify for the purpose of the following analysis. 137 Clause 2 of the Joint Venture Agreement is headed "Formation and Structure of the Syndicate". The word "Syndicate" is not defined however the expression "Joint Venture" is defined in a somewhat circular fashion as "the joint venture" established under the Joint Venture Agreement and known as "KingsHeath Club of the Clubs Syndicated Joint Venture". The term "syndicate" is used in the Statement of Principles by which the participants agreed that their relationship with each other and the Project were to be governed. 138 The "participants" defined as COTC, AWD (replaced later by KNG) and Arts agreed, "to form the Joint Venture for the purpose of carrying out the Project" (cl 2.1). "Project" was defined in the Joint Venture Agreement as the development of the Site (defined as the Land) and the subsequent sale of the properties or interests in the properties after completion of the development of the Land in the manner described in the Executive Summary. The participants agreed to hold their interests in the "Joint Venture" as tenants in common (cl 2.2). 139 The participants were later to be referred to together as "COTCJV" in the Put and Call Option of 18 August 1999. The "Project" was defined in this Agreement as "the development of the Properties [effectively the Land] into an integrated tourist facility incorporating a four star hotel, 18 hole golf course, residential developments, retail areas and other associated uses". In the Supplemental Agreement COTC, Jandawn, KNG and Arts were no longer defined as the participants but as the "Joint Venturers" and the term "Project" was the subject of yet another definition, this time as "the development of KingsHeath Village Development as defined in the Development Approval". The OSJVA provided that the term "KHCotCJV" was to be "interpreted as all of" KNG, COTC, Jandawn and Arts but also referred to the "Joint Venture parties", a term not defined in the OSJVA. 140 In the following analysis I will use the term "participants" to mean COTC, Jandawn, Arts and KNG and I will use the terms "Project" and "Joint Venture" as those terms are defined in the Joint Venture Agreement. The Land Play 141 By January 2000 the participants had found it necessary to agree on adjusting the shareholding in the Joint Venture and KCOTC to facilitate the funding of the Project. From the time of the obligation to provide the $4 million guarantee to Lenen (25 August 1999) to September 2000, funding had not been secured. It is apparent that the only participant with the capacity to provide the funding was KNG, with the assistance of S Stamoulis. The Supplemental Agreement recorded the adjustment of the shareholding in consideration of KNG paying $2 million to Lenen on 10 December 1999 and $250,000 into KCOTC's bank account on 17 December 1999.

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Failure to complain 147 In final submissions Mr Jackman submitted that for a period of at least two weeks the OSJVA did not give Dalglish any concern. It was submitted that he only "started voicing concerns" after he had learnt that the $10.7 million guarantee had been provided by Ryssal One on 6 October 2000. Mr Jackman submitted that between at least 23 or 25 September 2000 and 12 October 2000 Dalglish did not voice any concerns. 148 Dalglish accepted in his cross-examination that he attended a meeting of directors of KCOTC on 2 October 2000 and that he expressed no objection at all to the OSJVA (tr 130). He also accepted that in his letter of 3 October 2000 to Stamoulis, Shannon and Mancuso he expressed no objection to the OSJVA (tr 130). His evidence was that he did not have any objection to it as an agreement between Stamoulis, Shannon and Mancuso because they could meet every day of the week and make whatever agreements they wanted (tr 131). He agreed that he resigned as a director of KCOTC to avoid a conflict of interest in respect of his work for the South Tweed Heads Leagues Club (tr 132) and when it was suggested to him that he did not resign as a director because of any concerns about the OSJVA, he said "I was still making up my mind on that" (tr 132). 149 Dalglish accepted that the first time he complained about the illegality of the OSJVA was at the meeting on 12 October 2000. He gave evidence that the OSJVA could not be binding on him and that he had contributed nearly $3 million to the Joint Venture and no-one could alter that (tr 135). He also said that his belief was that his share of the Land could not be sold without his consent (tr 135). He said that he abstained from voting on the motion to adopt the OSJVA on 12 October because "it was invalid" (tr 136). 150 The evidence of Stamoulis was that even prior to the meeting of 25 September 2000 Dalglish did express some concern. Stamoulis' witness statement of 26 October 2005 refers to a telephone conversation with Dalglish on 23 September 2000. In that statement Stamoulis gave evidence that Dalglish said, "I am not happy with this agreement. I am not happy because the deadline for the builder and hotelier is too soon". It appears to me therefore that Dalglish was voicing concerns even prior to the meeting of 25 September 2000 and his concerns and his lack of happiness with the agreement did not change. Indeed by 12 October 2000 Dalglish expressed his view in even stronger terms claiming that the agreement was without validity or legality and was outside the scope of all other agreements between the parties. I am not satisfied that Dalglish's failure to complain in strong terms about the OSJVA until 12 October 2000 amounted to a consent by COTC to the OSJVA or to a consent that KNG could proceed under clause 4(K) of the OSJVA.

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158 The Minutes of the meeting are not in quite the same form that the Minutes of meetings of the participants had taken up to that date. These Minutes were entitled, "Meeting of Participants to the Put and Call Option Agreement" and were signed by Stamoulis as "a true and correct record". One telling factor against Dalglish's claim that the Minutes were "spurious" is the fact that although Stamoulis was subjected to a lengthy cross-examination it was not suggested to him that he had falsified or even embellished the Minutes of this meeting. 159 I have no doubt that Dalglish's claim in his cross-examination that the Minutes were "spurious" was intended to suggest that the Minutes were concocted. This was the first time such a claim was made notwithstanding Dalglish having addressed the Minutes in his written statement just two months before he was cross-examined. I was most unimpressed by this evidence. If Dalglish was able to deny in his evidence that the meeting took place, I would have expected such a claim to have been made when he referred to the Minutes at the time he made his written statement. I prefer Dalglish's evidence that he did not have a recollection of attending the Meeting. His claim that the Minutes are "spurious" is not accepted. However that does not mean that I am of the view that Dalglish's conduct as recorded at the Meeting amounted to consent for KNG to complete the OSJVA Land Play. 160 Much had happened between the first election on 18 September 2000 to complete the Land Play and the meeting on 15 March 2001. Attempts had been made to obtain additional funding and Stamoulis/KNG had indicated that it would be willing to sell its interests in the Land and the Joint Venture for $16.5 million. The Rescission Notice in relation to the Contract for Lots 1 and 2 had issued and the participants were attempting to deal with this new development. Stamoulis well knew at this meeting that he had persuaded Lenen to sign (and Lenen had signed) a new Put and Call Option over part of the Land that was the subject of the Put and Call Option between the participants and Lenen. That was not disclosed to the participants at this meeting. Dalglish's evidence in his written statement that he was not informed of these agreements (par 250: Statement 26/08/05) was not challenged. Little did he know that Stamoulis/KNG had been instrumental in the steps that Lenen was taking in issuing the Rescission Notice. That finding is made for the purpose of describing what was happening at this meeting and for no other purpose because I am conscious that the plaintiffs have abandoned the claims that KNG/Stamoulis and S Stamoulis procured the Rescission Notices and Termination Notices as referred to later in this judgment 161 The recording in the Minutes of Dalglish's suggestion that Lenen should be advised that the Joint Venture had novated its rights to KCOTC is rich in irony having regard to what Stamoulis had secretly, at least so far as COTC was concerned, achieved. Of course at this stage Dalglish did not know that the KCOTC Put and Call Option had been entered into at that time and the suggestion made by him does not amount to COTC's consent to KNG to complete the OSJVA Land Play. However it was an exquisite opportunity for Stamoulis to advise the participants that the Put and Call Option between KCTOC and Lenen and the Guarantee between KNG and Lenen had already been signed. No such disclosure was made. 162 I am not satisfied that COTC/Dalglish consented to or authorised KNG/Stamoulis to proceed with the Land Play pursuant to the OSJVA.

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165 The defendants claim that the resolutions passed at the 25 September 2000 meeting (the September resolution) and the 12 October 2000 meeting (the October resolution) were resolutions of the kind described in clause 13.3 of the Joint Venture Agreement that were deemed to be passed by 75+% majority approval. It was not suggested, indeed it was disavowed, that the September and October resolutions could be passed by 50+% majority (tr 389). The September and October resolutions 166 Clause 13.2 provided for a meeting of "all" participants. Mr Coles submitted that the September resolution was approved at a meeting that was not a meeting of "all" participants because Dalglish/COTC was not present. Although Mr Coles took the point, it did not seem to me to be a major plank in the plaintiffs' case, probably because it is conceded that the 12 October 2000 meeting was a meeting of "all" participants. The inclusion of the words "(whether or not present)" in clause 13.3 of the Joint Venture Agreement reveals that the parties intended that the 75+% majority could approve or pass the resolution, whether or not the participants voting in favour of it were "present" at the meeting. This accommodated participation by telephone and perhaps by proxy. There is no conflict or tension between the expression "(whether or not present)" in clause 13.2 and the provisions of clause 13.3. A meeting convened for the purposes of approving resolutions in relation to matters in clause 13.2 must be a meeting of "all" participants, however those participants may be involved in the meeting in a manner other than by being present at the meeting. 167 The events surrounding the 25 September 2000 meeting are controversial in that Dalglish claimed that he was "not properly informed about the meeting" (par 210: Statement 26/08/05). He claimed in cross-examination that he did not receive the "required" three days notice of the meeting (tr 120). The evidence in relation to the necessity for three days notice for the meeting was not explored in cross-examination. Clause 13.1 of the Joint Venture Agreement enabled two participants to convene a meeting of participants by a notice stating the nature of the business and any resolutions to be discussed at such meeting. The clause was silent as to the period of notice. The Joint Venture Agreement provided that "at least two Business Days" notice was required for a meeting of the Steering Committee (cl 7(c)) but such a requirement was not stipulated in relation to meetings of participants (cl 13). It may be that in giving his evidence about the necessity for three days notice of the 25 September 2000 meeting Dalglish had in mind the provisions in relation to the Steering Committee, however it appears to me that he was mistaken in relation to that necessity. On the other hand, he may have had in mind that his request for a meeting on 20 September 2000 gave the other participants three business days notice that he wished to have a meeting. In any event, as I have said, I am of the view that Dalglish was under a misapprehension. 168 In his letter of 20 September 2000 to the directors of KCOTC, Dalglish requested that a meeting be convened on 25 September 2000 to consider the matters referred to in that letter. In his letter of 22 September 2000 to Stamoulis (with copies to Shannon, Mancuso, and Messrs Holland and Black) Dalglish inquired whether the Steering Committee or a Board Meeting had been convened for 25 September 2000. Dalglish claimed in cross-examination that he received no response to his inquiry and therefore travelled to Queensland to attend another meeting (tr 120). 169 In re-examination Dalglish said, "If I had known it [the meeting] was on, I wouldn't have been there because I had asked for the proper three days' notice to be informed a week before and I wasn't informed" (tr 164). There are a number of problems with that evidence. Firstly, Dalglish did know, at least on the morning of 25 September 2000, that the meeting was to take place that afternoon for the purpose of considering the OSJVA (tr 120-121). Secondly, there was no express requirement for three days' notice of the meeting. Thirdly, Dalglish did not specifically ask for the "proper three days' notice" of the meeting. His letter of 20 September 2000 simply asked that a meeting be convened on 25 September 2000 and his letter of 22 September 2000 inquired as to whether the meeting had been convened. I do not accept the suggestion in this evidence in re-examination that Dalglish did not know the meeting was on. 170 There are further unsatisfactory aspects to Dalglish's evidence in relation to the events of 25 September 2000. He agreed in cross-examination that: (a) he received the telephone call that was made to him from the meeting on 25 September 2000; (b) he advised the caller that he would not be attending the meeting; (c) he advised the caller that he would call back in twenty minutes; and (d) he decided not to phone back (tr 127). Dalglish gave evidence in cross-examination that he received the phone call at 2.45pm on 25 September 2000 (tr 127). He claimed in re-examination that at the time he received the phone call he was on his way to a meeting of the committee of the South Tweed Rugby League Football Club (the Football Club) that he thought was due to start at 3.30 or 4pm and he "had to get out there at that time" (tr 162-163). 171 That evidence is inconsistent with Dalglish's affidavit evidence in which he claimed that the meeting at the Football Club was on the following day, 26 September 2000 (par 211: Statement 26/08/05). The Minutes of the meeting of the Board of the Football Club are in evidence and record that the meeting commenced at 4.10pm on 26 September 2000. There was no suggestion in the evidence that Dalglish attended two meetings at the Football Club during that week and I am satisfied that the meeting to which he was referring in his re-examination occurred on 26 September 2000 and not, as he claimed, on 25 September 2000. This inconsistency exemplifies one of the problems of conducting litigation at a time so far removed from the relevant events. To try to remember things with precision six years after the relevant events is by any measure tremendously difficult and to do so in the intense circumstances after cross-examination that spanned three days seems to me to compound that difficulty. However, Dalglish was invited in re-examination to give the explanation of what he was doing at the time he received the call and was not assisted by reference to the Minutes of the meeting of the Football Club at the time he gave that evidence. Although it may appear to be a relatively minor matter, it demonstrates the need for caution in accepting Dalglish's evidence.

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172 Dalglish gave further evidence in re-examination that he elected not to return the call as he said he would because "the meeting had not been properly called" and it was "not a joint venturers meeting" (tr 164). This evidence has to be considered with his evidence in cross-examination that he had "every opportunity to participate in the meeting" but that it did not concern him because it was not a meeting on his terms (tr 127). The letters of 20 and 22 September 2000 set out a number of matters that Dalglish wanted the Board of KCOTC to resolve. They included the suggested appointment of the builder and the hotelier, the adoption of a strategy to "take title" to the Land "now, rather than March 2001" and the resolution of the concerns in relation to KCOTC's solvency. It was these matters that Dalglish wished to debate at a meeting on his terms, whereas the other participants wished to debate the OSJVA at the 25 September 2000 meeting. 173 I am satisfied that Dalglish was aware on the morning of 25 September 2000 that the meeting of participants was being held that afternoon to consider the OSJVA. I do not accept that the reason he did not return the telephone call was because he was going to a meeting at the Football Club. I am satisfied that the reason he did not make the call as he promised he would was that he wanted to discuss the matters that he had listed in his letters of 20 and 22 September 2000 and did not wish to discuss the OSJVA. However there is nothing in the evidence to contradict Dalglish's evidence that no one responded to his request to be informed as to whether a meeting was to be convened on 25 September 2000. Even though Dalglish became aware of the meeting on the day it occurred, he was not given proper notice of the kind referred to in clause 13.1, i.e., a notice stating the nature of business and any resolutions to be discussed at the meeting. I am of the view that the meeting on 25 September 2000 was not properly convened pursuant to clause 13.1 of the Joint Venture Agreement. In those circumstances the September resolution was not a valid resolution and certainly not a resolution binding on COTC. 174 The October meeting was a properly convened meeting of the participants and the plaintiffs accept that the 75+% majority approved the resolution. Notwithstanding my finding in relation to the September resolution I will consider both the September and October resolutions (the Resolutions) together in relation to the powers given to the participants pursuant to clause 13 of the Joint Venture Agreement. It was submitted that the Resolutions were "in relation to a matter listed in clause 13.2" of the Joint Venture Agreement and thus capable of being approved by the 75+% majority. There were, of course, a number of matters listed in clause 13.2, however the defendants relied on the "matters" in subparagraphs (a), (d), (g), (h), (i) and (j).

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177 The "matters" in clause 13.2 covered various aspects of the Project and the Joint Venture including in particular the matters relied upon by the defendants, being the raising of capital or equity and/or funding (13.2(a) & (c)), decisions relating to the undertakings and guarantees given pursuant to the Joint Venture Agreement (13.2(d)), the amendment to the Joint Venture Agreement (13.2(g)), the admission of a new participant to the Joint Venture (13.2(h)), the sale or disposal of the Joint Venture's entire interest in the Project prior to completion of the Project (13.2(i)) and the termination of the Project or the Joint Venture Agreement (13.2(j)). The participants agreed that resolutions "in relation to" these matters could be passed or approved by the 75+% majority. 178 The defendants claim that the Resolutions were "in relation to" one or more of these matters. To decide whether a resolution is "in relation to" any one of these matters it is necessary to decide the true purpose or character of the Resolutions. The expression "in relation to" is a broad expression that, in this Joint Venture Agreement, takes its colour from the context in which it is found. The true connection to or relationship with the "matter" is to be assessed having regard to the true nature of the resolution in question. 179 Take, for example, a joint venture of participants that own in equal shares a large parcel of land worth $40 million to be developed into apartments, who resolve that as a result of a failure of a particular participant to provide funding for the project in the amount of $2,000 for local council fees, it would have to transfer all its rights in the Land and all its interests in the project to another participant without compensation. Such a resolution does have within it a reference to a participant providing money (or funding) for the Project however, in my view, it would not be appropriate to characterise the resolution as one "in relation to" funding. The real character or purpose of such a resolution is to change the basis of the structure of the joint venture because of an alleged default of one of the participants. Thus, although it may refer to funding it is not "in relation to" funding or in connection with funding, having regard to its true purpose. 180 I am satisfied that where, as here, there are very significant matters to be decided by a 75+% majority it is important to identify the true purpose of the resolution in question by looking at it as a whole rather than dissecting it to see whether some parts of it refer to funding or raising equity or the like. Once the true purpose or character of the resolution in question is identified it is then appropriate, having regard to that purpose or character, to decide whether the resolution is "in relation to" any of the matters in clause 13.2 that have been relied upon. 181 It is necessary then, as a first step, to identify the true purpose or character of the Resolutions. The Minutes recorded the September resolution as: "The motion 2.1 was carried and the overriding Supplementary Joint Venture Agreement was signed by the parties present". Motion 2.1 was that the OSJVA be "accepted and signed by all parties" and that a copy be forwarded to Dalglish. Although rather infelicitously worded, the October resolution "adopted" the OSJVA. 182 The "Introduction" to the OSJVA refers to the election made by KNG to "complete the real estate transaction only" pursuant to clause 5 of the Supplemental Agreement (cl 1). It also refers to the May Agreement and the letter of 18 September 2000 in which KNG notified the other participants of its election (cl 2 and 3). The Introduction then refers to KNG's reservation of its "rights" to proceed with the "land transaction" with the apparent option that if it "elects to proceed with the Joint Venture Agreement" it would do so taking into account certain matters (cl 4). The OSJVA also recorded that KNG would underwrite the Joint Venture's obligation to provide the $10.7 million guarantee that was required pursuant to the Put and Call Option as varied on 6 September 2000 (cl 4(D)).

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183 The OSJVA provided for the builder, BHE, to make a payment of $6.25 million to the Joint Venture by 10 November 2000 and for the hotelier to enter into an unconditional commitment to contribute $2.5 million to the Joint Venture by the same date (cl 4(G) & (H)). These were not new aspects to the Project or the Joint Venture but rather the imposition of time frames within which the payments or commitments to payment had to be made. A most significant matter in the OSJVA was KNG's purported irrevocable right, if BHE and the hotelier did not make or commit to the payments by the imposed date, to deal "at its sole discretion" with the Land in accordance with the Put and Call Option and the variations thereto, and its purported right to direct COTC, Jandawn and Arts to transfer "all of their respective rights, interest and equity" in the Joint Venture at the direction of KNG (cl 4(K)). There was also the imposition of obligations to meet the payments to agreed creditors (cl 4(M)). 184 For the purpose of identifying the true purpose or character of the Resolutions, the terms of the OSJVA and the Resolutions have to be analysed in the context of the surrounding circumstances at the time of the Resolutions. KNG had already elected to complete the Land Play pursuant to the Supplemental Agreement and thus it had effectively committed itself to fund that process. I am of the view that properly characterised, the true purpose of the Resolutions was to have all parties accept (or agree to) and sign an agreement whereby: (1) if the imposed time frames were not complied with, KNG would be given the right to deal with the Land at its sole discretion but in accordance with the Put and Call Option and the variations thereto, and to require the other participants to transfer their interests at its direction; and (2) there would be a change in the nature of the benefit to be delivered to KNG in the Land Play from one in which it was required to share any profits on a pari passu basis with the other participants to one in which it did not have to share any profits. Having identified the true purpose of the Resolutions I will now consider whether they were "in relation to" any of the matters listed in clause 13.2 as relied upon by the defendants.

[380]

Amendment to agreement 191 The next "matter" relied upon was: (g) any amendment to this Agreement. The Joint Venture Agreement made no provision for a Land Play. There is no suggestion that the parties contemplated or intended that the provisions of clauses 13.2 and 13.3 were to apply to amendments to agreements other than the Joint Venture Agreement. This much is clear from the words "amendment to this Agreement". Clause 6 of the Supplemental Agreement contains an acknowledgment and confirmation by the parties of "the continuance of the Joint Venture Agreement and all rights accruing to and obligations binding, the Joint Venturers under the Joint Venture Agreement". There was no "right" that had accrued to the participants under the Joint Venture Agreement to amend the Supplemental Agreement by a 75+% majority. It was a right to amend the Joint Venture Agreement by such a majority. Clause 6 of the Supplemental Agreement provided that the continuance of the Joint Venture Agreement and the Joint Venturers' rights and obligations under it were "subject to the provisions of" the Supplemental Agreement. It did not provide for the "amendment" to the Joint Venture Agreement. The Joint Venture Agreement continued and was "subject to", and had to be read with, the Supplemental Agreement. 192 The Introduction to the OSJVA refers to the Joint Venture Agreement. It provides that if KNG "elects to proceed with the Joint Venture Agreement" it would do so taking certain matters into account. The OSJVA did not purport to amend the Joint Venture Agreement. It expressly recognised its existence and, it appears to me, kept it as an alternative option for KNG to pursue if it did not proceed with the OSJVA Land Play. If valid, the "overriding" nature of the OSJVA was limited to overriding the Land Play in the Supplemental Agreement. I am satisfied KNG wanted to proceed with the Land Play on better terms than those under the Supplemental Agreement in which the other participants were still entitled to share any profits on a pari passu basis. It was intended that the OSJVA would allow KNG to obtain the other participants' interests in the Joint Venture and free it from sharing any profits on a pari passu basis. Even if clause 6 of the Supplemental Agreement was overridden by the OSJVA it did not "amend" the Joint Venture Agreement. 193 I am satisfied that the Resolutions were not in relation to the "matter" listed in clause 13.2(g) of the Joint Venture Agreement. Admission of a new participant 194 The next "matter" relied upon was: (h) the admission of a new Participant to the Joint Venture. The OSJVA provided that BHE was to have 15% equity "upon the successful achievement of both Clause (G) and Clause (H)", (cl 4(I)). BHE would only obtain that equity if it paid $6.25 million and the hotelier gave the unconditional commitment to contribute a payment of $2.5 million by 10 November 2000. The defendants submitted that clause 4(I) effected the "admission of a new Participant to the Joint Venture" as described in clause 13.2(h) of the Joint Venture Agreement. 195 For the purposes of this analysis I will assume that the clause providing equity to BHE in the circumstances outlined in the OSJVA is a clause dealing with the admission of a new participant to the Joint Venture. This is akin to the example I utilised earlier in identifying the true purpose of the Resolutions. In my view the presence of a provision in the OSJVA for a contingent grant of equity to BHE does not mean that the Resolutions were "in relation to the matter listed" in clause 13.2(h) of the Joint Venture Agreement. As I have said, it is the resolution as a whole, rather than some part of the agreement it purports to adopt, that is the focus for deciding whether it is a "resolution in relation to" a matter in clause 13.2 of the Joint Venture Agreement. 196 The Resolutions were not in relation to the admission of a new Participant to the Joint Venture. They were not in relation to the "matter" in clause 13.2(h) of the Joint Venture Agreement.

[386]

207 It was submitted that the amendment power in clause 13.2 of the Joint Venture Agreement would not authorise an amendment to the whole substratum of the Joint Venture. In this regard reliance was placed upon the following passage of Hely J's judgment: 68. The power of variation conferred by this clause is apparently unconfined. There are, however, some authorities which suggest that a power to vary a trust deed may be held not to extend to a variation which would alter the substratum of the trust: see, eg, Re Dyer ; Dyer v Trustees Executors & Agency Co [1935] VR 273; Re Ball's Settlement Trusts; Ball v Ball [1968] 1 WLR 899; Re Blocksidge [1997] 1 Qd R 234; Kearns v Hill (1990) 21 NSWLR 107; Lock v Westpac Banking Corporation (1991) 25 NSWLR 593 at 602. This may be no more than an application of the equitable doctrine of fraud on the power, referred to in [74] of these reasons. 208 The defendants submitted that there is no basis for the argument that clause 13.2 could not authorise the disposal of the interest in the Land, or could not authorise such a disposal or adjustment of interests in the Land in favour of one or more of the participants at the expense of the others. It was submitted that subparagraphs (a), (i) and (j) of clause 13.2 are expressed with absolute generality and subparagraph (h) necessarily involves the disposal in favour of any new participant of at least some of the interests held by the existing participants. It was further submitted that to construe clause 13.2 as precluding the participants from voting in their own self-interest in relation to amendments to the agreement would completely stultify the operation of the Joint Venture Agreement. 209 The plaintiffs submitted that although Hely J was dealing with unit trusts, the doctrine is equally applicable to this Joint Venture. It was submitted that by the application of the fraud on the power doctrine, there is an unqualified prohibition on the exercise of majority power under clause 13.2 of the Joint Venture Agreement to effect appropriation of any participant's interest. It was further submitted that the mere fact that clause 13.2 is in some respects expressed in broad terms does not preclude the operation of the doctrine. In this regard the plaintiffs relied upon clause 15 of the Joint Venture Agreement which provided a regime whereby a participant could "acquire the interest" of a defaulting participant "on a pro-rata basis". That regime included a process for the valuation of the defaulting participant's interest in the Joint Venture by the auditor. The purchase price of the interest of the defaulting participant was to be fixed by reference to the auditor's valuation less certain amounts (cl 15(e)(iii)). The plaintiffs submitted that in the light of the provisions of clause 15 of the Joint Venture Agreement the parties could scarcely have contemplated that the powers in clause 13.2 would be used to appropriate the interests of minorities who were not "pulling their weight" in the Joint Venture in a manner so inconsistent with clause 15. 210 In my view that analysis has a great deal of force. However it may be more relevant to the construction of clause 13.2 and the OSJVA and the extent to which amendment was authorised rather than a basis for the application of the doctrine of fraud on the power. As I have said earlier the Supplemental Agreement specifically acknowledged and confirmed the continuation of the Joint Venture Agreement. The OSJVA also acknowledged that continuation in giving KNG an option to "proceed with the Joint Venture Agreement". Accordingly the Joint Venture Agreement had to be read with the Put and Call Option and the variations thereto, the Supplemental Agreement, the May Agreement and/or, if valid, the OSJVA. Having regard to clause 15 of the Joint Venture Agreement, any valid agreement that purported to require the transfer of a participant's interest in the Joint Venture to another participant would include the process under clause 15. However that is a different matter to the submissions in respect of the applicability of the equitable doctrine. 211 The plaintiffs claimed the Resolutions were void as a fraud on the power conferred by clause 13.2 of the Joint Venture Agreement by reason of the following matters: (1) the interest in the Land arising from the Put and Call Option as amended by the Contract for the purchase of Lots 1 and 2 of the Land were assets of the Joint Venture held for the benefit of all participants; (2) clause 4(K) of the OSJVA purported to confer upon KNG the right to appropriate the Land for its own benefit; (3) COTC did not consent to the appropriation either as a participant in the Joint Venture or as a shareholder of KCOTC; (4) the authorisation of KNG to appropriate the Land for its own benefit was not necessary to secure any benefit for the Joint Venture or otherwise fulfil any proper purpose of the Joint Venture; (5) the OSJVA did not provide for the provision by KNG of adequate (or any) compensation to the participants of the Joint Venture in respect of the appropriation of the Land; and (6) the purported authorisation of KNG to appropriate the Land for its own benefit would, if effective, permit KNG to obtain a windfall benefit at the expense of the other participants in the Joint Venture. 212 Matters (1) to (3) are, in my view, uncontroversial. As to matter (4); although the defendants argued that KNG took on the 100% liability in return for 100% interest, it was not "necessary" to fulfil any proper purpose of the Joint Venture. This was merely protecting KNG's interest. Matter (5) and (6) also have force. 213 The defendants submitted that the plaintiffs' reliance on these matters fundamentally misconceives the effect of clause 4(K) of the OSJVA and what it achieved in the circumstances. It was submitted that the following matters establish that misconception: (1) KNG was relieving the other participants of liabilities to Lenen under the contract ($8 million) and the Put and Call Option and to Richtech under the Works Agreement ($2.5 million); (2) KNG was the only participant with the ability and willingness to meet those liabilities, and to provide the guarantees and the purchase money necessary to acquire the Land; (3) the "Club of the Clubs" concept was no longer feasible or realistic; (4) the call option to acquire the Land was about to lapse and thus be worthless to the Joint Venture; (5) KNG undertook not to continue with the original "Club of the Clubs" concept notwithstanding there was a lack of any basis to COTC's claim for so-called "intellectual property"; (6) KNG did not on its own constitute the 75+% majority required to effect the amendment to the Joint Venture Agreement and the position taken by Jandawn and Arts demonstrates the commercial fairness and reasonableness of clause 4(K); and (7) KNG continued to offer to the other participants the opportunity to share in the acquisition and on-sale of the Land, in return for some financial contribution. In that context it was submitted that the suggestion by COTC that KNG was seeking to obtain a windfall was particularly ironic. The defendants submitted that there was no improper purpose and no lack of bona fides in making the amendments, even if the amendments effected a fundamental restructuring of the participants' rights. 214 Matter (1) is really a euphemism for KNG's takeover of all of the participants' interest in the Land and the Joint Venture in circumstances where COTC did not consent to such takeover and the original option to purchase the Land was obtained by COTC (and to a lesser extent Jandawn) and made available to the Joint Venture. Matter (2) seems to reflect the reality as at September/October 2000. Matter (3) is not clear. Although in early September 2000 KPMG expressed the view that the Clubs' commitment to Foundation Membership to the value of $27.5 million was "unlikely", Dalglish did not agree with KPMG's interpretation of the level of interest and advised the other participants of that view at the meeting on 18 September 2000. The Minutes of that meeting record that Stamoulis agreed with Dalglish "in relation to KPMG's position". As to matter (4), it is true that the deadline was imminent but worthlessness is not certain. The capacity to sell the Option A portion of the Land with the prospect of the Option B Land being made available to a willing purchaser may have had some worth, in that the price of the Option A Land may have been enhanced by such capacity. Matters (5) and (7) are uncontroversial. As to matter (6); it is true that KNG did not on its own constitute the 75+% majority, however the submission that Arts' and Jandawn's willingness to sign the OSJVA justifies a conclusion that clause 4(K) of the OSJVA was commercially fair and reasonable needs further consideration. 215 On one aspect of matter (6), in particular, on the question of Arts' willingness to agree to and sign the OSJVA, the plaintiffs relied on the absence of any evidence from Mancuso, an invoice from Arts to KDG for $1.5 million and Stamoulis' evidence in relation to that invoice. Stamoulis was cross-examined about an entry in the profit and loss statement of KDG for the year ending 30 June 2004 that recorded an expense of $1.5 million as consultants' fees to Arts. He accepted that the payment was in fact made to Arts by KDG. He denied that he was a party to any agreement pursuant to which the payment was made to Arts and said that his father, S Stamoulis, was the person on behalf of KDG who reached agreement with Arts in relation to that payment (tr 292-293). Stamoulis said he believed his father used Arts or Mancuso to help him with entry into the Macquarie Joint Venture. The Invoice, dated 22 February 2004 was addressed to Stamoulis at KDG and was in the following terms: To our cost herein comprising introduction to project, commissions, provision of office facilities, assisting in negotiations for the acquisition of land at Kingscliff, providing advice in relation to proposed promotional material, administration and taking into account consideration care, skill and responsibility. SAY $1,500,000

[411]

Q. It would be absurd for KDG to make an agreement to that? A. I will say yes. 218 There was further cross-examination on this invoice and Stamoulis sought to suggest that because he was not involved in the arrangement there may be some proper commercial basis to it (tr 302). Stamoulis maintained that he was not involved in the Macquarie Joint Venture and that he was a mere "conduit" to pass on information from the other parties in the Macquarie Joint Venture to his father. He sought to distance himself from both the discussions of the Macquarie Joint Venturers and the contents of the Arts Invoice. Mr Stowe challenged Stamoulis' claim that he was a mere conduit. In support of this challenge a bundle of documents (Ex H) was relied upon. Those documents, on their face, lead to an irresistible conclusion that Stamoulis attended those meetings of the Macquarie Joint Venturers and was something more than the claimed conduit. One of those documents is a memorandum from Brian Ray of the Ray Group addressed to Stamoulis, S Stamoulis and Mr Papadopoulous (Macquarie Bank) dated 5 July 2002. That memorandum refers to "our discussions of last Friday". Stamoulis gave the following evidence in relation to this document (tr 330-331): HER HONOUR: Q: Can I just understand? A. Yes. Q. At the beginning of that document it refers to some discussions. Did you also have discussions with Mr Ray's group? A. You are referring to the discussions this is referring to? Q. Yes? A. Look, I honestly can't remember. STOWE: Q. So with respect of the discussions referred to [on page] 25 you have no recollection one way or the other whether those discussions occurred. Is that what you are saying? A. That's right HER HONOUR: Q: Tell me who Stephen Papadopoulos is again? A. He was a representative from Macquarie Bank. Q. Let me indicate to you if I read this, if it becomes an exhibit, it looks like Mr Ray was writing to you referring to discussions he had with you. Do you agree with that? A. No. Q. I see. And what is the reason you say no to that? A. It says "Following our discussions last Friday" and he, they had many, many discussions. Now I receive many, many emails, faxes or correspondence which I wasn't a part of the discussions. Q. But you told me earlier you couldn't remember if these discussions took place or not? A. Well, I can't remember. But what I'm saying is the way I read it and following from what I said about my understanding about passing on correspondence, I can't recall these discussions. 219 I do not accept that Stamoulis was a mere conduit for his father. To suggest, as he did, that he did not think about the invoice for $1.5 million plus GST from Arts is simply unbelievable. The Arts invoice was clearly a device to facilitate a payment to Arts after the completion of the Land Play. The absence of any evidence from Mancuso and/or S Stamoulis assists the plaintiffs' submission slightly. However it is the evidence of Stamoulis generally and that referred to above and later in this judgment that convinces me that KNG allowed Arts a share of $1.5 million plus GST in the gains of the Land Play. However on this aspect of the matter, that is the defendants' claim that the fairness and reasonableness of clause 4(K) of the OSJVA is demonstrated by Arts' willingness to sign the OSJVA, this evidence supports the conclusion that Arts'/Mancuso's willingness was probably coloured by at least a promise of $1.5 million (or some amount) at some later time. In any event, irrespective of this conclusion I am not otherwise satisfied that simply because Arts and Jandawn, who each held smaller interests than COTC, were willing to agree to the OSJVA, fairness and reasonableness of clause 4(K) is established. Ultimately Mr Jackman abandoned any reliance upon the Arts invoice in the defendants' case (tr 442). That is most understandable. 220 The plaintiffs also relied upon Stamoulis' admission that the purpose of the OSJVA was "simply to protect KNG's interest" because it was "safer" to provide the $10 million with the protection of the OSJVA (tr 234-235). The plaintiffs submitted that this was "naked majority aggrandisement". In this regard the plaintiffs relied upon Gambotto v WCP Limited (1995) 182 CLR 432 in which Mason CJ, Brennan, Deane and Dawson JJ, with reference to what Dixon J said in Peters' American Delicacy Co v Heath (1939) 61 CLR 457 at 507, referred to the problem of identifying some element, the presence of which would always vitiate a resolution for the alteration of articles of association. Their Honours said at 445: The exercise of a power conferred by a company's constitution enabling the majority shareholders to expropriate the minority's shareholding for the purpose of aggrandising the majority is valid if and only to the extent that the relevant provisions of the company's constitution so provide. The inclusion of such a power in a company's constitution at its incorporation is one thing. But it is another thing when a company's constitution is sought to be amended by an alteration of articles of association so as to confer upon the majority power to expropriate the shares of a minority. Such a power could not be taken or exercised simply for the purpose of aggrandising the majority. In our view, such a power can be taken only if (i) it is exercisable for a proper purpose and (ii) its exercise will not operate oppressively in relation to minority shareholders. In other words, an expropriation may be justified where it is reasonably apprehended that the continued shareholding of the minority is detrimental to the company, its undertaking or the conduct of its affairs - resulting in detriment to the interests of the existing shareholders generally - and expropriation is a reasonable means of eliminating or mitigating that detriment. 221 The defendants submitted that the company law principles identified in Gambotto are not applicable to the circumstances of this Joint Venture. In this regard reliance was placed on Cachia v Westpac Financial Services. In that case Hely J considered a resolution for the merger of two unit trusts. The applicant objected and argued that the amendments brought about an unfair expropriation of his units in one of the unit trusts. He made a number of complaints including that the amendments were not made for a proper purpose. In rejecting the applicant's arguments Hely J said: 85. Gambotto was concerned with expropriation by a majority, of the minority's shares in a company. The court held that a company's articles of association could not be amended to confer such a power simply for the purpose of aggrandising the majority. Such a power can be taken only if: • it is exercisable for a proper purpose; • its exercise will not operate oppressively in relation to minority shareholders.

[416]

222 I respectfully agree with Hely J and I have had regard to what Austin J said in Arakella Pty Ltd v Paton (2004) 60 NSWLR 334 at 364, [127]. These principles of company law may have had some applicability if KCOTC had been a proposed party to the OSJVA or had an interest in the Land. The events at the 12 October 2000 meeting are not free from confusion. The participants firstly attempted to convene a meeting of the Joint Venture Steering Committee. They then decided to abandon that idea and convened what was referred to as a "Joint Venture/Shareholders Meeting". It was at this meeting that the vote was "taken on the adoption of Minutes including the [OSJVA]". At a meeting later in the day of directors of KCOTC Stamoulis moved the motion to adopt the OSJVA. This was a curious step in light of the fact that KCOTC was not a party to the OSJVA. 223 Clause 11.4 of the Joint Venture Agreement provided that "for the avoidance of doubt" the participants agreed that as "Shareholders" of the "Company", later to become KCOTC, they would "exercise their rights" consistently with the objectives of the Project and the Joint Venture and any decisions or resolutions of the Steering Committee or meetings of participants. KCOTC's status, albeit at one stage a prospective party to the Put and Call Option, was always subservient to the participants. In any event it is not clear what the directors were seeking to achieve. It seems to me that the principles outlined in Gambotto have no application to the determination of whether the OSJVA is valid. As for the equitable doctrine of fraud on the power, although Hely J was dealing with unit trusts, it seems to me, on balance, that the doctrine is applicable to the analysis of the Resolutions. 224 The plaintiffs submitted that despite the fact that the Joint Venture was in difficult financial circumstances there was no basis to conclude that the appropriation was necessary to prevent default under, and termination of, the contracts with Lenen and Richtech. It was submitted that there was no basis for a finding that the participants to the Joint Venture could not have renegotiated terms with Lenen as they had done on numerous occasions in the past. Indeed it was submitted there was no evidence of any attempt to negotiate further terms with Lenen. The submission as to the capacity of the Joint Venture to renegotiate to obtain more time seems to me to defy the reality: there had been numerous extensions of time for the provision of funding; KPMG had all but walked away from the Project because of the precarious financial position that it could see the Joint Venture was in; Black had seen fit to resign his position because of the precarious financial position in which the Joint Venture had been placed; Dalglish had raised questions of the solvency position; no new equity participant could be found, notwithstanding efforts being made by, at the very least, KPMG and, it seems, by Dalglish and Shannon; although Mr Barclay had previously granted an extension of time within which to effectively find the money, it appeared that instructions were given to Mr Beattie that no further extensions would be entertained. 225 The evidence established that Stamoulis approached Lenen prior to any Notices of Rescission being issued and that he suggested that there should be new agreements signed to reflect KNG's alleged new status as being in total control of the Joint Venture. Indeed on 21 February 2001, Lenen signed the Put and Call Option with KCOTC and on the same day KNG executed a guarantee and indemnity with Lenen recording that KNG had requested Lenen to enter into the new Put and Call Option with KCOTC. Those documents were executed prior to Lenen issuing Notices of Rescission of the Contract for the sale of Lots 1 and 2 of the Land and of the Put and Call Option as varied. 226 At the commencement of the trial the plaintiffs claimed that KNG, Stamoulis and/or S Stamoulis induced or procured Lenen to issue the Notices of Rescission and the Notice of Termination. These claims were made in paragraphs 40, 42 and 45 of the Second Further Amended Summons filed on 9 December 2005. On the fourth day of the trial, 19 June 2006, the plaintiffs were granted leave to file in Court a Third Further Amended Summons in which they withdrew those claims. Notwithstanding that withdrawal, the conduct of Stamoulis and/or KNG in respect of the Put and Call Option and the Guarantee entered into with Lenen on 21 February 2001 may still be considered in relation to the submission that further negotiations with Lenen for an extension of time may have been possible. On one view of the evidence such negotiations were prevented by Stamoulis/KNG's conduct in requesting Lenen to enter into the new agreement with KCOTC. The fact that Lenen was willing to enter into those new agreements may support the conclusion that Lenen was open to further negotiations.

[417]

227 The amendment power under the Joint Venture Agreement had to be exercised for a proper purpose. Clause 13.2 provided for the power to be exercised for the "management and control of the Project and the Joint Venture". At the time of the exercise of the power in September and October 2000, KNG had already elected to complete the Land Play under the Supplemental Agreement. The participants had agreed that in certain circumstances, KNG would be entitled to elect to complete the Land Play but only on the condition that each of the participants were to share in any gains on a pari passu basis. 228 At that time, 18 September 2000, KNG had decided to complete the Land Play and therefore to fund that process. That Land Play was with the agreement or consent of the other participants by reason of clause 5 of the Supplemental Agreement. As I have held earlier that Land Play was to complete not only the Purchase Contract entered into on 15 June 2000 but also to purchase the balance of the Land under what was then Option B in the Put and Call Option and its variations. KNG/Stamoulis and S Stamoulis were obviously going to have to fund the purchase of the Land from Lenen, albeit that there were invitations to the other participants to provide funds in that process. It seems to me that it would have been extremely obvious to KNG and to Stamoulis (and S Stamoulis) that the other participants were not in a position to provide the funding for the Land Play. 229 The admission made by Stamoulis that the reason KNG entered into the OSJVA was simply to protect the interests of KNG and his father's money (tr 234) is important in this consideration. Stamoulis was dependant upon his father for funding. As I have said, the purpose of the Resolutions was to provide to KNG with a better deal than it had already elected for in the Land Play on 18 September 2000. Nothing had changed between 18 September 2000 and 25 September 2000 when the September resolution was purportedly approved or between 18 September 2000 and 12 October 2000 at the time of the October resolution. In my view the better deal KNG was pursuing was to remove its obligations to share in any gains on a pari passu basis with the other participants.

[418]

230 The matters raised by Mr Jackman in support of his submission that the plaintiffs' misconceived the effect of clause 4(K) are matters that do not detract from the factual finding that the real purpose of the Resolutions and the OSJVA was to protect KNG and to provide to it a better deal than it had already elected to take on 18 September 2000. It is true that KNG was relieving the other participants of the liabilities to Lenen, but that is what it agreed to do by reason of its election on 18 September 2000 for the Land Play. The fact that KNG was the only participant with the funding was a fact extant on the date of the first election. Even if the "Club of the Clubs" concept was no longer feasible or realistic, at least in connection with this Land and Project, it did not mean that KNG was entitled to do what it did. All of the matters relied upon by Mr Jackman were matters present at the time KNG made its first election for the Land Play on 18 September 2000. The OSJVA was for the protection of KNG and to give it a better deal to the exclusion of the other participants. 231 As I have said, it was not strictly necessary for me to decide whether the equitable doctrine of fraud on the power is applicable. However as I have said earlier, I regard it as applicable and had it been necessary to decide this issue I would have concluded that the September resolution and/or the October resolution were not for a proper purpose and therefore void. Applicability of the Supplemental Agreement 232 Having regard to my findings that the OSJVA is not a valid or binding agreement, clause 5 of the Supplemental Agreement governed the completion of any Land Play. It was submitted by the defendants that if the Supplemental Agreement applies, the plaintiffs' interests are not advanced because Lenen terminated the Put and Call Option and the Purchase Contract on 23 April 2001. It was submitted that once this occurred any lingering interest COTC had was lost. I am not satisfied that this is the appropriate way to approach the events of 2001. Whatever arrangements KNG entered into with Lenen in respect of the Land Play, irrespective of the withdrawal of the claims in respect of the procuring of the termination of the Contract and the Put and Call Option, KNG had an obligation to COTC to provide its share in any gains of the Land Play whether it was completed pursuant to the contracts then in place or pursuant to some other arrangements subsequently entered into with Lenen. 233 It seems fairly obvious that Lenen went through the formalities of terminating the Put and Call Option and the Purchase Contract between it and the participants when it had already executed the new Put and Call Option with KCOTC on 21 February 2001 and KNG had executed the Guarantee and Indemnity on the same day. KNG's responsibilities to COTC under the Supplemental Agreement were not relieved by this process and COTC's rights to share in any gains of the Land Play on a pari passu basis were not extinguished by this process.

[425]

244 The plaintiffs submitted that it was not the case that KNG and/or Stamoulis' conduct generated a profit that would otherwise have been unobtainable by COTC and the participants. The evidence does not support that submission. Stamoulis and S Stamoulis made every effort to convince the other participants to fund the Joint Venture and fund the acquisition of the Land. Those efforts were in vain. It was not the intention of the parties at the commencement of the Joint Venture that KNG would fund the whole of the process. As it turned out it was just not possible to obtain external funding. Even BHE was reticent about commitment because of the lack of evidence of support from the Clubs for the Club of the Clubs concept. There was a real risk that the participants would be in further and perhaps severe financial distress if KNG did not provide further funding. COTC and Dalglish were committed to the Club of the Clubs concept and it was that so-called intellectual property that enabled them to claim they had made a money's worth contribution to the Joint Venture. The Macquarie Joint Venture was not based on that concept and the evidence does not support a finding that COTC/Dalglish would have been willing, let alone able, to put the required capital into the Macquarie Joint Venture. 245 The term "gains" is to be construed in its context in clause 5(b)(iii). It is used in contrast to "losses". I agree that its ordinary usage is "profits" and I am satisfied that is what it means in this clause. I am also satisfied that its use was not intended to enable the other participants to reach into profits from sources other than the sale of the Land. Although there was no express mechanism in the Supplemental Agreement by which the Land Play was to be completed, clause 5(b)(iii) used the expression "Real Estate Transaction only". That expression was used to contrast the Land Play to the other options then available to KNG of the various ways to complete the Project. This was a far more limited option, thus the use of the word "only". It was the losses or gains from that "Transaction" that the other participants were to share in on a pari passu basis. 246 The plaintiffs submitted that KNG should be deprived of its "antecedent share" consistently with the principles outlined in Williamson v Hine [1891] 1 Ch 390; O'Sullivan v Management Agency and Music Ltd [1985] QB 428; and Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd (1988) 2 Qd R 1 at 13. It was submitted that depriving KNG of its antecedent share in the Joint Venture, meaning its share of any profit from the Land Play, is essential to give effect to the deterrent purpose of fiduciary law. It was also submitted that looked at another way, permitting a defaulting partner or Joint Venturer to attain the antecedent share of ill-gotten gains is dramatically inconsistent with that underlying purpose. It was submitted that if such discretion was not exercised the fiduciary would not be exposed to any risk of being materially worse off by reason of the breach of fiduciary duty creating a very considerable incentive to breach fiduciary duties that is clearly antithetical to the body of strict principles that regulate this area of the law. It was also submitted that a discretion should not be exercised in favour of KNG to recognise the commercial risk it took and it should not be granted a due allowance for time, energy, skill and financial contribution expended by it. 247 The cases relied upon in support of this submission are distinguishable from the facts of this case. The first case, Williamson v Hine, does not seem to me to support the proposition upon which the submission is made. The second case, O'Sullivan v Management Agency and Music Ltd is more on point and seems to me to support the retention by KNG an "element" of its gains. The third case, Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd, is quite distinguishable in that there was no consent to the defendant obtaining the lease, whereas in this case the participants agreed to KNG completing the Land Play pursuant to the Supplemental Agreement. 248 Williamson v Hine was a case in which Williamson, the plaintiff, was a co-owner with Messrs Hine Brothers, the defendants, of a ship, the Castle Holme. The defendants were the managing owners of the ship and their remuneration of £130 per annum was fixed by resolution of a meeting of the co-owners. The plaintiff sought a declaration that the defendants were not entitled to retain for their own benefit alleged secret profits obtained during the performance of their role as managing owners. The plaintiff sought an account or alternatively damages. The defendants were held liable to account to the plaintiff for only certain of the claimed categories of payments they had received, being commissions on freights and charters. Kekewich J held that if the defendants received such commission "it belongs to the shipowner as the principal, and cannot properly be received by them for their own benefit" (at 395). Of course the owner was both the plaintiff and the defendants and there is no suggestion in the report of this case that the defendants were not entitled to their share of the commission as owner. 249 O'Sullivan v Management Agency and Music Ltd was a case in which the contracts between a manager/producer (personally and through a number of companies) and the plaintiff, a composer and performer of popular music, were held to be in restraint of trade and, because the parties were in a fiduciary relationship, were also held to have been obtained by undue influence. Although the contracts had been performed and had lapsed by the time the matter came on for trial it was held that the court had jurisdiction to make such orders as were "practically just": per Fox LJ at 466. In that case, although undue influence had been applied by the defendants, the Court of Appeal held that the defendants were entitled to not only an allowance for skill and labour but also a "profit element": per Dunn LJ at 459 and Fox LJ at 468-469. This seems to have been in recognition of the "significant contribution" the defendants made to the plaintiff's success. 250 In Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd there was no concluded partnership agreement but Williams J held that the parties were in a fiduciary relationship. The plaintiff conducted a business retailing sunglasses from a leased shop in a shopping centre. The landlord had offered the plaintiff a lease on new/additional premises in the centre on advantageous terms by reason of the plaintiff's good leasing history. After discussions between the plaintiff and the defendants with a view to conducting the business together from the new premises, the defendants decided to "go it alone" (at 7) but his Honour found that the plaintiff was not advised of this decision and that the obtaining of the lease was in breach of fiduciary duty. Williams J held that there had to be just allowances for the defendants' time, energy and skill in building up "the value of the property subject to the trust" (at 12) but because of the nature of the breaches of trust a "stricter approach" should be adopted in fixing such allowance (at 13). Although the defendants were held liable to pay the plaintiff equitable damages the Court ordered that the business be sold and the net proceeds be shared between the plaintiff and the second defendant. 251 This is not a case, as is so often seen, in which a fiduciary proceeds to obtain a commercial advantage by reason of the fiduciary position resulting from unauthorised conduct. In those cases the defaulting fiduciary is liable to account for the profits or advantages obtained by reason of that unauthorised conduct. In this case the other participants expressly authorised KNG to complete the Land Play and they did so in a manner that I am satisfied gave KNG a large amount of freedom as to the mechanism(s) it could use to complete the Land Play. 252 It was not KNG's obligation to take the other participants into the Macquarie Joint Venture. This was not the completion of the Project as that term is defined in Joint Venture Agreement. It was a different project and contained no aspect of the Club of the Clubs concept. The contractual documents (excluding the OSJVA) and the dealings between the parties made clear that if certain pre-requisites were satisfied KNG had three options. The first two options involved the completion of the Project. If KNG had elected for either of those options and entered into agreements with the Macquarie Joint Venture parties as a means of completing the Project, then KNG's fiduciary obligations to COTC would have been more complex. However the Land Play option was different and KNG's fiduciary obligation to COTC was to look after its interest (as well as the other participants' interests) in the Land Play and not to prefer KNG's interest in the Land Play. It was a more limited obligation. KNG certainly had to complete the Land Play in accordance with its fiduciary duty to the participants but it was not prohibited from taking part, with others, in a different joint venture in respect of the Land after it was sold. Indeed any of the other participants could have taken part in a new joint venture in relation to the development of the Land after the Land Play had been completed. KNG utilised the Macquarie Joint Venture to sell the Land and in doing so compromised its duty to COTC by preferring the interests of S Stamoulis and KDG and settling for a figure on the basis that KDG (of which he was a shareholder) obtained an interest in the Macquarie Joint Venture. 253 KNG was a party to the Macquarie Joint Venture Deed but was not a participant in the Project that was the subject of the Macquarie Joint Venture. It was a party to that deed for the purpose of selling the Land. That was a mechanism that could have been used consistently with its obligations to the participants in the present Joint Venture so long as it had used its best endeavours to obtain the fair or market value for the Land. However KNG did not achieve fair or market value for the Land because it preferred the interests of S Stamoulis, who wished to take a role in the Macquarie Joint Venture, to the interests of COTC. It compromised its duty and accepted $3 million less than the asking price because S Stamoulis said he was "comfortable" with $25 million and Mr Ray persuaded Stamoulis that the balance of the asking price, $3 million, would be recouped from the Macquarie Joint Venture. The acceptance of that lesser price was in clear breach of KNG's fiduciary duty to COTC. 254 The expert accountants agreed that KNG's net accounting loss for the 4 years ending 30 June 2003 was $586,565 (Ex PD1). It was submitted on the defendants' behalf that the capital loss written off by KNG in its accounts of $2.5 million should be added to that figure. I am not persuaded that should occur. I accept the plaintiffs' submissions on this aspect of the matter that the $2.5 million represents capital that was sunk into the Joint Venture in return for its increased equity. The loss of $586,565 should be adjusted by at least the figure of $3 million between the asking price and the compromised price, resulting in a "gain" or profit on the Land Play of $2,413,435.

[426]

255 There are a number of matters that need to be taken into account in considering the plaintiffs' claim that KNG should be deprived of its antecedent share of the gains from the Land Play. There is no doubt that KNG was in many respects the only hope for the participants to realise their vision for the Project. It, with S Stamoulis, had the necessary funds or the capacity to obtain the necessary funds. I am satisfied that it was willing to step into the breach when the other participants proved either unable or unwilling to contribute or obtain any additional funds. It is true that it received additional equity for that willingness and its conduct was, in my view, quite open and appropriately consultative until it tried to complete the OSJVA Land Play. It remained collaborative until then in that it suggested that the other participants might contribute to either the Land Play or the continuation of the Project. 256 I am satisfied that by the middle of September 2000 Lenen's patience had worn thin and the Joint Venture was in a most precarious financial position. KNG obviously took the financial risk in the Land Play and it should have an allowance for that risk as well as its skill and labour in completing the Land Play. However there are aspects to KNG's conduct that warrant a more stringent approach to what it should be allowed to retain from the Land Play. That brings me back to the Arts invoice dated 22 February 2004 for $1.5 million plus GST. I am satisfied that KNG with the assistance of KDG, decided to allow Arts to share in the "gains" from the Land Play and that is why it was paid $1.5 million plus GST and that is why it was paid after the Land Play had been completed. 257 If KNG was willing to pay Arts $1.5 million when it was entitled to 7.5% of the gains in the Land Play then one approach may be that COTC may well be entitled to $3 million plus GST as compensation in respect of this breach by KNG. That figure may reflect a fair and just result and KNG's entitlements would be adjusted accordingly. COTC is yet to make its election as to what it wishes to do in respect of its claim for relief in relation to KNG's breach of fiduciary duty. Thus any quantification or assessment must await that election. KNG's primary liability for breach of fiduciary duty to COTC having been established, it is now appropriate to consider the claims against Stamoulis, S Stamoulis and KDG for participation in KNG's breach of fiduciary duty owed to COTC.

[427]

Accessorial liability - Stamoulis 258 The parties have approached this aspect of the case on the basis that the plaintiffs must prove knowledge in Stamoulis and S Stamoulis and KDG of KNG's breach of fiduciary duty: Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 per Stephen J at 408-412; approved in Yeshiva Properties No 1 Pty Ltd v Marshall (2005) 219 ALR 112; Royal Brunei Airlines Sdn Bhd v Tan Kok Ming [1995] 2 AC 378; Twinsectra Ltd v Yardley [2002] 2 AC 164; Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd [2006] 1 All ER 333 (PC). In Barlow Clowes Lord Hoffman clarified what was referred to as "an element of ambiguity" in Lord Hutton's remarks in Twinsectra (at 174) in relation to liability. Lord Hutton's remarks were as follows: [35] There is, in my opinion, a further consideration which supports the view that for liability as an accessory to arise the defendant must himself appreciate that what he was doing was dishonest by the standards of honest and reasonable men. A finding by a judge that a defendant has been dishonest is a grave finding, and it is particularly grave against a professional man, such as a solicitor. Notwithstanding that the issue arises in equity law and not in a criminal context, I think that it would be less than just for the law to permit a finding that a defendant had been "dishonest" in assisting in a breach of trust where he knew of the facts which created the trust and its breach but had not been aware that what he was doing would be regarded by honest men as being dishonest. [36] … I consider that the courts should continue to apply that test and that your Lordships should state that dishonesty requires knowledge by the defendant that what he was doing would be regarded as dishonest by honest people, although he should not escape a finding of dishonesty because he sets his own standards of honesty and does not regard as dishonest what he knows would offend the normally accepted standards of honest conduct. 259 Lord Hoffmann said (at 338): [15] Their Lordships accept that there is an element of ambiguity in these remarks which may have encouraged a belief, expressed in some academic writing, that the Twinsectra case had departed from the law as previously understood and invited inquiry not merely into the defendant's mental state about the nature of the transaction in which he was participating but also into his views about generally acceptable standards of honesty. But they do not consider that this is what Lord Hutton meant. The reference to 'what he knows would offend normally accepted standards of honest conduct' meant only that his knowledge of the transaction had to be such as to render his participation contrary to normally acceptable standards of honest conduct. It did not require that he should have had reflections about what those normally acceptable standards were. 260 The primary liability of KNG is its breach of fiduciary duty in the completion of the Land Play pursuant to the Supplemental Agreement in failing to achieve the best price for the Land in discharge of its obligations to the other participants, in particular COTC. The analysis of Stamoulis' accessorial liability is limited to that primary liability. The analysis is a little artificial because it is clear that Stamoulis proceeded on the basis that KNG was completing the OSJVA Land Play. The OSJVA has been successfully challenged on the grounds referred to earlier. Much of the cross-examination of Stamoulis focused upon the claim that he regarded KNG as entitled to complete the OSJVA Land Play rather than proof of the knowledge of KNG's primary liability in respect of the Land Play under the Supplemental Agreement, however that does not, of itself, preclude a finding that Stamoulis had the requisite knowledge at the time of the sale of the Land. 261 Stamoulis continued to resist any suggestion that he understood that COTC did not regard itself as bound by the OSJVA until the meeting of 12 October 2000. He accepted that in October 2000 KNG's total financial exposure under the Joint Venture was $6.75 million and that if the $10.7 million guarantee was not provided, Lenen would be entitled to call on the $4 million guarantee (tr 229-230). He gave further evidence that as at 6 October 2000 he believed that the majority resolution at the meeting of 25 September 2000 was sufficient to give legal effect to the OSJVA even though COTC did not consent (tr 230). He agreed that COTC's position would not have made a difference to his perception of the legal validity of the OSJVA (tr 231). He also agreed that on 6 October 2000 KNG (through Rysall One) provided Lenen with two guarantees totalling $10.7 million.

[452]

MR STOWE: Q. I suggest to you, Mr Stamoulis, that your inclusion of the paragraph 11 (c) is simply an attempt to fabricate a claim based on estoppel which you knew didn't exist? A. I am not fabricating anything. 263 This cross-examination exposed in Stamoulis a willingness to ignore the reality of what was stated in paragraph 11(c) of his statement. It seems to me abundantly clear that when he made his witness Statement dated 3 May 2006 he put forward evidence that KNG provided the $10.7 million guarantees on a number of bases, including a basis that no Joint Venture participant had raised any issues as to the validity or legality of the OSJVA. However I do not accept that there was a proper foundation for the suggestion that was made to Stamoulis that he had included paragraph 11(c) to fabricate an estoppel claim. To properly ground such a suggestion there would have to have been some evidence that at the time the guarantee was provided on 6 October 2000 a participant had "raised an issue as to the validity or legality of" the OSJVA. No one had raised such an issue. All that had happened was that Dalglish had voiced his concerns about the deadlines for BHE and the hotelier to pay and to commit to underwrite the relevant amounts. Dalglish did not claim the OSJVA was invalid and/or illegal until the meeting of 12 October 2000 some days after the provision of the guarantee. 264 Stamoulis gave evidence that once the conditions for the Land Play had been triggered he was of the view that the other participants could not claim an interest in the Joint Venture that he had financed through KNG (tr 235). He accepted that he was aware of the compulsory buyout provisions in clause 15 of the Joint Venture Agreement and the provision for purchase of the defaulting party's interest to be determined at market value. He agreed that he was aware of those provisions at the time that the OSJVA was signed (tr 235). He was cross-examined about the default of the participants as follows (tr 236-237): Q. Of course at this stage there was no formal default by any of the participants under the joint venture agreement, was there? A. I don't know if there was any default.

[485]

(ii) otherwise gives rise to liability, giving grounds for claiming that KNG, Mr Stamoulis or both should account to the original KingsHeath JV parties for any profits realised as a consequence of its acquisition of the land or be liable in damages. 268 It is obvious from Mallesons' letter that they were provided with numerous documents relating to the Joint Venture. However, the letter dated 18 September 2000 in which KNG elected to complete the Land Play under the Supplemental Agreement was not provided to them. Accordingly, the advice does not deal with the fact that KNG elected to complete the Land Play pursuant to the Supplemental Agreement nor does it deal with the fact that it notified the other participants of that election prior to meetings relating to the purported adoption of the OSJVA. However, Mallesons did have Dalglish's letter in which he had responded to KNG's letter of 18 September 2000 in which he referred to Stamoulis' intention to complete the project as a land transaction. 269 It is obvious that Mallesons were under a misapprehension as to what COTC had actually done and/or said in relation to the OSJVA. That much is clear from the following part of the letter: Whilst a representative of Club of the Clubs Pty Ltd did not vote in favour of approving the OSJVA on 25 September 2000, he was aware of its contents and, although the document was not executed by Club of the Clubs Pty Ltd, it does not appear that any action has been taken by Club of the Clubs Pty Ltd to object to the arrangements under the OSJVA. In this context, even though not properly completed and executed, it is still arguable that the OSJVA can be used to provide evidence of how the joint venture parties (with the possible exception of the Club of the Clubs Pty Ltd) intended the arrangements between them to proceed after 25 September 2000. 270 When Stamoulis read this section of the letter he must have known that Mallesons had not appreciated what Dalglish had said at the Meeting on 12 October 2000, i.e., that the OSJVA was neither valid nor legal. It appears that Mallesons had the Minutes of the Meeting at which this was said, but they failed to appreciate Dalglish's statements recorded in the Minutes. Mallesons were clearly under the impression that COTC had not taken any action to "object" to the arrangements under the OSJVA. Stamoulis was not cross-examined in relation to this rather glaring oversight, but he must have known that this was a misapprehension of some significance.

[518]

277 Stamoulis' failure to disclose to COTC the existence of the Put and Call Option between KCOTC and Lenen and the Guarantee between KNG and Lenen of 21 February 2001 is in my view of some significance in deciding this aspect of the matter. If Stamoulis was of the view that his actions and those of KNG were above board and not in breach of duty to COTC it is more probable that he would have informed COTC that he had made the approach to Lenen. Stamoulis' letter of 28 March 2001 in which he claimed that he 'expected' the Notice of rescission had issued to facilitate KCOTC assuming the Joint Venture obligations to Lenen lacked any candour. He knew very well that KCOTC had already entered into the Put and Call Option with Lenen and that Lenen had promised to terminate the relevant agreements "as quickly as possible". I am of the view that his conduct in this regard and his rather disingenuous discussion with the other participants at the meeting of 15 March 2001 when he had already negotiated the new agreements with Lenen support a finding that Stamoulis believed at the time that KNG was acting in breach of its duty to COTC. Although Stamoulis suggested that he received some "comfort" from Mallesons' letter I do not accept that he believed that what KNG was doing was in accordance with its duty to COTC. It is all very well for Stamoulis to give evidence that he believed KNG was entitled to complete the OSJVA Land Play but the contemporaneous documents and events suggest otherwise. 278 I am satisfied that Stamoulis knew there were difficulties with the September resolution. That is why he sought to have the Minutes of the 25 September 2000 meeting "ratified". His evidence in relation to this matter was illuminating. He agreed in cross-examination that KPMG wrote to the participants after the meeting of 25 September 2000 asking whether Dalglish intended to execute the OSJVA on behalf of COTC. He said that he "may" have turned his mind as to why KPMG asked that question and suggested it may have been "as a matter of completeness". He claimed that he did not think there was anything wrong with the OSJVA (tr 221) and that he did not think it was necessary to take any further steps to ensure that COTC was bound by the OSJVA (tr 222). 279 He gave the following evidence in cross-examination in relation to the suggestion in his (and Mancuso's) letter of 5 October 2000 to Dalglish that, at the meeting on 12 October 2000, the Minutes of the meeting of 25 September 2000 at which the participants, other than COTC, signed the OSJVA, would be ratified (tr 224-226): Q. And Mr Stamoulis, the only purpose in ratifying that agreement was because you thought there was some doubt as to whether it was binding on Club of the Clubs without that ratification? A. Not at all.

[567]

Accessorial liability - S Stamoulis and KDG 286 The plaintiffs rely upon a number of matters to establish S Stamoulis' and KDG's involvement in the breach of fiduciary duty by KNG. There is little doubt that S Stamoulis played an active role in relation to the funding of the Joint Venture and that he played an active role in the events that led KNG to sell the Land. The evidence establishes that S Stamoulis indicated that he was "comfortable" with $25 million and happy to look at the proposed venture (tr 244-5). S Stamoulis was the director and at least one of the directing minds and will of KDG. He caused KDG to enter into and become a party to the Macquarie Joint Venture and to provide funds to SKD to purchase the Land from KNG. 287 It was submitted that S Stamoulis was obviously aware that KNG was part of the Joint Venture with COTC and that KNG had caused the Land to be sold to SKD. It was further submitted that those facts would communicate to a reasonable person a general understanding that there was a breach of fiduciary duty, unless there was a reasonable basis for inferring that the sale was authorised and consented to by COTC. Stamoulis gave evidence that he informed his father that COTC did not sign the OSJVA and did not approve the OSJVA in writing. As I have said earlier he also informed his father that COTC did not regard itself as bound by the OSJVA. 288 There were a number of other features relied upon by the plaintiffs in support of their submission that S Stamoulis had the requisite knowledge for accessorial liability. In particular it was submitted that there was no basis for any inference that S Stamoulis was aware of the contents of the advice from Mallesons. That is true. It was also submitted that there was no basis for an inference that S Stamoulis was aware of any other matter which may have militated against the reasonable inference that the sale of the Land by KNG to SKD without allowing COTC to share in that sale was a breach of fiduciary duty.

[568]

289 The plaintiffs submitted that the absence of any evidence from S Stamoulis is a "classic case" for the operation of an adverse inference pursuant to Jones v Dunkel (1959) 101 CLR 298 at 312. It was submitted that S Stamoulis was unquestionably required to explain the objective inference that he knowingly participated in KNG's pleaded breach of fiduciary duty. There was medical evidence from Dr Sullivan of S Stamoulis' inability to attend Court to give evidence. The plaintiffs submitted that the report from Dr Sullivan makes no mention of any medical condition at a time when the matter was the subject of case management with orders in respect of the serving of evidence. It is true that no statement by S Stamoulis was provided to the plaintiffs. The plaintiffs also submitted that notwithstanding S Stamoulis' medical condition he could have given evidence by videolink or telephone or other mechanism. It was submitted that S Stamoulis' evidence would obviously have been of profound materiality to address whether he was aware that the sale of the Land by KNG to SKD was a breach of fiduciary duty and whether he was aware of any other matters, relevant to whether a reasonable person would draw the inference that the sale of the land was a breach of duty. 290 Stamoulis was cross-examined about his father's knowledge of the various Agreements between the participants. He claimed that his father was not given a copy of those various agreements (tr 209). He also gave the following evidence in cross-examination (tr 333): Q. Mr Stamoulis, if it were the case that you were simply being a conduit of your father's opinion in respect of this matter, can you think of any possible reason why your father was not in a position to communicate his personal views and relied upon you as his conduit? A. Well, to explain that you would have to understand my father, I guess. But I believe he is not, he is not your average businessman. He, his grasp for writing in the English language is not great, he is a, his grasp for speaking is not great and he, he keeps to himself in many respects because of that. And his business methods are, in my view, different to other business people which may be seen by others to be unusual because it is not normal, the way he goes about things at times. 291 This evidence needs to be compared to Stamoulis' evidence that he was a mere conduit for his father in passing on letters and emails from the other participants in the Macquarie Joint Venture. If it were true that S Stamoulis did not grasp writing or speaking English all that well there would appear to have been little utility in passing on those documents to him. Although my understanding of S Stamoulis is informed by the evidence about him and from the contemporaneous documents I am still able to form a view about his knowledge at the time from that evidence, notwithstanding his absence from the witness box and notwithstanding any direct evidence from him by way of a witness statement. However such a process is more cautious when the person whose accessorial liability is being assessed is absent from the witness box. 292 S Stamoulis was the person with the funding for the Joint Venture. This was the first project that Stamoulis had done on his own albeit that his father was funding it. Stamoulis admitted that he kept his father informed of matters to enable him to make a decision to continue to provide the funds. It is clear that he was provided with enough information by Stamoulis to persuade him to provide funding. I do not accept the picture Stamoulis sought to paint of his father as a linguistically challenged loner with at the very least a quirky approach to business methods and perhaps even a rather weird approach to such matters. The evidence establishes that he was a man keen to take up commercial opportunities firstly in becoming involved in the Joint Venture and then making a tidy net profit of some $14 million in the Macquarie Joint Venture. He was the one who called the shots at the time of the negotiations as to the price for the sale of the Land. He said "we are comfortable with $25 million". I am satisfied that this evidence and the Arts invoice and the lack of explanation in relation to it, is evidence and circumstances from which I am entitled to find that S Stamoulis knew at the time the Land was sold that the participants to the Joint Venture were entitled to share in the proceeds and that KNG was in breach of its fiduciary duty to COTC. S Stamoulis was pivotal to KNG's breach of fiduciary duty in accepting less than fair value for the Land. S Stamoulis and KDG ensured that Arts/Mancuso was paid $1.5 million plus GST utilizing the device of an invoice for purported services. S Stamoulis' knowledge is also the knowledge of KDG.

[617]

303 The evidence extracted in the above paragraphs borders on the bizarre. There was absolutely no proper basis for Dalglish to claim that KCOTC was the purchaser of the Land having regard to the history between these participants and Dalglish's own evidence in cross-examination. 304 The fact of the matter was that KCOTC had no interest in the Land up to the time that Stamoulis persuaded Lenen to enter into the Put and Call Option with KCOTC dated 21 February 2001. Stamoulis took this step in purported pursuance of the OSJVA Land Play. As such it was not authorised. The Put and Call Option between KCOTC and Lenen dated 21 February 2001 was conditional upon the "valid termination or rescission" of the Put and Call Option between the participants and Lenen and the Purchase Contract between the participants and Lenen (cl 2.1). Lenen agreed to act "as quickly as possible" to terminate or rescind those agreements (cl 2.2). 305 The defendants submitted that KCOTC's acquisition of an interest in the Land under the 21 February 2001 Put and Call Option is properly characterised as the mere implementation of the Land Play under the Supplemental Agreement. The plaintiffs submitted that such proposition is erroneous because at no stage after KNG's election on 21 November 2000 to complete the OSJVA Land Play did Stamoulis or KNG evince an intention to act in accordance with the Land Play provisions of the Supplemental Agreement. It was submitted that such Land Play effectively involved the transformation of the Joint Venture from one concerned with the development of the Land, to one concerned only with its sale. It was further submitted that although the Supplemental Agreement Land Play contemplated that the Land would be sold, the sale was unquestionably within the rubric of the Joint Venture and for the benefit of all participants, evidenced by the fact that they were to share in the gains "pari passu". I agree with this latter submission. 306 It is true that KNG purported to act in accordance with the OSJVA, however as a result of the findings I have made in relation to the September and October resolutions KNG was only authorised to complete the Land Play pursuant to its election of 18 September 2000, that is, pursuant to clause 5 of the Supplemental Agreement. The lack of specificity as to how such Land Play was to be completed allowed KNG to complete the Land Play in the most effective and efficient way it thought fit, so long as it sold the Land for fair or market value and did its best for the other participants in ensuring as many "gains" as possible were achieved and as few "losses" were incurred in which they were to share on a pari passu basis. 307 I am of the view that in the rather complex and unsatisfactory circumstances of this case and as a consequence of my finding that the OSJVA is not a valid or binding agreement, it is appropriate to characterise KCOTC's acquisition of an interest in the Land under the 21 February 2001 Put and Call Option as the mere implementation of the Land Play under the Supplemental Agreement. It was a mechanism that was open to KNG in the absence of any express agreement as to how the authorised Land Play was to be achieved. The participants agreed that KNG could complete the Land Play and it seems to me that clause 11.4 of the Joint Venture Agreement meant that KCOTC would do whatever it could to assist KNG with the completion of the Land Play in accordance with its obligations to the other participants. 308 The proper characterisation of the process is that KCOTC was the participants' nominee to enable KNG to complete the Land Play on the participant's behalf as it was required to do pursuant to clause 5.1(b)(iii) of the Supplemental Agreement. Stamoulis utilised KCOTC in the OSJVA Land Play that I have found was not authorised and such steps were in breach of his duties as a director and in breach of fiduciary duty to KCOTC not to involve it in unauthorised transactions. However I am not satisfied that Stamoulis would have been in breach of his fiduciary duty to KCOTC in utilising it in the process to complete the Land Play under the Supplemental Agreement. 309 Stamoulis' breach in this regard probably entitles KCOTC to nominal damages to be assessed in due course. 310 Although there were accessorial claims against S Stamoulis and KDG in respect of this breach I am not satisfied that the plaintiff has established the requisite knowledge of this breach. This was a process adopted by Stamoulis and there is nothing in the evidence that establishes S Stamoulis' requisite knowledge of this process and/or breach. Breach of Contract by KNG 311 There are two claims made by COTC against KNG for breach of contract. The first is the alleged breach of clause 5 of the Supplemental Agreement in failing to share the profits of the Land Play with COTC on a pari passu basis. The second is an alleged breach of an implied obligation in the Land Play pursuant to the Supplemental Agreement to use its best endeavours to sell the Land at no less than market value. Failure to share profits 312 There does not seem to be any defence to the claim that KNG failed to comply with its obligations under clause 5 of the Supplemental Agreement. I am satisfied that the plaintiffs have established this breach.

[621]

Q. What opinion at all did you have as to the value of the land at this stage Mr Stamoulis? A. Well, I didn't think it was much over 20. 315 The available conclusions from this evidence include that Stamoulis gave false evidence when he denied that he believed that the value was $28 million or he made a false representation to Mr Abedian to entice him into a transaction. In any event, Stamoulis gave evidence in his statement of the efforts undertaken by KNG to sell the Land. This included meetings with Consolidated Properties in March 2001, Colliers International at about the same time, Mr Sahba Abedian of Sunland Limited in Melbourne in April 2001 and the Ray Group in mid 2001. The asking price for the Land was $28 million and Stamoulis gave evidence that Mr Ray advised him that he had discussed this price with Consolidated Properties and Macquarie Bank but that they did not believe the asking price of $28 million was representative of the market. Mr Ray argued that the property next door, Casuarina Beach, was two and a half times the size of the Land and that Casuarina Beach did not get much more than $30 million. 316 Stamoulis gave evidence that when Mr Ray put to him that the Macquarie Bank's interest in a Joint Venture would be at a price of $22.5 million, he said that the proposal sounded "great" but said that "we need $28 million". In response to this statement Mr Ray said: "the money you want for the land will be recouped in the project. This is an opportunity. Harry look at the players we have ready to do a deal". It was during this discussion with Mr Ray and the representative of the Macquarie Bank that the price of $25 million was agreed to as a compromise between the two amounts $28 million and $22.5 million. S Stamoulis said, "we are comfortable with $25 million and happy to look at the proposed joint venture". 317 The defendants submitted that Stamoulis' detailed evidence of KNG's attempts to sell the Land were not challenged. That is true. There is no evidence of any higher offer from any other party. The price was agreed in principle on 21 June 2001 and there is no expert evidence in the case directed to a valuation at that time. However the plaintiffs claimed that Stamoulis frustrated negotiations in relation to the sale of the Land. In this regard reliance was placed on a file note made by Mr Barclay recording the contents of a telephone conversation with Mr Ray on 25 January 2001. That note included a statement by Stamoulis that he wished to await the resolution of what was referred to as the "contractual situation" before proceeding to negotiate for the sale of the Land. The plaintiffs submitted that this evidence supports a finding that Stamoulis was seeking to "shut out" the other participants from dealing with the Ray Group. I disagree. By January 2001 the relationship between the participants was less than satisfactory. The Joint Venture was in financial distress. The only certain way that funding could be obtained was through KNG and the "contractual situation" was obviously complicated. It is obvious that KNG was seeking advice from Mallesons and although I have found that KNG acted in breach of its fiduciary duty I have no doubt that at least in January 2001 Stamoulis was hoping that the "contractual situation" could be resolved and indeed should be resolved before the sale of the Land was finalised. 318 It seems to me that Stamoulis stumbled badly in February 2001 when he made what I have referred to earlier as the "secret" arrangements with Lenen in respect of the new Put and Call Option between KCOTC and Lenen and the guarantee between KNG and Lenen. I do not believe that what he said in January 2001 was for the purposes of frustrating negotiations for the sale of the Land by other participants. Indeed it has to be remembered that in January 2001 Stamoulis advised Shannon that KNG was willing to divest itself of its interests in the Project and the Joint Venture for $16.5 million. COTC and/or Jandawn were unable to raise such funding to buy KNG out. 319 An additional matter that convinces me that the plaintiffs' submission in this regard lacks foundation is the history recounted earlier in relation to the approaches made by Dalglish's/COTC's solicitors to KNG in relation to the possible purchase of KNG's interest in the Land and the Joint Venture. That correspondence is dealt with elsewhere but it does not seem to me to be consistent with an attempt to frustrate the sale of the Land.

[623]

Valuation evidence 321 The plaintiffs relied on the evidence of Brian Cox, a registered valuer carrying on practice in Queensland. There are two reports from Mr Cox, the first dated 25 October 2005 (first report) and the second dated 12 June 2006 (second report). The defendants relied upon the evidence of Garrie Raymond Love, a senior director of C B Richard Ellis (C) Pty Ltd and valuer, also carrying on practice in Queensland. 322 The two valuers approached the task of valuing the land using different methods. Mr Cox used the comparative sales method and Mr Love used the discounted cash flow method that utilised comparative sales relative to the various products that were to be developed. Both valuers referred to the development south of the subject land known as Casuarina Beach Estate. Brian Cox 323 Mr Cox was involved in valuing the Land during the Joint Venture. His valuation dated 31 August 2000 (the 2000 Valuation) valued the Land at $20 million with a gross realisation value of $48.686 million. In the 2000 Valuation Mr Cox referred to the traditional methods of valuation of a property of the nature of the Land as consisting of two "basic" methods: the direct comparison method; and the residual cash flow analysis. The 2000 Valuation included the following in relation to the valuation rationale: The direct comparison method is used as the basic valuation method, particularly given the nature of the subject property, in addition to its scope for development alternatives and assumptions. The resultant value is then tested by way of the residual cash flow analysis. This is a preferred approach utilised by sophisticated land developers, however is more relevant with a specific development scheme in place. 324 In his first report Mr Cox said this in relation to the 2000 Valuation: Those valuations were made based on a development plan prepared by Bligh Voller Neild Architects representing an interpretation of initial concept plans devised by Victor G Feros Town Planning Consultant, which accorded with the May 2000 approval.

[625]

An LEP dated May 2000 had been issued at the date of the August valuation, which permitted similar density but a variation to allowable product type. This variation permitted, with consent, dwelling houses, providing their number did not exceed the total number of units/rooms for tourist accommodation. However on instructions the valuation was made on the basic assumption which ignored this beneficial deviation from both the old LEP, and from the specific Club of the Clubs concept. 325 It was suggested to Mr Cox in cross-examination that the 2000 Valuation did take into account the new LEP. Mr Cox resisted that suggestion and gave evidence that the 2000 valuation was based on the Club of the Clubs concept that in turn was based on the 1987 LEP (tr 189). He suggested that the 2000 Valuation was a hybrid of the Club of the Clubs product but not including a premium that attached to the timeshare sales (tr 191). He suggested that such concept was an inferior product to that which was ultimately redesigned and subsequently sold (tr 192). 326 The 2000 Valuation reached a value per entitlement of $18,000. For the purposes of his first report Mr Cox was asked to assess the market value of the site as at 23 January 2002 and 25 June 2002. He was also requested to assess the "Put and Call Price" of the Land as at 23 January 2002. Mr Cox valued a rate per entitlement of $30,000 as at 23 January 2002. That translated into a market value at that date of $33 million. He then valued the rate per entitlement at 25 June 2002 at $35,000 which translated into a market value of of $37 million. He assessed the market value as at the date of the Put and Call option of 23 January 2002 at $35 million. 327 In cross-examination Mr Cox accepted the validity of the discounted cash flow analysis but indicated that he did not have the time to produce such an analysis. In re-examination he said that such a process would "span weeks" (tr 204). It is not clear to me why such a process could not have been embarked upon prior to trial because Mr Cox was provided with Mr Love's analysis as long ago as October 2005. It is apparent that he was simply not asked to provide such an analysis. The defendants submitted that Mr Cox's reports were flawed because he failed to provide such an analysis. In this regard the defendants relied upon Mr Cox's endorsement of the method in the 2000 Valuation as the "preferred approach". That statement in the 2000 Valuation has to be read in context. The context was the utilization of that approach to "test" the value resulting from the direct comparison method. Garrie Raymond Love 328 As I have already said Mr Love embarked upon a different analysis and provided a series of valuations of the site. Those valuations were: (1) "As is" site value of $28.5 million; (2) Stage 1A land value with Development Approval at $15 million; (3) Stage 1B land value with Development Approval at $1.9 million; (4) Residual en globo value after development of stages 1A and 1B without Development Approval at $27 million; (5) Stage 1A gross realisations at $61.455 million; and (6) Stage 1B gross realisations of resort units at $52 million and commercial premises at $11.69 million. 329 Mr Love described Stage 1A as comprising 27 beachfront blocks, 6 of which were larger signature lots and 21 being standard sites. In applying a value to the beachfront lots reference was made to sales within Casuarina Beach Estate and also to sales of beachfront property within other Tweed Coast localities. Mr Love expressed the view that the most comparable evidence was in the Casuarina Beach Estate because it shared a similar locality and similar but slightly inferior land with inferior ocean views. Stage 1A also had a number of beach side blocks within it. The blocks at the Casuarina Beach Estate were narrower parcels of land. That was a matter that Mr Love took into account in his valuation. 330 Mr Love described Stage 1B as the built product in the Outrigger Resort. The subject units comprise a mixture of one and two bedroom self-contained units. The smallest unit was 70.5 square metres including a balcony and all are of a size suitable for most financiers for end-retail financing. Some of the units in this Stage have views over the ocean and towards the hinterland. Nearly all have some form of view whether it is hinterland or ocean or ocean glimpses over the roofs of adjoining houses. 331 Mr Love used comparable sales in the analysis of both Stages. One of the factors built into Mr Love's valuation was the unknown outcome of an application to the local council to adjust or amend the approval. Mr Love expressed the view that in the overall context of the valuation, a 5% discount was a minor matter (tr 372). He accepted that if one were to take out the possible double counting of infrastructure included in the two stages, the overall valuation would be higher but would need to be discounted for the sheer size of the development. He accepted that the repetition or double counting of the infrastructure costs meant that the valuation should be higher (tr 375).

[628]

Under-value 335 I am satisfied that KNG's best endeavours were compromised by the desire to facilitate S Stamoulis' entrée into the Macquarie Joint Venture. The prospective joint venturers who were keen to enter into the Memorandum of Understanding in June 2001 were certainly companies of financial substance and if the factor of trying to facilitate his father's entrée into the Macquarie Joint Venture had been removed I have little doubt that the asking price could have been achieved. The value of the Land in January 2002 was $30.135 million. 336 KNG did not use its best endeavours to sell the Land at fair or market value. It knew that the Ray Group was interested as early as January 2001. It was steered on a course by its director who, I am sure, felt constrained in the way that he marketed the Land because of his concern over the "contractual situation". KNG promised in the MOU that it would not seek to negotiate with any other parties once the figure of $25 million was struck in June 2001. It ceased any further efforts to market the Land in July 2001. KNG/Stamoulis had little difficulty persuading the prospective Macquarie Joint Venturers to pay $25 million and I have little doubt that if S Stamoulis had not stepped in and ended the negotiations by stating that he was comfortable with $25 million and a part of the Joint Venture, the market value could have been achieved. 337 I am satisfied that KNG breached clause 5 of the Supplemental Agreement by failing to sell at fair or market value of $30.135 million and failing to share the gains on a pari passu basis with COTC. Damages will be assessed in due course. Inducing breaches of contract 338 COTC claims that Stamoulis, S Stamoulis and KDG induced or procured KNG to breach the Supplemental Agreement. The plaintiffs relied upon the following statement in C Thomson & Co Ltd v Deakin [1952] Ch 646 at 694 per Jenkins LJ: … there seems to be no doubt that if a third party, with knowledge of a contract between the contract breaker and another, has dealings with the contract breaker which the third party knows to be inconsistent with the contract, he has committed an actionable interference. 339 Reliance was also placed on the following passage from Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 in which the Court said at 512: 171. The position may be stated, we think, as follows. The plaintiff must prove that the defendant intentionally procured the breach. The requirement that the defendant have sufficient knowledge of the contract is a requirement that he have sufficient knowledge to ground an intention to interfere with contractual rights. Ignorance of the existence of the contract or of its terms born of inadvertence or negligence is not enough. On the other hand, reckless indifference or wilful blindness to the truth may lead to a finding of the necessary intention. 340 For the reasons given earlier in relation to the breach of fiduciary duty, I have no doubt that Stamoulis knew that KNG was obliged to achieve fair or market value in the Land Play and that in allowing his father to "call the shots" in the negotiations and accept the $25 million on the basis that KDG, KDG, of which he was a shareholder, would have an interest in the Macquarie Joint Venture, KNG was in breach of its contract with COTC. I am satisfied that he induced KNG to breach its contract with COTC. 341 It was claimed that S Stamoulis/KDG knew that KNG had not advertised the Land; that KNG had failed to obtain a valuation of the Land; that KNG had failed to sell by public auction; and that the sale between KNG and SKD was a transaction in which KNG had interests which conflicted with the obligation to obtain the best price reasonably possible in relation to the Land; namely the interest of procuring for KDG an opportunity to participate in the Macquarie Joint Venture. 342 I have referred earlier to Stamoulis' evidence in relation to the information that he provided to S Stamoulis. Once again, in the absence of any evidence from S Stamoulis caution is needed in this assessment. It is obvious from Stamoulis' evidence that S Stamoulis took over the negotiations when it reached a point when S Stamoulis decided that he would be "comfortable" with $25 million with an entrée to the Macquarie Joint Venture. I have already dealt with the Arts invoice. That evidence and the absence of any evidence from S Stamoulis viewed in the surrounding circumstances referred to earlier convince me that S Stamoulis knew that the participants were entitled to a share of the proceeds of the sale of the Land and I have no doubt that he knew that the figure reached was to suit him and not them. He was intervening in the affairs of KNG albeit that his son was allowing him to do so in these negotiations. I am satisfied that he induced KNG to breach its contract with COTC. Based on the same reasoning, KDG is also liable in this respect. COTC and IMF/KCOTC debts claims against KNG 343 The total unpaid debts of KCOTC amount to $1,200,420.24. The debts claimed in the Third Further Amended Summons are set out in annexure A as follows: Annexure "A" Date Creditor Quantum 28 July 2000 Bligh Voller Nield $132,288.43 October 2000 Bridges Project Consultants $6,270 11 August 2000 7 September 2000 12 October 2000 Cardno MBK $109,147.50 10 November 2000 6 December 2000 March 2003 CB Richard Ellis $2,500 May 2003 Geoff Provest of the Tweed Heads Bowling Club $8,242.50 King Network Group $250,000 Soundhouse Studios $4,339 Structured Risk Alternatives $11,838.01 Thomson Wolveridge & Perrett Pty Ltd $7,920 31 August 2000 Tribal Pty Limited (SMS Management & Technology) $46,274.80 Arts Finance Pty Limited $117,100.00 Jandawn Pty Limited $157,000 Club of the Clubs Pty Limited $347,500 TOTAL $1,200,420.24 70% $840,294.17

[629]

344 The claim in the Third Further Amended Summons is that by reason of the May Agreement KNG is contractually liable, at the suit of COTC, to indemnify KCOTC in the amount of $840,294.17, being 70% of the total unpaid debts incurred by KCOTC. 345 The May Agreement included "Step 3" of the "Action Plan". There is no issue between the parties that such Step made clear that the obligations to pay the related party creditors arose only when both the Heads of Agreement with BHE and the underwriting by a hotelier had been arranged. There is also no issue that such precondition was not fulfilled. In those circumstances the amount should exclude the amounts in relation to the related parties being KNG ($250,000), Arts ($117,100), Jandawn ($157,000) and CTOC ($347,500). That reduces the claim to $328,820.24 of which 70% is $230,174.17. 346 The plaintiffs agreed that COTC has not fulfilled its obligation under the May Agreement to pay 15% of all debt. The defendants claimed that in order to obtain relief in equity, COTC is obliged to do equity, by fulfilling its own obligations. This was on the basis that the way in which the plaintiffs' claim is framed is for a decree of specific performance of the kind approved in Beswick v Beswick [1968] AC 58. The plaintiffs concede that COTC is obliged to fulfil its own obligations and they consent to the orders sought in KNG's cross-claim seeking indemnity from COTC on the same basis. 347 The defendants submitted that the May Agreement was clarified and amended by the OSJVA. Having regard to my findings in respect of the OSJVA I am not satisfied that the adjustment to the May Agreement was approved and accordingly the position is that KNG is liable to pay $230,174.17. 348 There was an alternative claim by IMF that it is the beneficiary of a trust of promises made in the May Agreement. I agree with the defendants' submissions in this regard that there is no evidence of any intention to create such a trust and that it would have been contrary to the intention of the Joint Venture Agreement for the participants to confer on KCOTC paramount rights against themselves. I also agree with the submission that KCOTC was intended to act as a trustee for the relevant stakeholders, not the other way around. In any event I am satisfied that the claim at the suit of COTC succeeds.

Parties

Applicant/Plaintiff:

Club of the Clubs Pty Limited

Respondent/Defendant:

King Network Group Pty Limited

Cases Cited (23)

CITATION : Club of the Clubs Pty Limited v King Network Group Pty Limited [2006] NSWSC 1138

Arakella Pty Ltd v Paton (2004) 60 NSWLR 334 Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd [2006] 1 All ER 333 Beswick v Beswick [1968] AC 58 Birtchnell v Equity Trustees Executors & Agency Co Ltd (1929) 42 CLR 384 Cachia v Westpac Financial Services Ltd (2000) 170 ALR 65 Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 DC Thomson & Co Ltd v Deakin [1952] Ch 646 Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd [1988] 2 Qd R 1 Gambotto v WCP Limited (1995) 182 CLR 432 Jones v Dunkel (1959) 101 CLR 298 CASES CITED : McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579 News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1 O'Sullivan v Management Agency and Music Ltd [1985] QB 428 Peters' American Delicacy Co v Heath (1939) 61 CLR 457 Royal Brunei Airlines Sdn Bhd v Tan Kok Ming [1995] 2 AC 378 Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309 Twinsectra Ltd v Yardley [2002] 2 AC 164 United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1 Warman International Ltd v Dwyer (1995) 182 CLR 544 Williamson v Hine [1891] 1 Ch 390 Yeshiva Properties No 1 Pty Ltd v Marshall (2005) 219 ALR 112

(2004) 60 NSWLR 334

(1929) 42 CLR 384

(2000) 170 ALR 65

(1975) 132 CLR 373

(1999) 47 NSWLR 473

(1995) 182 CLR 432

(1959) 101 CLR 298

(2000) 203 CLR 579

(1996) 64 FCR 410

(1988) 14 NSWLR 1

(1939) 61 CLR 457

(1985) 157 CLR 1