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[2014] ACTSC 312
Supreme Court of the ACT
2014-11-21
Refshauge J
Original judgment source is linked above.
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Commonwealth of Australia v Davis Samuel Pty Limited and Ors (No 8)
The parties be heard on the draft orders published on 21 November 2014.
EQUITY - Election between remedies - Plaintiff can make claims in the alternative but must elect at trial which remedy it ultimately seeks - Tracing - Principle of tracing involves identification of new asset to replace old asset - Tracing is a process - Tracing is not a remedy - Tracing is for the inherent value of the asset - Asset traced into mixed fund - Plaintiff can choose property into which it traces its interests - Funds can be traced into multiple assets so long as there is no double recovery
EQUITY - Equitable compensation - Property held on constructive trust for Plaintiff - Demand made for property by Plaintiff - Plaintiff had right to call for the property - Property not returned - Failure to return property amounts to breach of fiduciary duty - Trustee has duty to preserve trust property - Trustee failed to preserve trust property - Plaintiff's claim for equitable compensation succeeds
PROCEDURE - Pleadings - Claim for equitable compensation not pleaded - Pleadings contained general claim for equitable relief - Pleadings cannot become instruments of oppression - Departure from pleadings allowable where no prejudice or unfairness suffered by Defendant - Cases not determined on pleadings - Cases determined on evidence - Departure from pleadings allowable where no objection is taken to evidence raising fresh issues - Plaintiff raised equitable compensation in opening submissions and in the course of evidence - No objection taken by Defendant - Departure from pleadings allowable in this instance
Cheques Act 1986 (Cth), s 71
Financial Management and Accountability Act 1997 (Cth)) ss, 39, 40
Public Governance Performance and Accountability Act 2013 (Cth), s 58
Sale of Goods Act 1954 (ACT)
Trustees Act 1962 (WA), s 75
Court Procedures Rules 2006 (ACT), rr 1013, 1619(2), Pt 2.1 of Sch 2, Sch 2 Table 2.1
Financial Management and Accountability Regulation 1997 (Cth), regulation 22
Alemite Lubrequip Pty Ltd v Adams (1997) 41 NSWLR 45
Australian Securities Commission v AS Nominees Limited [1995] FCA 1663; (1995) 62 FCR 504
Baden v Société Generale pour Favoriser le Developpement du Commerce et de l'industrie en France SA [1993] 1 WLR 509
Banque Commerciale SA (En Liquidation) v Akhil Holdings Ltd (1990) 167 CLR 279
Barnes v Addy (1874) LR 9 Ch App 244
Baxter v Obacelo Pty Ltd [2001] HCA 66; (2001) 205 CLR 635
Brady v Stapleton [1952] HCA 62; (1952) 88 CLR 322
Canberra Data Centres Pty Ltd v Vibe Constructions (ACT) Pty Ltd (2010) 4 ACTLR 114
Canson Enterprises Ltd v Boughton [1991] 3 SCR 534
Castellan v Electric Power Transmission Pty Ltd (1967) 69 SR(NSW) 159
Chameleon Mining NL v Murchison Metals Ltd [2010] FCA 1129
Commonwealth v Davis Samuel Pty Ltd (No 7) (2013) 95 ACSR 258
Critchley v Conway [2009] NSWCA 297
Earl of Gainsborough v Watcombe Terra Cotta Clay Co (1885) 53 LT 116
Foskett v McKeown [2000] UKHL 29; [2001] 1 AC 102
Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1
Gould v The Mount Oxide Mines Ltd (In Liquidation) [1916] HCA 81; (1916 22 CLR 490
Grimaldi v Chameleon Mining NL (No 2) (2012) FCR 296
Harrison v Schipp [2001] NSWCA 13
Hillig v Darkinjung Pty Ltd [2006] NSWSC 1371; (2006) 205 FLR 450
Hogan v Waterhouse (1991) 34 NSWLR 308
House of Spring Gardens Ltd v Point Blank Ltd [1985] FSR 327
Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206; (2008) 73 NSWLR 653
In re Diplock; Diplock v Wintle [1948] 1 Ch 465
In Re K L Tractors Ltd [1961] HCA 8; (1961) 106 CLR 318
Jaffray v Marshall [1993] 1 WLR 1285
Jaffray v Marshall in Target Holdings Ltd v Redferns (a firm) [1995] UKHL 10; [1996] 1 AC 421
Johnson v Agnew [1980] AC 367
Kizbeau Pty Ltd v WG & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281 Kriketos v Livschitz [2009] NSWCA 96; (2009) 14 BPR 26,717
Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liquidation) [1965] HCA 17; (1965) 113 CLR 265
Leotta v Public Transport Commission (1976) 50 ALJR 666 Lewis v Kation Pty Ltd (in liq) [2006] NSWSC 480
Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494
McKenzie v McDonald [1927] VicLawRp 19; [1927] VLR 134
McNally v Harris (No 3) [2008] NSWSC 861
Michael v Callil [1945] HCA 39; (1945) 72 CLR 509
Morgan Equipment Co v Rodgers (No 2) (1993) 32 NSWLR 467
Murdocca v Murdocca [2002] NSWSC 505
Murphy v Overton Investments Pty Ltd [2004] HCA 3; (2004) 204 ALR 26
Nestle v National Westminster Bank plc [1994] 1 All ER 118
Nocton v Lord Ashburton [1914] AC 932
O'Halloran v R T Thomas & Family Pty Ltd [1998] NSWSC 596; (1998) 45 NSWLR 262
Parsons v The Queen [1999] HCA 1; (1999) 195 CLR 619
Potts v Miller [1940] HCA 43; (1940) 64 CLR 282
Re Dawson (deceased) [1966] 2 NSWR 211
Re Mulligan (deceased) [1998] 1 NZLR 481
Re Tennant; Mortlock v Hawker [1942] HCA 3; (1942) 65 CLR 473
Saunders v Vautier [1841] EngR 629; (1841) 4 Beav 115
Secure Parking (WA) Pty Ltd v Wilson [2012] WASCA 230
Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332
Southwick v Moore Stephens Melbourne Pty Ltd [2008] VSCA 164
Swindle v Harrison [1997] EWCA Civ 1339; [1997] 4 All ER 705
Tang Man Sit v Capacious Investments Ltd [1996] AC 514
Tilley v Official Receiver [1960] HCA 86; (1960) 103 CLR 529
Wallersteiner v Moir (No 2) [1975] 1 QB 373
Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484
JD Heydon and MJ Leeming, Jacob's Law of Trusts in Australia (7th ed, 2006, LexisNexis Butterworths: Sydney) 594; [2203].
Kamanga Holdings Pty Limited ACN 003 316 292 (Tenth Defendant)
Pellon Pty Limited ACN 082 375 951 (Eleventh Defendant)
Amative Pty Limited ACN 082 375 924 (Thirteenth Defendant)
Bisoya Pty Limited ACN 003 016 242 (Fifteenth Defendant)
Winton Oil NL ACN 001 863 878 (Sixteenth Defendant)
Quancorp Pty Limited ACN 002 755 133 (Seventeenth Defendant)
Allan Paul Endresz as representative of the members of 'Border Basketball Association Inc' an unincorporated association (Eighteenth Defendant)
Tresmonay Pty Limited ACN 073 120 635 (Twenty-first Defendant)
ACT Organics Pty Ltd ACN 008 628 662 (Twenty-second Defendant)
Graham McCann Pty Limited ACN 008 653 969 (Twenty-third Defendant)
TNG Limited ACN 008 817 023 (Twenty-seventh Defendant)
Sneddon Hall & Gallop as agents for Jackson McDonald (Twenty-seventh Defendant)
Other matters.................................................................................................................[527]
2. Following the transfer on 17 April 1998 of $6 million from Commonwealth of Australia funds (the April Funds) to a bank account operated by CTC Resources NL and, on 24 September 1998, of $2.725 million (the September Funds) to a bank account in the name of Davis Samuel, these proceedings were commenced to recover those sums in various ways.
3. On 1 August 2013, I gave reasons for finding that a number of the Defendants were liable to the Commonwealth: Commonwealth v Davis Samuel Pty Ltd (No 7) (2013) 95 ACSR 258. I shall refer to those reasons as "Davis Samuel (No 7)". I will generally use in these reasons the terms and abbreviations used in David Samuel (No 7), with which these reasons should be read.
4. I was unable to make final orders and sought additional submissions as to one issue between the Commonwealth and one of the defendants and as to the form of the final orders. I received written submissions from some of the parties and heard oral submissions also. These are the reasons for the final orders I will make, after I hear brief submissions from the parties as to the precise form of the orders to be made.
5. It is convenient to deal with this matter in two parts. The first deals with the issue between the Commonwealth and the 27th Defendant, now known as TNG Ltd, to which I shall refer as TNG. This includes the issue of the effect of the election by the Commonwealth in relation to certain of the remedies it was seeking against TNG.
6. The second matter is the question of what final orders should be made and the form in which they should be made.
7. In Davis Samuel (No 7) at 516-21; [1905]-[1938], I referred to the situation where the Commonwealth had settled its claim against Mr Mark Endresz who had, as a volunteer, received funds traceable to the April Funds and which were thereby impressed with a constructive trust in favour of the Commonwealth.
8. The funds that Mr Mark Endresz received, however, were traced from the April Funds through the proceeds of the sale to TNG of certain shares and options in Kanowna Lights NL (Kanowna Lights) by various persons, including entities, who had held the shares and options as constructive trustees for the Commonwealth. The shares are, however, still held by TNG and the Commonwealth has claimed them as also being, for reasons also set out in Davis Samuel (No 7), subject to a constructive trust in favour of the Commonwealth.
9. Mr Mark Endresz, however, had only received a portion of the funds that were received from the sale of the shares and options and the question arose as to whether this settlement meant that the Commonwealth had made an election and was thereafter unable to proceed with its claim against TNG in respect of the shares.
10. I made similar findings in relation to funds that found their way to Mr Rodney Endresz, with whom the Commonwealth had also settled, and to Ms Lorraine Scott, who had paid money into Court to await the outcome of the proceedings and which funds the Commonwealth also claimed.
11. The issue also arises so far as other claims are concerned, where funds received from the sale to TNG of the shares is sought to be recovered by the Commonwealth from subsequent recipients. If election is a relevant issue, then the Commonwealth can either recover funds from the subsequent recipients or can recover from TNG the shares, but not both.
12. These issues needed to be resolved before final orders could be made.
13. The consequence of my earlier finding was somewhat unclear and, in any event, had not been argued before me. Accordingly, I gave the Commonwealth and TNG the opportunity to address the issues with further submissions. I was greatly assisted by the written submissions I received and the oral submissions I heard, both as to the issues between the Commonwealth and TNG, but also as to the final orders that should be made.
14. As to one matter raising the election issue, the Commonwealth made it clear in its closing submissions at the trial that it sought to trace the funds received from TNG, which were received when TNG purchased the options in Kanowna Lights, through to certain of the other Defendants, either as knowing recipients of these funds which had been obtained in breach of fiduciary duties owed to the Commonwealth or as volunteers. This decision, then, meant that the Commonwealth was not seeking any recovery in respect of the options from TNG. The options had in fact, expired before they were exercised.
15. Thus, the Commonwealth sought no remedy against TNG in respect of its holding of the options it had purchased notwithstanding that those options were purchased with funds subject to a constructive trust in favour of the Commonwealth. For this reason, however, the Commonwealth sought, and, in my opinion, was able, to trace its interests as beneficiary of a constructive trust, instead into the funds paid by TNG to various of the Defendants.
16. The issue was, then whether, the Commonwealth, having recovered funds (by way of settlement or otherwise) from Defendants, who had received funds or other property traceable to the April Funds through the sale to TNG of shares in Kanowna Lights, had made an election such that it was thereby precluded from claiming the transfer from TNG to it of the shares in Kanowna Lights as a proprietary remedy.
17. It is appropriate and probably necessary to set out briefly the factual background to the issues that it is necessary to decide.
18. I do not, of course, recite the whole of the factual background, set out in detail in the Davis Samuel (No 7) and these reasons should be read with it, especially as to the reference to persons and entities (Davis Samuel (No 7) at 266-275; [11]-[112]) and to the transfer on 17 April 1998 of $6 million of funds, called in it and in these reasons "the April Funds", from the Commonwealth to CTC Resources NL (CTC Resources) (Davis Samuel (No 7) 266; [6]-[7], 276; [124]-[127]).
19. The shares and options the subject of this argument are securities in the company, Kanowna Lights NL, to which I shall refer as Kanowna Lights. That company is described in Davis Samuel (No 7) at 404; [1013]-[1014].
20. As the Commonwealth does not seek to recover the options from TNG, it is not necessary to dwell on that aspect of the relevant transactions, save as it is necessary for the unfolding of the relevant facts.
21. During June 1998, CTC Resources (see Davis Samuel (No 7) at 269; [35]-[38]), purchased a total of 3.8 million shares in Kanowna Lights: see Davis Samuel (No 7) at 445; [1354], 500; [1783]. These shares were purchased by CTC Resources from the April Funds. I found in Davis Samuel (No 7) that these funds were improperly sent to CTC Resources and that, as a consequence, they were charged with a constructive trust in favour of the Commonwealth.
22. On 23 October 1998, (the 23 October resolutions - Davis Samuel (No 7) at 445; [1354]), the board of TNG resolved, inter alia
ACQUISITION OF 3.6 MILLION The transfer form was tabled. It was FULLY PAID ORDINARY resolved to execute same for the purchase SHARES IN KANOWNA of 3.6 million shares at $0.20 cents for a total consideration of $720,000.
23. A similar resolution, but of sale of those shares, was passed on the same day by the Board of CTC Resources.
24. There is no doubt that, for reasons set out in Davis Samuel (No 7) and to which I do not need specifically to refer, the resolution of TNG was effected by Mr Forge, Mr Muir and Mr Clark dishonestly and in breach of a fiduciary duty each owed to TNG.
25. The consideration of $720,000 was paid by cheque number 1002, apparently dated 26 October 1998, deposited that day in the CTC Resources bank account, though the transfer form was dated 23 October 1998.
26. The receipt of $720,000 was then disbursed to various of the Defendants and others and it is with that disbursement that I am now concerned, though not, at this stage, with every disbursement. I now turn to the relevant disbursements.
27. Mr Rodney Endresz and his wife, Mrs Sandra Endresz, received a loan from Bisoya Pty Ltd (Bisoya) on 16 June 1998. That amount was traceable to the April Funds (a portion of which Bisoya had received) but, of course, not to those funds which are traceable through the sale to TNG of shares in Kanowna Lights, for that had not yet happened.
28. As a result, however, of these funds being received by them, the Commonwealth sought those funds from them. The Commonwealth has now settled its claim against Mr Rodney Endresz and Mrs Sandra Endresz (Davis Samuel (No 7) at 273-4; [85]-[90], [97]-[98]).
29. While the property recovered by the Commonwealth was property acquired with April Funds, it was not with that part of the April Funds which had been used to purchase shares in Kanowna Lights and then traced into the proceeds of the sale of those shares to TNG.
30. On 6 November 1998, however, Kamanga Holdings Pty Ltd (Kamanga) paid, from the April Funds, traceable through the sale of shares in Kanowna Lights, the sum of $50,000 to Bisoya in settlement of the loan it made to Mr Rodney Endresz and Mrs Sandra Endresz. They did not, therefore, receive those funds and so there was no property they had to which the April Funds was traceable through the sale of the shares in Kanowna Lights, even though the debt they had to Bisoya has been extinguished and, to that extent, they have received something of value. This seems to me to follow from the principles established by the UK Court of Appeal in In re Diplock; Diplock v Wintle [1948] 1 Ch 465.
31. The Commonwealth did not, in any event, seek to trace these funds into the hands of Mr Rodney Endresz or Mrs Sandra Endresz, even if they could. Any tracing available to the Commonwealth of funds held by Bisoya is another matter. The settlement with Mr Rodney Endresz and Mrs Sandra Endresz, therefore, did not amount to an election by the Commonwealth in respect of any claim it may otherwise have to the Kanowna Lights shares held by TNG.
32. On 28 October 1998, the Davis Samuel Partnership or Davis Samuel paid $75,000 to Mr Mark Endresz. That sum was paid from funds received for the sale to TNG of options in Kanowna Lights, not shares.
33. The Commonwealth has settled with Mr Mark Endresz. I found that this settlement constituted an election by the Commonwealth to trace the April Funds into the funds received from the sale of the options in Kanowna Lights as against tracing into the options. See Davis Samuel (No 7) at 520-1; [1927]-[1937].
34. The Commonwealth, however, has abandoned any claim to trace the April Funds into the options in Kanowna Lights that had been sold to TNG. The issue, then, does not arise in respect of this transaction.
35. Ms Scott was married to Mr Forge. During the currency of the marriage, Mr Forge, Ms Scott and Bisoya acquired in equal thirds a residential property at 564 Stanley Street, Albury, with the April Funds or funds traceable from the April Funds.
36. Mr Forge and Ms Scott ended their marriage and made a final property settlement effected by consent orders in the Family Court of Australia.
37. By those orders, Mr Forge agreed to pay Ms Scott a sum of money and she agreed to transfer her interest in the Stanley Street property to him or his nominees.
38. On 30 October 1998, CTC Resources paid to Mr Forge $75,000 which was part of the funds it had received from the sale of shares in Kanowna Lights, thereby traceable April Funds. Mr Forge used those funds to pay part of the money he was required to pay to Ms Scott.
39. Ms Scott has paid that money into Court to await the orders of the Court. The Commonwealth sought payment of those funds to it, as has TNG. It is submitted by the Commonwealth that each have an equal entitlement to those funds. This amounts to an election to recover the funds from the moneys paid into Court as to one half of those funds, and not to seek to have transferred to it the shares represented by those funds.
40. Quancorp Pty Ltd (Quancorp) became the registered proprietor of certain premises at 21 Pine Avenue, Elwood, Victoria. This property is Lot 1 on Plan of Subdivision 3071 03F more particularly described in Victorian Certificate of Title Volume 10032 Folio 720. I shall refer to the property as "the Pine Avenue Property". It was subject to a mortgage which received a home loan advanced by Citibank Australia.
41. On 30 October 1998, the Davis Samuel Partnership paid $115,000 to Quancorp. The funds had come from the funds received by it from the sale of the options in Kanowna Lights, which funds were traceable from the April Funds. Of that sum, $95,000 was then paid into Citibank Australia, reducing the loan secured by mortgage over the Pine Avenue property.
42. The Commonwealth has abandoned any claim to trace the April Funds into the options in Kanowna Lights. Thus, no issue of election arises in respect of this transaction.
43. Mr Allan Endresz and Mrs Joy Endresz purchased a property known as "Haven Hill" on the Riverina Highway, Splitters Creek, Albury, New South Wales, being the property more particularly described in New South Wales Certificate of Title Folio 33/622002, being Lot 33 in Deposited Plan 622002. It was purchased in June 1995. I shall refer to it in these reasons as "Haven Hill".
44. Improvements to the property were made from time to time with funds that were traceable from the April Funds. Some of the funds came from various sources and were paid before the sale of securities in Kanowna Lights; some came from the proceeds of the sale of options in Kanowna Lights.
45. In addition, the following amounts were paid for the following works of improvement to "Haven Hill" from funds that were traceable from the April Funds and which had been used to purchase shares in Kanowna Lights and were then received as proceeds from the sale of the shares to TNG before being used as follows:
• On 14 January 1999, $10,000 for interior decorations; and
46. The Commonwealth, however, elects not to trace the proceeds of the sale of the Kanowna Lights shares to TNG into the funds of CTC Resources and thereafter into the improvements to Haven Hill.
47. As I have noted above in respect of Mr Rodney Endresz and Mrs Sandra Endresz, the loan they received from Bisoya was discharged when Kamanga paid to it the amount of the loan, namely $50,000.
48. The Commonwealth has now sought to recover that sum from Bisoya. It was a sum that was traceable to the April Funds through the sale to TNG of shares in Kanowna Lights. This would amount to an election to seek to recover those funds from Bisoya and not to seek a transfer of the relevant shares in Kanowna Lights from TNG.
49. As is now clear, the only irrevocable elections the Commonwealth has made are in respect of the claim it had against Mr Mark Endresz and in respect of the interest in Haven Hill.
50. As to the claim against Mr Mark Endresz, however, the funds in his hands that were traceable from the April Funds were received through the sale to TNG of the options in Kanowna Lights. As the Commonwealth has abandoned any claim against TNG in respect of those options, there is no inconsistency between its claims.
51. As to the claim against Mr Allan Endresz and Mrs Joy Endresz for an interest in Haven Hill, the Commonwealth has expressly and probably irrevocably abandoned its claim so far as it represents the interest obtained through the expenditure of funds traceable from the April Funds through the sale to TNG of shares in Kanowna Lights. Thus, there is no inconsistency between its claims.
52. The other claims, however, that depend on the payment away of funds that are traceable from the April Funds are either traceable through the sale of the options in Kanowna Lights to TNG (Pine Avenue property - Quancorp) or traceable through the sale of shares in Kanowna Lights to TNG (Ms Scott and Bisoya).
53. I do not need to consider the former further, since the Commonwealth has expressly abandoned any claim it has against TNG in respect of the options in Kanowna Lights that it purchased.
54. The only consideration then is in respect of the claims it has made on Ms Scott and on Bisoya. Subject to the findings on the TNG submissions as election, the following seems to be the position.
55. In its final submissions, the Commonwealth did claim from Bisoya the $50,000 paid to it by Kamanga as set out above (at [47]). It seems to me that, in the circumstances, this is an election by the Commonwealth and the claim against TNG should be reduced accordingly. The same applies to the claim made to one half of the sum paid into Court by Ms Scott to which both the Commonwealth and TNG make claim. The amount represented by one half of that sum should be discounted from the claim against TNG.
56. The question arises, however, whether the making of the claims against Ms Scott and Bisoya amount to an election which prevents the Commonwealth from claiming its proprietary remedy in respect of the Kanowna Lights shares from TNG at all or whether these claims simply reduce, pro tanto, the claim to the shares.
57. The notion of an election is that a party entitled to recover under a judgment may have a variety of remedies. A common example arises when a purchaser of land fails to complete a contract where time has been made of the essence. The vendor can either treat the contract as repudiated and claim damages or can seek an order for specific performance. The vendor may make these claims in the alternative but at trial must elect which remedy is ultimately sought as the vendor is not entitled to both. See Johnson v Agnew [1980] AC 367 at 392. The important point is that the remedies are inconsistent; if one is granted, the other should not be granted.
58. That example, however, hides the issue here for the example concerns the sale of a unit of property, a block of land. In this case, however, there were a large number of shares purchased from TNG by a single cheque.
59. The Commonwealth seeks to trace the April Funds and says that some of those funds have been converted into the shares which TNG now possesses. The principle of tracing was explained in Davis Samuel (No 7) of 330; [477]-[450]; 519-20; [1922]-[1927]. In particular, I note that, in a passage of the speech of Lord Millett in Foskett v McKeown [2000] UKHL 29; [2001] 1 AC 102 at 127, his Lordship pointed to the distinction between following and tracing, and noted that tracing involves the identification of a new asset to replace the old. The use of the singular "asset" raises the question here of whether the principle requires an aggregation of what is sold and paid for the purposes of the process or not.
60. The interactions in this case between the doctrine of election and the process of tracing is as follows. TNG had purchased a parcel of shares and paid with a cheque Had TNG purchased only one share, the Commonwealth would have had to choose whether to claim its interest by tracing it into that share or the cheque that was received from TNG; it could not do both.
61. Where, however there were a number of shares, but purchased with the one cheque, the question is whether the Commonwealth could claim on interest in the funds paid by TNG for the shares, so far as it wishes - or can - but, for the balance, claim an interest in the shares to the extent they are not represented in its claim against the funds.
62. In short, the Commonwealth says it can; TNG says it cannot. TNG submits that, since the Commonwealth has sought to claim against the funds, which were received by, inter alia, Mr Mark Endresz from the cheque paid by TNG, it has elected to trace into the funds and so may not, even pro tanto, trace into the shares.
63. The Commonwealth submits that each share is a separate item of property divisible from all other shares. Accordingly, the claim against any share does not prevent a claim to the funds representing another share.
64. TNG submits that the election, however, is between property rights in different assets and that this requires as a critical necessity the identification of the asset in relation to which the election operates at the juridical moment.
65. Thus, it submits, it is an incomplete description of the process to describe each share as a separate item of property because that ignores the other side of the transaction. The cheque received from TNG represents an indivisible chose in action, a single asset into which the Commonwealth seeks to trace its trust interest. Thus, the Commonwealth, it submits, cannot assert beneficial ownership of part of a cheque; it can only assert an interest in the shares or the cheque. It was, TNG submitted, a single transaction that could not be disaggregated, hence the need to elect.
66. TNG submits that the Commonwealth, having elected, as indicated above, to trace into and then claim in respect of the cheque (i.e. the funds), had elected and this prevented any claim against the shares.
67. It is a neat and seductively plausible argument. As TNG argued, the sale to TNG of the shares and options was a "package", a single transaction: see Davis Samuel (No 7) at 441-5; [1346], [1351]-[1352]. This, it submitted, was how the trial was conducted: see Davis Samuel (No 7) at 446; [1362], 457; [1463].
68. However, I reject TNG's submissions. It seems to me that there are two answers to them.
69. In the first place, tracing is not necessarily a process which results in giving a claimant the right to an asset; the tracing results in a claimant having a claim to the value inherent to the asset. As Lord Millett pointed out in Foskett v McKeown at 128
We also speak of tracing one asset into another, but this too is inaccurate. The original asset still exists in the hands of the new owner, or it may have become untraceable. The claimant claims the new asset because it was acquired in whole or in part with the original asset. What he traces, therefore, is not the physical asset itself but the value inherent in it.
70. That is re-inforced by the example given by the Court of Appeal in In Re Diplock; Diplock v Wintle at 547 where traceable proceeds of a breach of trust are used to make alterations to a house which alterations "add not one penny to the value of the house". The Court continued;
Indeed, the alteration may well lower its value; for the alteration, though convenient to the owner, may be highly inconvenient in the eyes of a purchaser. Can it be said in such cases that the trust money can be traced and extracted from the altered asset? Clearly not, for the money will have disappeared leaving no monetary trace behind: the asset will not have increased (or may even have depreciated) in value through its use.
71. It is to be remembered that tracing is not a remedy, but a process. A remedy for the Commonwealth is the entitlement that the beneficiary of the constructive trust has, namely an interest in the property the subject of the trust. While a proprietary interest, it is not necessarily a right to the asset. As Lord Steyn said in Foskett v McKeown at 113, "in truth tracing is a process of identifying assets: it belongs to the realm of evidence".
72. The equitable remedy may often be that a charge is imposed on the assets into which the value has been traced, especially where it is a mixed fund or an asset with more than one interest in it, showing that it is the value and not the physical asset that is the subject of the claim not the asset itself necessarily.
73. If it is, as it seems to me to be the case, the value in the asset to which the claimant is entitled; it does not prevent the claimant seeking part of the value to which it (or he or she) makes claim from one asset into which the funds can be traced and the balance of the value from another, so long as the values do not overlap and it is clear that there is no double recovery.
74. Indeed, to a large extent, this is the premise of this case, for the Commonwealth paid away the April Funds in one transaction which funds were then dissipated in various directions amongst various of the Defendants. The Commonwealth is not prevented by election from proceeding against defendants other than CTC Resources which was the original recipient of the transfer even if it also claims against that company. There is no inconsistency in this, requiring election, so long as there is no double recovery.
75. The second reason is, it seems to me, that the Commonwealth is correct that the cheque is not an asset into which it seeks to trace the funds. The paper which is a cheque is an asset of minimal value, but it is not a chose in action. As the High Court said in Parsons v The Queen [1999] HCA 1; (1999) 195 CLR 619 at 630; [23]
the right of the drawer to recover from the bank the balance standing to the credit of that party in the account with the bank was a chose in action but the effect of s 88 [of the Cheques Act 1986 (Cth)] is to emphasise that the drawing of a cheque does not of itself operate as an assignment of that chose in action of a part thereof. Rather, the generally accepted concept of a cheque is that of a "mandate", addressed by the drawer to the banker directing the banker to effect a pro tanto satisfaction of the indebtedness of the banker to the drawer by honouring the cheque drawn on the banker. In this sense, a cheque "is merely a mandate, not a transfer of rights".
(Footnotes omitted)
76. The right of a payee to recover from the drawer of a cheque that is dishonoured is not as a consequence of the failure to deliver a chose in action to which the payee is entitled, but a statutory right under s 71 of the Cheques Act 1986 (Cth). Indeed, a cheque is only a conditional payment, the condition being that the cheque is honoured on presentation and, if dishonoured, the payee has a right of action under the Cheques Act as pointed out by Dixon J in Tilley v Official Receiver [1960] HCA 86; (1960) 103 CLR 529 at 532-3. Indeed, the payment is effected by the creation of the chose in action that the payee has with his, her or its bank into which the mandate that is the cheque places the funding from the paying bank.
77. Thus, the asset to which the Commonwealth was able to trace the value to which it was entitled under the constructive trust was the funds in the bank account of CTC Resources. There was no need for the Commonwealth to be limited into tracing the funds into the cheque.
78. Hence, the tracing by the Commonwealth was into a mixed fund, a process allowed by equity. See Brady v Stapleton [1952] HCA 62; (1952) 88 CLR 322 at 336.
79. To refer to value, as I have done, is not to ignore the fact that the equitable remedy of the constructive trust is a proprietary remedy. There must, of course be an asset to which the right of the Commonwealth attaches. As the Court of Appeal said in In Re Diplock; Diplock v Wintle at 521
The equitable form of relief whether it takes the form of an order to restore an unmixed sum of money (or property acquired by means of such a sum) or a declaration of charge upon a mixed fund (or upon property acquired by means of such a fund) is, of course, personal in the sense that its efficacy is founded upon the jurisdiction of equity to enforce its rules by acting upon the individual. But it is not personal in the sense that the person against whom an order of this nature is sought can be made personally liable to repay the amount claimed to have belonged to the claimant. The equitable remedies pre-suppose the continued existence of the money either as a separate fund or as part of a mixed fund or as latent in property acquired by means of such a fund. If, on the facts of any individual case, such continued existence is not established, equity is as helpless as the common law itself. If the fund, mixed or unmixed, is spent upon a dinner, equity, which dealt only in specific relief and not in damages, could do nothing. If the case was one which at common law involved breach of contract the common law could, of course, award damage but specific relief would be out of the question. It is therefore, a necessary matter for consideration in each case where it is sought to trace money in equity, whether it has such a continued existence, actual or notional, as will enable equity to grant specific relief.
80. Where such a remedy is not available, equitable compensation may be available as a remedy, though the two are not mutually exclusive or inconsistent remedies.
81. The Commonwealth may, therefore, seek to recover value from the property of any relevant recipients of the proceeds of the sales of the shares for TNG and, pro tanto, from the shares held by TNG, making allowance for the other recovery or claim.
82. The flaw in TNG's argument it seems to me, is that it asserts the Commonwealth cannot trace through "part of the cheque". That is to say, if it seeks to trace through the cheque, then it must trace the whole of the funds paid by TNG for the shares. I do not accept that this is so.
83. In so far as the cheque is a chose in action, that being the asset into which the Commonwealth seeks to trace the April Funds, via shares, there is no prohibition from tracing some of the proceeds.
84. This is clear from how Lord Millet described what had happened in Foskett v McKeown, when his Lordship said at 127
The plaintiffs claim a continuing beneficial interest in the insurance money. Since this represents the product of Mr Murphy's own money as well as theirs which Mr Murphy mingled indistinguishably in a single chose in action, they claim a beneficial interest in a proportionate part of the money only.
85. I see no reason why the Commonwealth should not likewise seek to assert a beneficial interest in part of the asset represented by the chose in action that is involved in the cheque and then to trace the funds to the ultimate recipients (provided the conditions for tracing apply).
86. I test this another way: I consider the position if TNG had purchased not only the shares which were subject to the constructive trust in favour of the Commonwealth, but also other shares in which the Commonwealth had no interest, I do not see any principle which prevents the Commonwealth, had TNG paid for both packets of shares with one cheque, from tracing its interest in one of the packets of shares (namely that in which it had an interest) through that cheque, though only part of the value it represented was value to which the Commonwealth had an entitlement.
87. Here, the Commonwealth has an interest, through tracing, in a number of shares and the chose in action into both of which it may trace the interest that it had in the April Funds. I see no reason in principle or in reality why it should not choose the property into which it traces its interest. Thus, each share is property and, although the shares were sold as a parcel, are not aggregated for the purpose of tracing. The Commonwealth may trace its interest into the shares or the proceeds (through the cheque) or partly one and partly the other. The election arises when the Commonwealth makes its claim. It cannot claim the share and the proceeds of the sale of that share; it must elect between the two. Where the property is separately identifiable, however, it may choose where to trace, though it cannot seek recovery from both the share and its sale proceeds at the same time.
88. TNG may have gained some comfort from the statement of Lord Millett in Foskett v McKeown at 127 where his Lordship said:
Tracing is the process of identifying a new asset as the substitute for the old. Where one asset is exchanged for another, a claimant can elect whether to follow the original asset into the hands of the new owner or to trace its value into the new asset is the hands of the same owner.
89. His Lordship, however, was clearly not suggesting that where the property the subject of the claimant's claim consisted of various assets, there may not be a choice of how best to recover by following some and tracing others. As his Lordship continued, "[i]n practice his choice is often dictated by the circumstances".
90. This leads then to the last point made by TNG in support of its contention.
91. TNG submitted, as noted above (at [65]) that there was, in the sale of shares (and options) to TNG, a single transaction, In one sense, that is correct; there was one share transfer form, there were cheques handed over at one time.
92. What TNG did not explain, however, is how that characterisation had any legal or equitable consequences. There are many transactions where there are different elements of a single transaction which may have different consequences. A simple example would be the sale of a residential property where the realty is sold often along with chattels. There is usually one contract and one settlement. Unusually, but unexceptionally, there could be one cheque payment. Nevertheless, the sale of the chattels would be subject to conditions and warranties under the Sale of Goods Act 1954 (ACT), while the realty would not be so subject. Thus, there can be separate rights applicable to different elements even in a "single transaction". The appellation, "single transaction", therefore, does not, without more, show that the Commonwealth is deprived of the right to recover from both TNG as well as from the recipients of the funds TNG paid for the shares, but with the important caveat that it could not recover twice, that is for the shares and also for the proceeds from the sale of those same shares.
93. The process of ensuring this is not difficult here, for each share was sold for the same price. In principle, it would not matter if that were not so, for it is value that is traced, but I can see that there may be complications that would be problematic if some of the shares had different values. I do not need to consider that possibility.
94. The matter is devoid of authority. Neither TNG nor the Commonwealth would point to any authority to justify its position or to show that any other position was contrary to authority.
95. In my view there seems no reason in principle why, where separate property is converted into other property, a claimant may not claim from identifiable property into which the property in which the claimant has an interest has been converted and separately claim other property being part of the one transaction so long as it is clear that there is no inconsistent claim, that is the claimant is not claiming the same specific value in two forms.
96. The Commonwealth also sought from TNG, and TNG rejected the claim, for equitable compensation.
97. In Chameleon Mining NL v Murchison Metals Ltd [2010] FCA 1129, Jacobson J set out the relevant principle relating to a claim for equitable compensation. Although on appeal, in Grimaldi v Chameleon Mining NL (No 2) (2012) FCR 296, the Full Court upheld the appeal in part, it did not disturb his Honour's findings on this issue. His Honour said at [1051]-[1055]
... the basic rule is that a trustee in breach of trust must restore or pay to the trust estate either the assets which have been lost to the estate by reason of the breach or compensation for such loss.
98. The Commonwealth put its case for equitable compensation as follows.
99. As I found in Davis Samuel (No 7), when TNG purchased the Kanowna Lights shares, it became a constructive trustee of the shares (at 524; [1961]) as a knowing recipient of that property under the first limb of Barnes v Addy (1874) LR 9 Ch App 244.
100. The Commonwealth further says that it required TNG to return the shares to it; it made a demand that it do so. TNG did not comply with the demand.
101. The Commonwealth claims that the demand was made in a number of ways.
102. Correspondence between the Commonwealth's lawyers and TNG, which I do not need to detail, put forward and considered a proposal for settlement of the claims that TNG had made against Davis Samuel, Mr Allan Endresz and Mr Cain. That settlement was subject to approval by the Commonwealth. In a letter, dated 4 May 1999, suggesting that proposal, the Australian Government Solicitor, on behalf of the Commonwealth, pointed out
(a) that the Commonwealth proposed to join TNG to the proceedings then on foot, being these proceedings; and
(b) that TNG held the shares and options in Kanowna Light on constructive trust for the Commonwealth.
103. While not an unambiguous demand, the letter made clear that the Commonwealth considered itself beneficiary of the securities and thus, of course, able to call for them at any time.
104. On 28 May 1999, the Commonwealth's lawyers again wrote to TNG, confirming that it proposed to join it to the proceedings by order of this Court that was to be sought the next day. It also addressed the issue of the Kanowna Lights securities expressly as follows
105. On 4 June 1998, this Court ordered that TNG be joined as 27th defendant. The order noted an undertaking as to damages in the usual form given by the Commonwealth and ordered, inter alia
PROVIDED THAT this order will not operate to prevent any such defendant from dealing with any of the monies, the assets or the rewards described in these orders for the purpose of repaying monies to the plaintiff, or alternatively paying monies into Court to abide the order of the Court.
106. As a consequence of the order joining TNG as a Defendant (and, at the time, also two other parties as Defendants) the Commonwealth filed an Amended Statement of Claim on 2 July 1999, being the Third Further Amended Statement of Claim in which, inter alia, it claimed relief against all defendants, including as follows:
E1.1.4 An order that each defendant return to the Commonwealth any property held by such defendant which property was derived directly and indirectly from the April Funds or the September Funds.
E1.1.5 An order that each defendant account to the Commonwealth for the use by each such defendant of the whole of any part of the April Funds and the September Funds.
E1.1.6 An order that each of the defendants be restrained from dealing with or dissipating or diminishing in value any asset acquired through the use of the April Funds and the September Funds.
E1.1.7 Damages
E1.1.8 Equitable compensation.
107. On 1 July 1999, the Commonwealth's lawyers again wrote to TNG confirming its agreement to TNG disposing of the Kanowna Lights shares so long as "$600,000 or the market (ASX) value of the shares and options on the date of sale plus $30,000 whichever is the greater sum" he invested pending the hearing of the proceedings.
108. It appears that this proposal did not proceed. There was some dispute between TNG and the Commonwealth as to a modification of the proposal but I do not need to address that.
109. Finally, TNG wrote that the proposal to have TNG pay $600,000 was rejected since, it asserted, that sum was
approximately double the present market value of the Kanowna securities and, as such, the Commonwealth offers are uncommenced, unattractive and unacceptable.
110. In my view, this correspondence and other material shows that the Commonwealth did seek that the Kanowna Lights shares be returned to the Commonwealth or sold and the proceeds held in trust, no doubt also invested, pending the outcome of the proceedings.
111. The Commonwealth put its case for equitable compensation against TNG, as constructive trustee, in two ways.
112. The first was that by failing to acknowledge the trust and return the Kanowna Lights shares, TNG had continued in default as a trustee. If TNG had returned the shares, the Commonwealth could have made its own choice about their sale and converted this asset to cash to its advantage. The Commonwealth has been unable to do that by TNG's failure to acknowledge the constructive trust and return the shares.
113. The Commonwealth had the right to call for the trust property, being the Kanowna Lights shares. See, for example, Saunders v Vautier [1841] EngR 629; (1841) 4 Beav 115; 49 ER 282 (affirmed [1841] EngR 765; (1841) Cr & Ph 240; 41 ER 482). The failure to comply with the direction of a beneficiary, sui generis and absolutely entitled to the property, is a breach of the fiduciary duty of the trustee.
114. While no authority was cited to me to show that a failure to deliver the trust property to such a beneficiary is a breach of a fiduciary duty that the trustee has to the beneficiary, I have no doubt that, as a matter of principle, this must be so.
115. Secondly, and alternatively, TNG can be considered as a trustee in possession which has failed to realise a volatile asset and allowed it to decline in value, contrary to the duty of care and diligence that equity imposes on trustees. The decline in value and the loss of income that could otherwise have been earned on the shares if they had been turned into cash is the measure of compensation for this breach.
116. The obligation of a trustee is, of course, to preserve the trust property: Nestle v National Westminster Bank plc [1994] 1 All ER 118. This includes a proper dealing with a wasting asset: Michael v Callil [1945] HCA 39; (1945) 72 CLR 509 at 521. See also Re Mulligan (deceased) [1998] 1 NZLR 481.
117. The Commonwealth submits that the equitable compensation to which it is entitled is an amount equivalent to the value for which the shares in Kanowna Lights could have been sold at the time that the Commonwealth required TNG to transfer them to it, together with interest on that amount, as from the time when the shares could have been sold.
118. In this regard, I note that, had TNG transferred the shares to the Commonwealth, the Commonwealth would have been obliged to sell them as quickly as it was appropriate to do so. While the Commonwealth could, it would appear, receive the securities (s 40 of the Financial Management and Accountability Act 1997 (Cth)), it would have had to dispose of them promptly, for this would not have been an authorised investment (s 39 of the Financial Management and Accountability Act and regulation 22 of the Financial Management and Accountability Regulation 1997 (Cth)). The repeal of this legislation and its replacement by the Public Governance Performance and Accountability Act 2013 (Cth) would not have altered this position as s 58 of that Act shows.
119. TNG rejects the Commonwealth's claim on the grounds:
(a) that the claim as now made was not pleaded;
(b) that the remedy available for the pleaded claim was a transfer of the Kanowna Lights shares in specie and not for equitable compensation; and
(c) that Davis Samuel (No 7) has held that the Commonwealth's claim on this basis has failed.
120. I shall deal with each of these matters in turn.
121. Despite my complimentary description of the Commonwealth's Statement of Claim in Davis Samuel (No 7) at 294; [249], it does seem to me that the present claim against TNG was not clearly pleaded; indeed, it seems to me that it was not expressly pleaded at all.
122. The relevant part of the Statement of Claim summarised the claims the Commonwealth made against TNG as "A Subsequent Recipient of the April Funds" and as "An Accessory to a Subsequent Receipt of April Funds". The pleadings then made it clear that this was a receipt knowing that Mr Muir and Callform were guilty of dishonest breaches of fiduciary duties owed to the Commonwealth.
123. The claim was that TNG was "liable to pay the Commonwealth equitable compensation [for] its ... participation in the said dishonest breaches of fiduciary duty".
124. There was also a claim for unjust enrichment because of the payment of the April Funds by mistake and the receipt of them by TNG whereby it was unjustly enriched.
125. There was, however, in the prayer for relief at E1.1.8 set out above (at [106]) a general claim for equitable compensation.
126. That does not seem to me to end the matter. While the pleadings are important for the reasons set out clearly in Canberra Data Centres Pty Ltd v Vibe Constructions (ACT) Pty Ltd (2010) 4 ACTLR 114 at 121-2; [24]-[31], they cannot become an instrument of oppression and it has long been held that, provided there is no unfairness or injustice, the parties may choose the grounds on which the litigation is to be conducted.
127. Thus, Isaacs and Rich JJ said in Gould v The Mount Oxide Mines Ltd (In Liquidation) [1916] HCA 81; (1916 22 CLR 490 at 517-8:
But pleadings are only a means to an end, and if the parties in fighting their legal battles choose to restrict them, or to enlarge them, or to disregard them and meet each other on issues fairly fought out, it is impossible for either of them to hark back to the pleadings and treat them as governing the area of contest. There is abundant authority for this, even if the matter were required to rest on authority only. ... There are qualifications, no doubt, and each case must depend for the proper application of the principle upon its own facts. It has been laid down by the Privy Council that 'As a rule relief not founded on the pleadings should not be granted.' 'But in this case' (said their Lordships) 'the substantial matters which constitute the title of all the parties are touched, though obscurely, in the issues; they have been fully put in evidence, and they have formed the main subject of discussion and decision in all three Courts. The High Court are right in treating the case as not within the rule': Sri Mahant Govind Rao v. Sita Ram Kesho [25 Ind App 195 at p 207].
128. This has been echoed more recently by the High Court where the above passage was cited or adverted to and accepted in Banque Commerciale SA (En Liquidation) v Akhil Holdings Ltd (1990) 167 CLR 279. Mason CJ and Gaudron J at 287
Ordinarily, the question whether the parties have chosen some issue different from that disclosed in the pleadings as the basis for the determination of their respective rights and liabilities is to be answered by inference from the way in which the trial was conducted. It may be that, in a clear case, mere acquiescence by one party in a course adopted by the other will be sufficient to ground such an inference.
But modern pleadings have never imposed so rigid a framework that if evidence which raises fresh issues is admitted without objection at trial, the case is to be decided upon a basis which does not embrace the real controversy between the parties ... cases are determined on the evidence, not the pleadings.
130. See also Leotta v Public Transport Commission (1976) 50 ALJR 666 at 668-9; Southwick v Moore Stephens Melbourne Pty Ltd [2008] VSCA 164 at [26]- [31]; Kriketos v Livschitz [2009] NSWCA 96; (2009) 14 BPR 26,717 at 26,734; [101]- [102].
131. In Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206; (2008) 73 NSWLR 653 at 710; [424], Ipp JA, with whom relevantly Giles and Hodgson JJA agreed, addressed the relevant authorities and summarised their effect as follows:
The following propositions may be extracted from these authorities:
(a) The rule that, in general, relief is confined to that available on the pleadings secures a party's right to a basic requirement of procedural fairness.
(b) Apart from cases where the parties choose to disregard the pleadings and to fight the case on additional issues chosen at the trial, the relief that may be granted to a party must be founded on the pleadings.
(c) It may be that, in a clear case, mere acquiescence by one party in a course adopted by the other will be sufficient to ground an inference that the parties have chosen a different basis to the pleaded issues for the determination of their respective rights and liabilities
(d) Acquiescence giving rise to a departure from the pleadings may arise from a failure to object to evidence that raises fresh issues - it is in this sense that 'cases are determined on the evidence, not the pleadings'.
(e) While cases are to be decided upon a basis that embraces the "real controversy" between the parties, the real controversy has to be determined in accordance with the principles stated.
132. In that case, Hodgson JA described the position at trial as follows (at 668; [59]-[60], in terms that are helpful to addressing this ground
133. See also Critchley v Conway [2009] NSWCA 297 at [37].
134. In opening the case, Mr M J Slattery QC, who appeared for the Commonwealth, raised directly the issue of the demand for the return of the shares and the claim for equitable compensation. He said
MR SLATTERY: Yes, but your Honour the law, we submit, is clear and I'll take it to your Honour now, that in the absence of either the trust being acknowledged or the money being paid into Court we've asked for the shares clearly through the statement of claim and through correspondence. Really the duty of the constructive trustee, in my submission, is to do two things.
One is to respond to that request and either restore the shares to the Commonwealth as has been requested, the failure to do that is a continuing breach of trust. And alternatively - the Commonwealth has been denied the opportunity to have the shares realised somewhere in the interim or alternatively the constructive trustee which has elected to hold onto the shares, has got to manage them appropriately but there are volatile, potentially wasting assets and the trustees have got to take responsibility for the - as equity will impose, a care of diligence in relation to the ---
HIS HONOUR: Wasting asset.
MR SLATTERY: --- wasting asset. On either basis we've got a situation that either the trustee's care or the Commonwealth's loss of opportunity has led to the shares are now worth about 3 cents, the parcel is worth about $120 - $110,000 and they've not been turned into cash, there's been no interest earned on them and in about a year after this, in the first 3 months of 2000 they went up to 47 cents.
135. This echoed what was set out in the extensive and helpful written opening submissions of the Commonwealth. Mr Slattery then addressed the question of the quantum of the equitable compensation recovered on this basis.
137. Concurrent evidence was then given about the value of the Kanowna Lights shares by two experts. Before that evidence was given, both Mr Slattery QC and Mr J Giles, the latter who appeared for TNG, summarised factual matters about the evidence that was about to be given. The evidence was given and the experts were, subject to the usual provisions relating to the adducing of concurrent evidence by experts, cross-examined. This evidence was central to the claim of the Commonwealth for equitable compensation.
138. In my view, applying the principles outlined above (at [129]), the claim for equitable compensation by the Commonwealth was fairly and justly an issue in these proceedings and one I can determine.
139. TNG, however, does submit that, had the claim been properly pleaded, there would have been defences that could have been raised. This, of course, is relevant to what must be the overall issue, not expressed by Ipp JA above (at [131]), but, in my view, inherent in the matter, namely whether there is an unfairness or prejudice to the party against whom the unpleaded claim is made.
140. Mr Giles submitted that the fiduciary duty of the constructive trustee, being his client, TNG, does not have an "absolute duty" to "have done a bit better with the Commonwealth investments in [TNG's] hand and sold it [sic] at the top of the market".
141. As he submitted, no trustee has such a duty. I have described the duty above (at [116]) and it is not an absolute one; it is a duty to preserve the trust property, in this case, the shares. The issue which Mr Giles raised is one that really goes to quantum and, perhaps, causation. TNG did address the former.
142. It also raises the possibility of a defence under the relevant trustee legislation. Given that TNG was registered in Western Australia where the transaction took place, it would seem that the relevant Act would be the Trustees Act 1962 (WA). Section 75 of that Act provides
Breach of trust, Court may relieve trustee from personal liability for
If it appears to the Court that a trustee, whether appointed by the Court or otherwise, is, or may be, personally liable for any breach of trust, whether the transaction alleged to be a breach of trust occurred before or after the commencement of this Act, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the Court in the matter in which he committed the breach, then the Court may relieve him either wholly or partly from personal liability for that breach.
143. TNG submitted that, had the claim been properly pleaded, this section could have been pleaded in defence of the claim. In the trial, TNG adduced no evidence of matters that would go to the question of whether it had acted honestly and reasonably. Thus, it was, it submitted, prejudiced by the absence of a pleading that would enable it fairly to address the issue.
144. Further, Mr Giles submitted that issues arose from the terms of the demand made by the Commonwealth which had not been addressed in the hearing.
145. In the first place, he pointed to the fact that the demand was for return of the shares plus other money. While that certainly was the demand of 1 July 1999 (referred to above at [107]) it was not the tenor of earlier demands, as, for example, on 28 May 1999 (as to which see [104] above). Nevertheless, even the earlier demand was challenged by TNG as unreasonable because the payment by TNG was said to be double the value of the shares (as referred to at [109] above).
146. In any event, as Mr Giles further pointed out, the demand was for all the shares when, by virtue of the election made by the Commonwealth, it was not entitled to all the shares. Thus, he submitted, before the demand could properly be made the Commonwealth had to make an election.
147. I have some doubt about the need for prior election. It may be that the failure to elect may require later adjustments between the parties. In the alternative, it may be that the demand, in that context, constituted an election in itself, though this was not fully argued before me.
148. This is a matter which causes me some trouble. It seems to me that TNG has made out its case for prejudice were I to find that it was not aware of the case that the Commonwealth was making against it outside the pleadings.
149. I am, however, not so satisfied. The opening submissions of the Commonwealth were comprehensive and in writing and senior counsel also spoke to them at some length. They made the claim for breach of trust for failing to return the Kanowna Lights shares on demand in express and, in my mind, unambiguous terms. No challenge was made to that claim nor was any objection raised to the Commonwealth propounding it.
150. The final submissions of TNG did address the issue directly. Thus, it referred to the Commonwealth's claim that TNG "should be treated as if it were in breach of trust at every moment it held the [Kanowna Lights] shares ..." It then referred at some length to McNally v Harris (No 3) [2008] NSWSC 861, in support of a submission as to the date at which the calculation of the amount of the equitable compensation should be made. It referred expressly to breach of trust and the relevant date, which can only be a recognition of the claim against it by the Commonwealth on the basis not pleaded but expressly articulated.
151. TNG also expressly raised the issue in its closing submissions as to whether there was a proper demand, clearly aware of the nature of the claim. While it is correct as stated that, at one stage, there was a demand for money as well as for a transfer of the shares, as I have noted above (at [104]-[107]), this was not the only - perhaps operative - demand, nor was it what was stated in the orders of the Court made when TNG was joined as a Defendant to which I have also earlier referred above (at [106]) and which does not suffer from the claimed defect.
152. In my view, TNG must be accepted to have been aware of the claim by the Commonwealth, although not expressly pleaded, and, insofar as it claims that it has been prejudiced as a result, this is a result of its acquiescence in the conduct of the proceedings by the Commonwealth which included the claim for equitable compensation for loss caused by its breach of trust in not transferring the shares to the Commonwealth as it demanded.
153. So far as the claim, referred to above (at [142]), that TNG may, had the claim of the Commonwealth been satisfactorily pleaded, have sought relief from its claimed breach of trust, it does not seem to me that this is a reason for rejecting the Commonwealth's claim.
154. In the first place, TNG could, at any time, have sought relief. The provision is not merely offering a defence; indeed, it is unclear whether it is a matter of defence at all. Thus, TNG could, at any time, have sought an appropriate order that it be relieved of liability; such order would then provide the defence.
155. In the second place, it is difficult to see the basis on which TNG would have been relieved under the section. It knew, as indeed its claim against the other Defendants disclosed, of the improprieties in the way in which it had received the shares and options in Kanowna Lights. While it chose to resist the Commonwealth's demands, and it may have done that honestly or reasonably, the section provides, in addition, that it is required for the Court to consider whether it "ought fairly to be excused for the breach".
156. It seems to me that any basis for such excuse could be raised in answer to the claim of the Commonwealth in the hearing itself and of which it had significant notice.
157. I have difficulty in holding that when a beneficiary requires the return by the trustee of trust property, the defence of the claim when honestly and reasonably, but wrongly, made, should justify the court in refusing to uphold the beneficiaries claim.
158. So far as the equitable compensation is concerned, the same seems to me to apply, though I accept that this may not always be so obvious.
159. I do not consider that the possibility of relief under s 75 of the Trustees Act would justify me, in these circumstances, from declining to entertain the Commonwealth's claim.
160. Allied to the earlier pleading point, TNG submitted that the claim was misconceived for, as it was put in its written submissions,
the remedy for knowing receipt is not the imposition of a constructive trust and equitable compensation. The available remedy in the circumstances in which the recipient remains in possession of the property is a constructive trust, and in effect an order for re-conveyance. That is because the claim is to vindicate the Commonwealth's proprietary interest. In relation to assets, the current value of which can be readily determined, such as readily marketable volumes of shares in a listed company, a recipient might be ordered (but as an alternative remedy) to pay an amount equal to the market value of the assets at the date of the order in lieu of a transfer. Subject to that limited, and essentially practical exception, equitable compensation is not available against a recipient who retains the property received. Equitable compensation is available against a knowing recipient who has transferred away the property, in breach of the constructive trust on which the recipient held the property.
(Footnotes omitted)
161. As TNG correctly noted, this is not a case where it had improperly transferred away the Kanowna Lights shares.
162. That submission addresses the pleaded claim but not the claim addressed by the oral submissions and, of course, to which the expert evidence was addressed.
163. While the Commonwealth maintained its claim for the return of the Kanowna Lights shares in specie, its claim to equitable compensation was for the breach of fiduciary duty as outlined above, a separate claim.
Davis Samuel (No 7) has determined the claim against the Commonwealth
165. TNG finally submitted that the effect of Davis Samuel (No 7) is that a claim for equitable compensation for knowing receipt at trial had failed, hence the orders I then made do not contemplate the submissions now being advanced by the Commonwealth.
166. It may be accepted that, in Davis Samuel (No 7), I did not address the issue that the Commonwealth now raises. That was largely because the issue depended upon whether the Commonwealth had elected to pursue an alternative remedy, namely the recovery of funds from subsequent recipients of the assets traced from the April Funds.
167. Nevertheless, it is a fair criticism that, while I made findings about the knowing receipt by TNG of the Kanowna Lights shares, I did not address the factual issues and make findings on the issues now being addressed.
168. It needs to be recognised, however, that the question of knowing receipt had to be resolved before the question of election arose. It was not necessary to make findings about any breach of fiduciary duties of TNG as a constructive trustee in order to address the issue of election. Indeed, had the submissions of TNG on that issue prevailed, then this issue would not have arisen.
169. TNG did not particularise any findings that were made in Davis Samuel (No 7) which were inconsistent with the Commonwealth's claim.
170. There are, in my view, no such findings in Davis Samuel (No 7) which are contrary to the claim now being made by the Commonwealth.
171. Accordingly, I find that the Commonwealth claim can be maintained and needs to be addressed.
Conclusion of the Commonwealth's Claim for Equitable Compensation
172. I have set out above (at [113]) the law in respect of the duty of a trustee, including a constructive trustee, as was TNG, in response to a demand by the beneficiary for the transfer to it of trust property. I have also set out the facts relied on by the Commonwealth to show that such a demand was made (at [102]-[110]).
173. TNG did not controvert either of those issues.
174. I find that TNG failed to transfer the Kanowna Lights shares, which it held as a constructive trustee, to the Commonwealth, the beneficiary of that trust when the Commonwealth demanded that it do so. I further find that this was a breach of its fiduciary duty as a trustee.
175. Accordingly, the Commonwealth's claim succeeds subject only to the issues of causation of loss and quantum. These I will now address.
176. The question of causation may be shortly stated, for it was not substantively challenged by TNG.
177. Spigelman CJ analysed the relevant authorities in O'Halloran v R T Thomas & Family Pty Ltd [1998] NSWSC 596; (1998) 45 NSWLR 262 at 274-5 and noted that a claim of this kind requires a causal link between the breach of fiduciary duty and the loss but that questions remoteness, contributing negligence and novus actus interveniens are irrelevant.
178. Essentially, as Street J held in Re Dawson (deceased) [1966] 2 NSWR 211, the test is whether the loss would have happened if there had been no breach. His Honour added (at 216) that the obligation to make restitution
is of a more absolute nature than the common law obligation to pay damages for tort or breach of contract.
179. The principle applies beyond express trusteeship and, as accepted in O'Halloran v R T Thomas & Family Pty Ltd, including company directors (per Spigelman CJ at 277) and fiduciary relationships (per Priestley JA at 280 and Meagher JA at 281). It seems to me that, if one considers the approach of Nocton v Lord Ashburton [1914] AC 932, it is clear that the principles apply to defaulting constructive trustees who breach an obligation within the exclusive jurisdiction of equity.
180. Thus, any loss occasioned to the Commonwealth as a result of the failure of TNG to transfer the shares to it under its demand must be repaid to the Commonwealth.
181. It is important to consider the relevant duty: Swindle v Harrison [1997] EWCA Civ 1339; [1997] 4 All ER 705 at 733, 734. Here, the duty was to return the property to the beneficiary, the Commonwealth. The question then is whether the trustee is personally liable for the payment of money for the loss occasioned by reason of the breach of trust on default in the performance by the trustee of the obligations it had: Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484 at 502; [44].
182. The claim by the Commonwealth is that, while TNG retained the Kanowna Lights shares, the Commonwealth was unable to realise them and so protect itself from fluctuations and, in particular, decline in their value and to accrue interest on the realised sum. This is associated with the alternative approach in which the Commonwealth put its claim, namely that to permit the decline in the value of the shares to be unchecked breached the duty TNG had to preserve the value of the asset and to manage the trust estate property.
183. I am satisfied that the loss that the Commonwealth may have suffered by the failure of TNG to return the Kanowna Lights shares to the Commonwealth when demanded is recoverable as equitable compensation.
184. The question then arises as to whether the Commonwealth has suffered loss. This will then determine the amount of that loss payable as equitable compensation.
185. The issues here are complex. In Earl of Gainsborough v Watcombe Terra Cotta Clay Co (1885) 53 LT 116, North J held that where there had been a loss to a trust estate by reason of the non-conversion of a security forming part of the trust property and where the trustees claimed that they could not have realised the full value of the security, they will be allowed the benefit of an enquiry to show the actual amount which would have been realised by a conversion at the proper time, and their liability will be limited accordingly. See JD Heydon and MJ Leeming, Jacob's Law of Trusts in Australia (7th ed, 2006, LexisNexis Butterworths: Sydney) 594; [2203].
186. I interpolate to note that, at 120, North J observed, ironically, a very apposite comment in the context of this case, of the matter before him
This is one of those painful cases in which the question is which of the persons who are innocent is to suffer through the dishonesty of another party.
187. An application of the principle established in that case would suggest that, had TNG delivered the Kanowna Lights shares to the Commonwealth at the time of the, demand for them, then, for the reasons outlined above (at [118]), the Commonwealth would have realised them relatively shortly after, as required by legislative constraint. It had, indeed, a duty to do so and I have no basis for finding that it would not have complied with its duty; indeed, the evidence set out below (at [206]-[208]) is to that effect and I accept it. The loss to the Commonwealth would then have been the price then realisable - perhaps sometime between July and September 1999 - less the price at which the shares would now bring, plus interest on the difference.
188. More recent authority, however, may suggest otherwise. In Jaffray v Marshall [1993] 1 WLR 1285, it was held that in an action for restitution of trust property lost in consequence of a continuing breach of trust, trustees will be liable to pay compensation assessed on the highest value of the property between the date of the breach and the date of judgment, provided that there was an opportunity to realise the property during the period of the continuing breach.
189. In Jaffray v Marshall at 1293, Stewart QC (sitting as a High Court judge) explained
The underlying point of the authorities seems to be that the breach of trust has deprived the party who ought to have had the assets throughout the relevant period of the opportunity of realising them at any point he chose.
190. It seems to me, however, in the light of the Commonwealth's constraints, that this approach is not applicable here.
191. In any event, the House of Lords overruled Jaffray v Marshall in Target Holdings Ltd v Redferns (a firm) [1995] UKHL 10; [1996] 1 AC 421 at 440 when Lord Browne-Wilkinson said
Mr Patten also relied on Jaffray v Marshall [1993] 1 WLR 1285 where the principles applicable in an action for an account of profits were, to my mind wrongly, applied to a claim for compensation for breach of trust. In my judgment that case was wrongly decided not only because the wrong principle was applied but also because the judge awarded compensation by assessing the quantum on assumption (viz. That the house in question would have been sold at a particular date) when he found as a fact that such sale would not have taken place even if there had been no breach of trust.
192. As White J commented in McNally v Harris at [40]
I take his Lordship to be saying that the authorities applied in Jaffray v Marshall, including McNeil v Fultz stated principles applicable to an action for account of profits and were inapplicable to the assessment of compensation for loss occasioned by the breach of trust.
193. I accept that, as pointed out by McLachlin J in Canson Enterprises Ltd v Boughton [1991] 3 SCR 534 at 554-5, equity, unlike the common law of contracts, does not simply identify the date for assessment of damages as the date of the culpable breach. As the High Court accepted in Youyang Pty Ltd v Minter Ellison Morris Fletcher at 499; [35], the losses are to be assessed as at the time of trial using the full benefit of hindsight.
194. In my view, however, this does not mean that the court must be oblivious to the particular circumstances of the case. Indeed, the emphasis on having regard to the particular duty is important and a pointer to the way in which a principled approach to the issue is to be taken.
195. This is where the absence of pleadings has caused a slight complication, for the court would be expected to rely on the pleadings to identify with precision the particular duty the breach of which is the subject of the Commonwealth's claim.
196. As articulated in the written submissions, supported by the oral submissions, I can identify two duties, the breach of which is the source of the claim: the breach to deliver the trust property on demand and the duty to preserve the trust property.
197. The difficulty in determining the appropriate principles to apply is that the cases to which the parties have referred, such as Re Dawson (deceased), are not cases where the property remains intact; they are cases where the property (in that case cash) had been paid away from the estate and the question of restoration is one of making good the loss thereby occasioned. It is not the case of transferring the property to sui juris beneficiaries which property, though improperly retained by the constructive trustee, remains intact. In this case, the trust property can and will be handed over intact, without any part of it having been given away or otherwise disposed of without authority.
198. The other difference is in the statutory obligation of the Commonwealth upon receipt of the asset. As noted above (at [187]), it had a duty to sell the property so as to convert it into an authorised investment. That, it may be accepted, it had to do as promptly as reasonably practicable.
199. This means that the Commonwealth did not, for example, have the opportunity, had the breach not occurred, of realising the shares on a rising market. Thus, the Commonwealth could not, in this case, show that, had the breach not occurred, it would have had a reasonable possibility of retaining the shares and realising them at a more favourable opportunity: cf Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332 at 355.
200. To compensate for the breach, TNG is required to pay the loss that the breach occasioned. Unlike cases where the trustee has parted improperly with trust property, this case does not include the right of the beneficiary to realise the assets at any point it chooses, thus, realising them, in a rising market, at a date other than when, in the ordinary course, it would have realised them as required by statute.
201. In my view, the proper date when the loss becomes assessable is not the date of the breach, but the date when the Commonwealth could reasonably have been expected to realise the shares. The loss then becomes the difference between this amount and the amount received by the Commonwealth when the shares are transferred to it and sold. There is, subject to the loss of the use of the funds, no further loss that the Commonwealth would have suffered thereafter.
202. Of course, the Commonwealth would have also had, in the time since then, the use of the funds represented by the realisation of the shares after transfer. This is, of course, also a loss that it suffered. This, however, is to be compensated by interest on the realised sum.
203. That difference and interest, also, represents the loss that the Commonwealth has suffered by the wasting of the asset, the failure of TNG to preserve the asset pending the transfer which judgment in this case will bring.
204. This seems to me to be consistent with the authorities and the principles set out in them.
205. The question, then, is: what is the relevant date and what is the value of the shares at that date?
206. It seems to me that the Commonwealth would have, had TNG not breached its duty by failing to transfer the shares, received the shares in mid 1999. It would, it seems to me, have realised them certainly within no more than three months. That is to allow for appropriate advice as to their disposal and, given that Kanowna Lights shares were not trading much at that time, some time before they were actually sold. I accept the evidence of Phillip Prior, then Chief Financial Office of the Department of Defence and chair of the Fraud Sub-Committee of the Finance and Audit Committee of the Department of Finance and Administration, which Department was responsible for the management of the proceedings which were, inter alia, to recover the April and September Funds.
207. His evidence was that the Commonwealth, if the demand for return of the Kanowna Lights shares had been met, would have issued a receipt for them. He continued in his affidavit
Secondly, I was aware, and if I had sought advice I would fully expect to have been advised ... that, in each case, the [Kanowna Lights] Shares were not in my view an authorised investment for the Commonwealth. Accordingly, as a responsible officer of the Commonwealth, I would have advised the Secretary that the FMA Act did not permit DOFA to seek to maintain an investment in the [Kanowna Lights] Shares (i.e. retaining the shares for the purposes of earning future dividends and realising capital gains). I would have advised that DOFA could only have retained ownership of the [Kanowna Lights] Shares for the purposes of and for such time as was required to effect a commercially sensible divestment of the shares in accordance with any advice obtained.
208. He supplemented this evidence orally under cross-examination as follows:
MR GILES: Quite. And indeed to effect a commercially sensible divestment in the circumstances of section 39 of the FAM Act, it would have been a commercially sensible but prompt divestment?---Indeed, indeed. If I may, I had a conversation with one of my colleagues this morning who was working with me on this matter, and we were just, you know, as one does preparing for this appearance. And I recall saying to him, you know, let's, you know, do you recall the time and so on, and I said 'You know, there's no doubt in my mind', and I said 'Would there be any doubt in your mind David' and he said 'No, not at all, we would have, you know, the matter would have been to sell them as quickly as possible' and he said, and I agreed, that indeed if an advisory had said 'Let's take a month or so to divest them' we would have said 'No, that's too long'. It would have been a matter of days and weeks, in my mind, not longer. So a commercially sensible would be, I don't know what the market's doing, I don't know whether there was a problem with putting a parcel of shares on the market and the advisory might have said, you know, 'Next would be better than Friday' or something, but it's a matter of days or weeks, the commercially sensible, it was not in the context of 'how do we make money out of these shares in any sense whatsoever' because section 39 is very clear.
MR GILES: Quite, and I take it it flows from that, Mr Prior, that you wouldn't have deferred selling, or advising the sale of the shares, on the basis of market rumour or the like? --- Absolutely not. Absolutely not. Indeed, I make this point very strongly, as an officer of the Commonwealth I am in fact, in a sense, every moment, and I'm being extreme, but every moment that those shares are not divested we are in breach of section 39, and I am particularly ---
209. A report from the Australian Stock Exchange showed that, between 1 May 1999 and 30 September 1999, the trading price for Kanowna Lights shares varied from the lowest price of 7.8 cents per share to the highest price of 15 cents per share. It seems to me that it is this evidence on which I should base my calculations.
210. I note, too, that, during that period, a total of 5,963,422 shares were traded, though most in parcels of less than 100,000 shares. Seven parcels of more than 250,000 shares were traded in that four month period. At the time there were 3,600,000 shares held by TNG which the Commonwealth had demanded be returned and which would have been sold. See Davis Samuel (No 7) at 290-1; [223]. This is, of course, a very sizeable parcel of shares to put into the market at that time; it is more than half the number of shares traded in the relevant six month period and nearly 16 times as many shares at the largest parcel traded in the period.
211. The two stockbrokers, Mr Wigzell and Mr Hill, gave evidence about the circumstances under which the Commonwealth might have sold the shares.
212. Mr Wigzell considered that the shares were not a "normal investment". Investors would not be people seeking a dividend return but who would be speculating on a price movement in the value of the shares as a result of market activity in them and other equities at the time, that is, speculating on the market rather than the underlying value of the shares.
213. The time at which the Commonwealth would be seeking to sell the shares was at a different period to that addressed by Mr Wigzell, but it seems to me that some of the principles he applied are relevant.
214. Thus, he thought that a group of investors may purchase the whole of the Commonwealth's parcel of shares. He also thought that the market would see the Commonwealth as "an accidental investor" as opposed to an ordinary investor. This, I inferred, may have meant that the market would not react to the same extent with price deflation because a significant investor was selling.
215. He considered that it was possible that the parcel may have been dealt with in a single transaction as a "special crossing", that is where the broker acts as an agent for both buyer and seller in a parcel of shares worth more than $1 million selling for a price different to the market price. In effect, the broker would put together a group of investors for the purpose.
216. He was concerned, however, that the sale of the parcel could be seen as "an overhanging parcel of stock", by which I understood him to mean that it would be a sizeable parcel which, when released, would "flood" the market and so put downward pressure on prices, depressing the market. Investors may defer purchase of the shares because they believe that the price will continue to decline.
217. In his calculations, Mr Wigzell was influenced by the investment made by Kanowna Lights when it acquired a 30 percent interest in technology and telecommunications business, First in Mail Pty Ltd, which had the effect of contributing to "the underlying speculative interest" in Kanowna Lights and increasing the share value. This investment, however, was undertaken on 3 February 2000, which I consider is outside the period by which time the Commonwealth would have sold the shares, even if in smaller parcels.
218. Mr Hill agreed that the stock was not of quality and would largely be of interest to "day traders". Indeed, he considered that there was a "taint" on the share value from the initial public offering (IPO) of the shares because it had just one prospecting licence, unlike other such companies which would be expected to have at least four or five such licences "as a protection against the likelihood that any individual exploration project will always struggle to ultimately generate some value for the company". Its subsequent acquisitions of tenemants did not, in his opinion, endow it with "a significant portfolio of exploration assets". It also did not, until 21 January 2000 have a qualified geologist on the board.
219. As a result, Mr Hill pointed out that the share price fared badly and he set out this history in his Report.
220. Mr Hill considered that a "crossing" was unlikely because it would be difficult with the number of shares in the parcel and the relevant price to reach the necessary threshold of $1 million.
221. Mr Hill was also pessimistic about the possibility of a broker securing a group of investors to purchase the whole parcel. He was also concerned about the effect of the overhang on the market.
222. He relied on the fact that, in raising capital, Kanowna Lights had never raised capital at more than 12 cents per share.
223. There was some evidence from the two stockbrokers about whether there would actually be investors who would buy such shares. It seems to me that, from the evidence, I can find that there would be such investors, but probably most of them not willing to invest much more than $100,000. That, however, would result in the parcel that the Commonwealth had to sell to be likely to have been sold and, though this depends on much speculation, within the stipulated period.
224. The price would depend on how the sale proceeded, that is whether it was in small parcels or whether a group of investors bought the whole parcel or some small and some larger parcels were sold. I also accept that, if some large parcels were sold, this may well have an upward effect on the price of the shares. Nevertheless, on the whole, the evidence suggested a discount overall from the market price.
225. The primary difference between the two stockbrokers was that Mr Wigzell considered that the investment in First In Mail Pty Ltd would have had a significant boosting effect on the share price such that, at the time, a price of 25 cents a share at least could be obtained.
226. The problem with that, however, is that it is, in my judgment, well after in time by when the Commonwealth would have sold the shares had TNG not breached its duty and returned the shares to the Commonwealth.
227. Thus, the share price is what, applying the approaches of the stockbrokers, would be the price in the relevant period. So far as this was concerned, there seemed little real difference as the factors on which Mr Wigzell relied to suggest that a higher price was not then applicable.
228. Both Mr Wigzell and Mr Hill agreed that, if the parcel of shares was sold in smaller lots, "an optimum price would not have been obtained" because of the need for the publication of substantial shareholder notices. Their opinion was based on TNG selling the shares, as it also held other shares in Kanowna Lights, but it seems to me that the same situation would apply to the Commonwealth, though Mr Wigzell suggested that there would be an easier sale "as the Commonwealth would be viewed as a natural seller".
229. Both Mr Wigzell and Mr Hill agreed that were TNG to sell the shares, the fact that there were common directors between the two companies would depress the price.
230. In cross-examination, Mr Wigzell agreed that, if the Commonwealth were to sell the shares, it would have possibly led to speculation as to why the shares were being sold and that such speculation would be likely to have decreased the share price on the market. That, however, he said may have been eliminated or moderated were the Commonwealth to have made an announcement explaining what it was going to do and why it was doing it.
231. All in all, it seems to me that Mr Wigzell was too optimistic in his predictions and did not take into account the need to discount the price because it may have been difficult to get enough investors to purchase either a single parcel or, if the shares were sold serially in smaller parcels, all purchasers at the same price, rather than an increasingly depressed price.
232. On the other hand, Mr Hill seemed to me to be too pessimistic, relying on the longitudinal study he did, rather than giving due weight to the increase in price that would temporarily follow the investment in First in Mail Pty Ltd and the flow-on effect for a time of that increased price.
233. Thus, I would, had I been able to assess the relevant price at early 2000, have put the value at 22 cents per share.
234. That, however, for the reasons already given, is not the correct time at which the value of the shares is to be assessed, which is well before the Kanowna Lights investment in First in Mail Pty Ltd was made.
235. As I have noted above (at [209], over the relevant period the market price of Kanowna Lights shares varied between 4 May 1999 and 30 September 1999 from 7.8 cents per share to 15 cents per share. There were, however, only two transactions at 15 cents per share of a total of 57,000 shares and three at 14 cents per share of 74,000 shares.
236. Having inspected the sales, I note there was quite a volatility in the price; there were a number of sales at 13 cents per share and 12.5 cents per share but most were below this - some at 11 cents per share and some at 10.5 cents per share as well as a number at and below 10 cents per share. There may well be a mathematical method of calculating the appropriate figure but, doing the best I can, it seems to me that a reasonable price in this time period is 11 cents per share.
237. This, however, needs to be discounted for the reasons discussed earlier. In my view the discount would be between 10 percent and 15 percent. I will, therefore, assess the equitable compensation payable as at 9.5 cents per share, this being my conclusion as to the price that the Commonwealth is likely to have received for the sale of the shares in the relevant period.
238. As the Commonwealth has elected to recover the funds traceable to the April Funds into the funds in the hands of Bisoya and into the payment into Court by Ms Scott, the shares represented by these funds no longer represent assets into which the Commonwealth can trace its loss. The number of shares are calculated by accounting for the funds paid to Bisoya and paid into Court by Ms Scott as representing shares at 20 cents per share, for which, of course, they were purchased by TNG. This results in 437,500 shares which are those that by the election of the Commonwealth, TNG is not required to transfer to the Commonwealth.
239. This will then be used as the basis for the claim for equitable compensation on that amount, however, interest is payable since, had the shares been returned to the Commonwealth and sold by it, the Commonwealth would then have had the use of those funds thereafter.
240. TNG challenges the Commonwealth's claim for interest on the basis that the claim under the constructive trust is for a proprietary remedy.
241. It seems to me that this misunderstands the Commonwealth's claim. While, as beneficiary, the Commonwealth is entitled to the return of the shares, the claim for equitable compensation is for the breach of the duty to give up the shares to the Commonwealth when demanded. It is for this breach that TNG must compensate the Commonwealth.
242. This breach is not remedied merely by the transfer of the shares but also by the compensation for keeping the Commonwealth out of the use of the funds into which, the evidence has shown, the shares would soon after transfer have been converted.
243. It seems to me that the date for the start of the running of interest should be the date by which I would reasonably expect the shares to have been sold, namely by 30 September 1999. Accordingly, the claim for interest should be upheld and should be calculated from 1 October 1999 to the date of payment.
244. There is no doubt that interest is payable on an award of equitable compensation in an appropriate case. If authority is needed for that proposition, I refer to Hillig v Darkinjung Pty Ltd [2006] NSWSC 1371; (2006) 205 FLR 450 at 452; [7].
245. The rate of interest has fluctuated over the years, from periods when a specific rate of 4 percent was set by the High Court in Re Tennant; Mortlock v Hawker [1942] HCA 3; (1942) 65 CLR 473 at 507-8. In Hogan v Waterhouse (1991) 34 NSWLR 308 at 393, Kearney J pointed out that the current volatility of fluctuations in interest rates should now be taken into account and that such changed conditions should now be reflected in decisions of the court about the appropriate rate.
246. In Lewis v Kation Pty Ltd (in liq) [2006] NSWSC 480 at [13], Hamilton J concluded that the rates set out in the Court rules were to be applied in the case at hand. See, to the same effect, Morgan Equipment Co v Rodgers (No 2) (1993) 32 NSWLR 467 and Murdocca v Murdocca [2002] NSWSC 505.
247. Interest is, of course, not to punish the defendant, as pointed out in Wallersteiner v Moir (No 2) [1975] 1 QB 373 at 388 and Harrison v Schipp [2001] NSWCA 13 at [129]. It has been said that interest may be awarded at a higher rate where there has been a gross misapplication of trust funds: Alemite Lubrequip Pty Ltd v Adams (1997) 41 NSWLR 45. Although there was an express refusal of TNG to transfer the shares following the demand, I do not consider that the circumstances fall within this category and no higher rate of interest is required to be paid. In any event, the Commonwealth does not seek any such rate.
248. The interest will be awarded in accordance with Pt 2.1 of Sch 2 of the Court Procedures Rules 2006 (ACT).
249. No party, other than the Commonwealth, made submissions as to how I should approach the fact that from almost all of the Defendants, it was seeking both a proprietary remedy, namely the transfer to it of property the subject of a constructive trust, that I have found imposed on property into which funds from the April Funds and the September Funds have been converted, and also equitable compensation.
250. The Commonwealth referred to it briefly. In its written submissions, it said
The Commonwealth submits that no order is required to avoid double recovery. First, because as a practical matter the amount of equitable compensation including interest up to the date of Orders so far exceeds the value of monies recovered and property traced, that the issue is moot. It is all the more so where, as in the case of Kamanga and Quancorp, those companies are in liquidation.
Second, because it is not necessary for such an order to be made against the Commonwealth. The Commonwealth says that it shall make appropriate deductions and if it seeks to take any enforcement action, will need to prove the balance of any judgment debt outstanding. The Commonwealth and the Defendants should have liberty to make any application insofar as any dispute may arise as to the recovery of monies in accordance with the final orders.
251. In oral submissions, Mr J Hogan-Doran submitted
We don't think it's necessary ... that particular orders are made about double recovery, Commonwealth [sic] as a model litigant will accommodate requests for information as to what we do.
252. Whilst it is proper to expect the Commonwealth will act as a model litigant - and I do - it does seem to me to be necessary to make some orders that recognise the issue and at least minimise the risk of double recovery.
253. There is a well-known principle or rule against double recovery.
254. The position is perhaps best set out in the judgment of the Privy Council in Tang Man Sit v Capacious Investments Ltd [1996] AC 514 at 522 where Lord Nicholls of Birkenhead, delivering the decision of the Council, said
Faced with alternative and inconsistent remedies a plaintiff must choose between them. Faced with cumulative remedies a plaintiff is not required to choose. He may have both remedies. He may pursue one remedy or the other remedy or both remedies, just as he wishes. It is a matter for him. He may obtain judgment for both remedies and enforce both judgments. When the remedies are against two different people, he may sue both persons. He may do so concurrently, and obtain judgment against both. ... There are limitations to this freedom. ... A third limitation is that a plaintiff cannot recover in the aggregate from one or more defendants an amount in excess of his loss. Part satisfaction of a judgment against one person does not operate as a bar to the plaintiff thereafter bringing an action against another who is also liable, but it does operate to reduce the amount recoverable in the second action. However, once a plaintiff has fully recouped his loss, of necessity he cannot thereafter pursue any other remedy he might have and which he might have pursued earlier. Having recouped the whole of his loss, any further proceedings would lack a subject matter. This principle of full satisfaction prevents double recovery.
255. This statement was cited with approval by Gleeson CJ and Callinan J in Baxter v Obacelo Pty Ltd [2001] HCA 66; (2001) 205 CLR 635 at 653-4; [39].
256. See also Castellan v Electric Power Transmission Pty Ltd (1967) 69 SR(NSW) 159 at 176, 180-1, where the common law rule was accepted that, if an injured person obtained judgment and full satisfaction against one tortfeasor, the liability of another concurrent tortfeasor was thereby discharged. In that case, Walsh JA considered that there was also an equitable principle which had the same result.
257. In my view, the claims of the Commonwealth for the proprietary remedy of the transfer of property which is, following the relevant tracing, subject to a constructive trust, and the claim for equitable compensation are what the Privy Council referred to as cumulative remedies not alternative or inconsistent remedies. There is, however, as noted, a need to avoid double recovery.
258. In Secure Parking (WA) Pty Ltd v Wilson [2012] WASCA 230 at [77] the Western Australian Court of Appeal said
Orders for equitable relief may be moulded to prevent double recovery. For example, the court may direct that any sum recovered by way of damages is to be deducted from the sum awarded in respect of account of profits, in order to avoid any double recovery: House of Spring Gardens v Point Blank [1985] FSR 327, 346 and see also the discussion of that case in Meagher, Gummow & Lehane's Equity, Doctrines and Remedies [25-020]
259. In House of Spring Gardens Ltd v Point Blank Ltd [1985] FSR 327, the Court awarded the loss of profits but required that to be abated by the amount of the damages for the breach of contract also awarded.
260. It seems to me that I should proceed to make orders in general terms in this way to preserve the position where both a proprietary remedy is granted and also equitable compensation and where the same sum is effectively sought from more than one party.
Conclusion on the claim by the Commonwealth against TNG
261. As a result of my findings, both in these reasons and in Davis Samuel (No 7), the position is as follows. I should make a declaration that TNG holds on trust for the Commonwealth those shares it currently holds in Kanowna Lights which were sold to it by CTC Resources less the number of shares at 20 cents per share represented by the funds paid to Bisoya by Kamanga and one half of the funds paid to Ms Scott.
262. TNG should be ordered to pay equitable compensation in respect of those shares calculated at 9.5 cents per share together with interest on that sum from 1 October 1999 until judgment at the rates from time to time applicable under Pt 2.1 of Sch 2 of the Court Procedures Rules.
263. The Commonwealth seeks, and I shall order, that the shares, in respect of which the trust has been declared, be transferred to the Commonwealth (subject to any agreement otherwise between TNG and the Commonwealth who might wish TNG to sell all of its holdings of shares in Kanowna Lights at once and account to the Commonwealth for the relevant proceeds). When such shares are transferred, they be sold forthwith by the Commonwealth and the proceeds applied in part satisfaction of the judgment sum for equitable compensation, which the Commonwealth is to be restrained from enforcing until the shares, if transferred, have been sold.
264. TNG and the Commonwealth sought to be heard as to costs when judgment is given and I will hear them.
265. I turn then to the other Defendants. In addressing the issues involving them, it is appropriate to make some general remarks and then to summarise the relevant findings in respect of each defendant.
266. I will use the descriptions of each of the Defendants that I used in Davis Samuel (No 7). In particular, I will continue to use "Primary Defendants" to refer to Davis Samuel, Mr Cain, Mr Allan Endresz, CTC Resources, Mr Jozsef Endresz, Mrs Dawn Endresz, Mr Forge, Bisoya, Winton Oil, Mrs Joy Endresz, Tresmonay and Ms Scott: see Davis Samuel (No 7) at 295; [251].
267. For the purposes of these reasons, I will refer to the Primary Defendants together with Kamanga and Quancorp as the "Albury Defendants".
268. I shall also refer to the transactions, where relevant, by the letter "T" and appropriate number as in Davis Samuel (No 7) at 276-291; [124]-[226].
269. In relation to the April Funds transfer (T 1) and the September Funds transfer (T 50), I found in Davis Samuel (No 7) at 485; [1666]-[1668] that I was
satisfied that each of the Primary Defendants relevantly knew, to the relevant degree, that David Muir and Callform were breaching their fiduciary duties to the Commonwealth in effecting the April Funds transaction (T 1) and the September Funds transaction (T 50) and were, therefore [...] knowing accessories [...] in respect of the April Funds or the September Funds so far as they were involved in any of the transactions referred to in these proceedings.
[...]
In so far as they were knowing accessories, they were personally liable to provide compensation for the loss sustained by the Commonwealth arising from the breach of fiduciary duties by David Muir and Callform.
270. Although it may not have been expressed in Davis Samuel (No 7), it is clear from those findings and what I said at 335; [510]-[516] and the declaration I made in Order 3 that the knowledge of Mr Jozsef Endresz, Mrs Dawn Endresz and Mr Forge was attributed to CTC Resources and Winton Oil, as was that of Mr Allan Endresz to CTC Resources, Kamanga and the Davis Samuel Partnership of Kamanga and Quancorp, and that of Mr Cain to Quancorp, to the Davis Samuel Partnership of Kamanga and Quancorp and to Tresmonay. The knowledge of Mr Jozsef Endresz was also attributable to Kamanga and Tresmonay.
271. This rendered the Albury Defendants liable to the Commonwealth as recipients or as accessories to receipt of the April Funds and the September Funds, which funds were, for the most part, traceable, as I also found.
272. Under my finding at (6) in [2393] of Davis Samuel (No 7) at 575-6, I foreshadowed that appropriate final orders should be made for payment to the Commonwealth of equitable compensation by each of the Albury Defendants to the extent that each was involved in the two main transactions, T 1 and T 50, and any of the other transactions. The Commonwealth has now sought such orders.
273. For transactions subsequent to T 1 (in respect of the April Funds) and subsequent to T 50 (in respect of the September Funds), the tracing process permits the Commonwealth, at each step in any trace, to identify a knowing recipient or knowing accessory in the original breach of fiduciary duty by Mr Muir and Callform they owed to the Commonwealth. At that point, the Commonwealth may pursue either a proprietary claim or, if the funds have been dissipated or transferred away, an in personam claim. See McNally v Harris (No 3) at [1]-[2].
(a) the amount of equitable compensation payable in respect of T1 and T50 is greater than the amount payable in respect of any subsequent transactions involving those monies; and
(b) for the most part, the subsequent transactions involved some part of a cascading series of transactions each being part of, and together comprising the whole of, the proceeds of the initial transactions T1 and T50; and
(c) further orders would not be necessary for the purposes of making orders sufficient to require the relevant defendant to compensate the Commonwealth for his, her or its involvement in a number of transactions,
the equitable compensation it seeks is that for the first transaction or the highest level transaction in each cascading series of transactions at which relevant defendant was knowingly involved in a breach of fiduciary duty owed to the Commonwealth or was in knowing receipt of such funds (subsequently paid away).
(a) seeks equitable compensation because a particular defendant's knowing assistance in, or receipt of the funds from transactions T1 and T50, but
(b) does not seek such compensation for his, her or its knowing assistance in, or further receipt of the funds from (e.g. by recycling funds), subsequent transactions in the cascading series of transactions subsequent to T1 and T50,
the fact that the Commonwealth only seeks such compensation at the higher level or referable to the amount, it submits that this should not be understood as an intentional waiver or an election in relation to the Commonwealth's entitlement to claim equitable compensation in respect of that defendant's knowing assistance in subsequent transactions using the monies transferred under T1 and T50. I accept that submission.
276. The Commonwealth has not asked me to identify whether, in respect of the Primary Defendants, the liability is joint or several. No Defendant sought me to make a finding on this issue. In any event, this will arise when the orders are enforced though to some extent I have addressed this with the issue about double recovery above (at [249]-[260]). It is also a matter between the relevant Defendants in any claim for contribution, none of which have been made in these proceedings.
Albury Defendants - Equitable Compensation - general principles
277. In assessing the equitable compensation payable by the Albury Defendants, the Court is concerned with a personal remedy requiring the defendant to compensate the Commonwealth for its losses arising from the breaches of fiduciary duties in which each Defendant participated as a knowing accessory providing assistance. It is appropriate to summarise the principles briefly as follows.
278. The assessment of compensation payable by an accessory to a breach of trust will ordinarily be assessed on the same principles as apply to a defaulting trustee because the accessory is treated as if it were a trustee.
279. The primary purpose of the remedy of equitable compensation is compensation for what has been lost. Thus, compensation should be computed by reference to the detriment suffered by the Commonwealth.
280. Where a Defendant has knowingly assisted in the transfer of the April Funds or the September Funds, the relevant Defendant is liable to pay equitable compensation to the Commonwealth under the principles in cases such as McKenzie v McDonald [1927] VicLawRp 19; [1927] VLR 134.
281. "Assistance" by individuals is identified where findings have been made as to their involvement. Consistent with authority, this includes acts of assistance without which the transaction could not take place, or where the defendant assists in some way other than acts of minimal importance, even if loss is not the inevitable consequence. See Baden v Société Generale pour Favoriser le Developpement du Commerce et de l'industrie en France SA [1993] 1 WLR 509 at 574-5. It also includes persons acting as directors of relevant entities exercising powers that cause the company to assist in the relevant receipt or disposal of the April Funds or the September Funds, in line with Australian Securities Commission v AS Nominees Limited [1995] FCA 1663; (1995) 62 FCR 504.
Equitable compensation and interaction with proprietary remedies
282. The April Funds and the September Funds have been traced into assets in which (as a consequence) the Commonwealth has a proprietary interest.
283. For example, in Order 3 made in Davis Samuel (No 7), I declared, as to the Primary Defendants and embracing Kamanga and Quancorp, that each of them
[h]old[s] any payments derived directly or indirectly as traceable to the payments referred to in the first and second declarations on trust of the plaintiff.
284. The first and second declarations relate to T 1 and T 50.
285. The tracing of funds was the subject of various particular findings, identified below. The trace into those assets is largely mechanistic, and for the most part was not challenged.
286. The current value or realisable value of such assets is not relevant to the calculation of an individual Defendant's liability to pay equitable compensation. The Commonwealth accepts that it cannot obtain double recovery to which I have earlier referred in connection with TNG. The Commonwealth accepts that any recovery of property the subject of a constructive trust must be set off against the equitable compensation liable to be paid by that Defendant. This may, of course, discharge a liability from other Defendants as well.
Remedies - (b) interest on the equitable compensation
287. Under my finding in [2393] of Davis Samuel (No 7) at 575-6, I indicated that final orders may include appropriate orders for interest. The Commonwealth does seek interest in accordance with r 1616 of them.
288. The interest sought is in accordance with the pre-judgment interest rate in Sch 2 Table 2.1 of the Court Procedures Rules. From the date of final orders, of course, since the orders will credit judgment debts, the Commonwealth will be entitled to interest at the ACT post-judgment rate on the balance of the order unsatisfied from time to time under r 1619(2) of the Court Procedures Rules.
289. From time to time since the commencement of the proceedings, however, monies have been recovered, including as a result of settlements, reducing the loss from that date. These must be credited towards the Commonwealth's equitable compensation claims. The Commonwealth set out in calculation tables supplied with its submissions as to the final orders to be made the claim for interest. They have been very helpful and have formed the basis of the Schedules to these reasons which has set out the calculations I have made as to the amounts to be ordered to be paid. No challenge was made to these tables. I have scrutinised them and am satisfied that I can accept them.
290. The Commonwealth and TNG each claim charges over the Haven Hill and Pine Avenue properties arising from the tracing of the proceeds of sale of Kanowna Lights options. In Davis Samuel (No 7), I referred at 530; [2014]-[2016] to the question of priority as between the Commonwealth and TNG, holding that both parties had an equal interest in the assets into which the proceeds of the sale to TNG of Kanowna Lights securities could be traced.
291. The Commonwealth, however, submits that, for each property, the April Funds were used to improve each property or pay down amounts due under secured (mortgage) loan on the property or both. These payments were made on various dates prior to the sale to TNG on or about and after 23 October 1998 of the Kanowna Lights securities that had been earlier purchased with funds from the April Funds. I refer to these prior payments as the "Pre-KLS Contributions". In accordance with ordinary equitable principles, the Commonwealth claims priority in relation to the Pre-KLS Contributions over the later payments for which both the Commonwealth and TNG had an equitable claim. The priority is said to arise because the Commonwealth's equitable interest arose when the April Funds were so contributed and as such have priority, qui priore est tempore potior est jure: Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liquidation) [1965] HCA 17; (1965) 113 CLR 265 (Latec) at 276.
292. The priority is asserted both in relation to the principal amounts of Pre-KLS Contributions and interest on those amounts to the date of judgment.
293. Alternatively, the Commonwealth sought priority for the principal amounts of Pre-KLS Contributions and interest thereon until the date of the sale of securities to TNG, when both the Commonwealth and TNG have an equal claim to the proceeds which were then contributed. Thereafter:
(d) interest on the earlier (Pre-KLS Contributions) amounts continues to accrue in favour of the Commonwealth;
(e) principal and interest in relation to the sale price of the securities accrues in favour of the Commonwealth and TNG (in equal amounts as to both principal and interest),
with the Commonwealth and TNG's claims to the monies in (a) and (b) ranking pari passu and payable pro rata in proportion to their respective entitlement.
294. TNG submitted that the findings I made in Davis Samuel (No 7) has resolved this issue in its favour.
295. Nevertheless, it submitted that the application of the principles set out in Latec do not result in the answer that the Commonwealth seeks that I give.
296. Mr J Giles, who appeared for TNG, submitted that both the Commonwealth and TNG were entirely innocent victims of the improprieties committed by the Albury Defendants and that their equities were equal.
297. That seems to me to be generally true, though, I found that, at the time of the transaction, the then directors and so the directing mind of TNG knew of the impropriety being perpetrated: Davis Samuel (No 7) at 513; [1880]. The Commonwealth, however, did not contend that this meant that, for payments after the Pre-KLS Contributions, the equities of it and TNG were not equal. I accept that this is so.
298. Mr Giles submitted that I should treat the properties as a mixed fund into which the post-sale funds had been paid and that would not require the impossible task, where payments are made from time to time to such a fund, that the precise payments are given priority amongst themselves. Where a large number of separate payments from competing interests are made to such a fund, that approach, I accept, would be completely unworkable.
299. TNG submitted that, however, this was not quite what had happened in this case. Payments of the April Funds had been made which could be traced into the two properties prior to the sale of Kanowna Lights securities to TNG. These payments clearly have a temporal priority over the moneys paid into the properties from the sale price paid by TNG for the Kanowna Lights securities. These latter payments, though made over time, can conveniently be aggregated and dealt with as one sum as there is no differentiation between the entitlement of the Commonwealth and TNG to the funds. Thus, these payments were made from time to time with funds traceable by both the Commonwealth and TNG. They should be treated as single amounts and rank equally between them.
300. Nevertheless, Mr Giles referred to "the somewhat fortuitous timing of payment in" but I do not consider that this is particularly relevant. It is true that funds traceable from the April Funds were paid in over time both before and after the sale of Kanowna Lights securities to TNG and there was only happenstance that some were paid before 23 October 1998 and some after. Nevertheless, they were so paid and at the relevant times. The involvement of TNG through the breach of fiduciary duties to it was a discrete event and not part of a continuous pattern of payments made from time to time concurrently with the Commonwealth from the improperly paid away funds. Its involvement only arose after the sale and that cannot be gainsaid.
301. Thereafter, namely from 26 October 1998, the approach suggested by Mr Giles should apply but I do not accept that, prior to that there was a relationship between TNG and either property that would overcome the temporal principle enunciated in Latec.
302. As to interest, however, it seems to me that the interest on the Pre-KLS Contributions does not have a priority that continues after 26 October 1998. From that time, it seems to me that the claims by the Commonwealth and TNG to the principal and interest rank equally. No authority or principle was put to me by the Commonwealth to support its primary position as to interest and I am not aware of any principles that would have that result. Nevertheless, it does seem to me that there needs to be some recognition of the accruing interest on the Pre-KLS Contributions after 26 October 1998. This can be recognised by a differential weighting of the percentage of the interest that each of the Commonwealth and TNG have in the properties into which the sale proceeds have been paid to take account of the interest continuing to accrue to the Commonwealth on the Pre-LLS Contributions.
303. The Commonwealth has also claimed proprietary relief in respect of certain real property and personal property of various Albury Defendants. For the Haven Hill and Pine Avenue real properties, the Commonwealth seeks charges over the properties to secure the interest it claims from tracing April Funds into them. TNG also seeks similar charges The Commonwealth submits that it will ultimately wish to sell the properties so as to realise this security and recover the amounts claimed. TNG submitted that a receiver should be appointed now to sell the properties to realise the funds secured by the relevant charges. However, non-party caveators and other interest holders whose interests may be affected will have to be consulted and this militates against immediate orders which may not be easily able to be framed at this stage. The Commonwealth may require further orders, including for the appointment of trustees for sale, to resolve these issues. Thus, and appropriately, liberty to apply is sought for that purpose. I will make such orders.
(a) As to Haven Hill;
- (i) Allan and Joy Endresz are co-owners;
- (ii) The CBA has a first ranking mortgage;
- (iii) The Commonwealth lodged a caveat in 1999;
- (iv) TNG lodged a caveat in 2008.
(b) As to John Court;
- (i) Dawn Endresz is the registered proprietor;
- (ii) The Commonwealth lodged a caveat in 1999;
- (iii) In 2012, a caveat was lodged by Patrick Gerard Scammell and Leanne Majella Scammell claiming an interest in the land arising from an option to purchase granted to them on 7 January 2012 (which grant of option may have been in breach of the Court's injunction against dealings by Dawn Endresz dated 1 July 2002).
(c) As to Pine Avenue:
- (i) the property is in the name of Quancorp;
- (ii) Citibank has a first ranking mortgage;
- (iii) the Commonwealth lodged a caveat in 1999;
- (iv) Mr Cain has asserted that the property was held on trust under a Unit trust, the P & A Cain Investment Trust and, in 2002, nominated LawDoc Pty Ltd as the new trustee;
- (v) the liquidator of Quancorp has disclaimed the property, but no transfer has been registered; and
in 2007, Anne Cain (wife of Peter Cain) lodged a caveat claiming the property held on trust (implied or constructive) for her.
305. The Commonwealth also sought orders in respect of some properties where the whole of the property is impressed with a trust in favour of the Commonwealth that the current registered proprietor vacate the property. That is a reasonable order. The Commonwealth, however, also sought an order that if the registered proprietor does not vacate the premises, that the Commonwealth have leave to enter on the property and change the locks and otherwise secure it. I consider that I should not, in effect give a party leave to take possession of property to which it is entitled. That is the function of a court official, such as a Sheriff by Writ or Order for Possession.
306. Although costs orders have been sought by the Commonwealth in respect of each Defendant, it has sought liberty to apply in respect of costs, in particular with a view to making an application for a lump sum costs order in the event that the judgment against the Primary Defendants remains unsatisfied. I will consider that in the context of hearing the parties as to proposed orders.
The First Defendant, Davis Samuel Pty Ltd (Davis Samuel)
307. I found in Davis Samuel (No 7) at 276; [129], 401-2; [995]-[1000], that, on 21 August 1998, $775,097.96, was, by direction, paid to Davis Samuel by CTC Resources from the April Funds. The amount was received into the Davis Samuel Partnership Commonwealth Bank of Australia (CBA) Account and was subsequently used by Davis Samuel under the Heads of Agreement in respect of the sponsorship of the Newcastle Falcons. Davis Samuel received these funds as a volunteer. In any event, given that Mr Cain and Mr Allan Endresz were the only directors of the company and given their knowledge of the source of the funds as received in breach of duties owed by Mr Muir and Callform to the Commonwealth, these funds were traceable to the April Funds and recoverable by the Commonwealth.
308. I found in Davis Samuel (No 7) at 409; [1059], that there was no issue in the proceedings that the sum of $2.725 million was improperly transferred to Davis Samuel on 24 September 1998.
309. I also noted in Davis Samuel (No 7) at 322; [428], the evidence of the certificate of conviction of Mr Muir, dated 25 September 2001, which certified that, on 25 September 2001, Gray J convicted and sentenced Mr Muir in this Court on a count of defrauding the Commonwealth of Australia in causing the sum $2.725 million to be transferred from the Commonwealth of Australia to Davis Samuel.
310. I found in Davis Samuel (No 7) at 500; [1778], that, while the September Funds were paid into the Davis Samuel Partnership account, and they were also paid on behalf of Davis Samuel which promptly used them to prosecute its dealings with TNG.
311. Again, the knowledge of Mr Cain and Mr Allan Endresz that these funds were paid in breach of the fiduciary obligations that Mr Muir and Callform owed to the Commonwealth meant that these funds were recoverable by the Commonwealth.
312. The detriment suffered by the Commonwealth is:
(a) as a consequence of the April Funds transaction (T 1), the $6 million transferred out of the Commonwealth on 17 April 1998;
(b) as a consequence of the September Funds transaction (T 50), the $2.725 million transferred out of the Commonwealth on 24 September 1998.
It did, however, recover on 10 February 2001 $225, 000.00 in respect of the September Funds.
313. Accordingly, Davis Samuel is liable to pay compensation to the Commonwealth in the amount of:
(a) $775,097.96, being the unrecovered April Funds for which Davis Samuel is liable;
(b) interest on the April Funds for which Davis Samuel is liable, as remain unrecovered from time to time;
(c) $2,500,000, being the unrecovered September Funds for which Davis Samuel is liable;
(d) interest on the September Funds for which Davis Samuel is liable, as remain unrecovered from time to time.
314. The quantum of the order for equitable compensation sought against Davis Samuel comprises the principal amount of $3,275,097.96 and interest from the date on which the moneys were received. The relevant calculation is set out in Schedule 1 to these reasons.
315. I found in Davis Samuel (No 7) at 500; [1777], that Davis Samuel was liable to the Commonwealth under the Trade Practices Act (1974) (Cth) (TP Act). I do not need to repeat the details, which rely on the false entries made by Mr Muir in the records of the Commonwealth. Under ss 82 and 87 of the TP Act, the Commonwealth is entitled to remedies provided for in those sections.
316. It is clear from the terms of s 87(1) of the TP Act that the recovery of damages under s 82 does not prevent recovery also under that section.
317. The claim related to the making of the entries in the computer system of the Commonwealth whereby the April Funds transaction (T 1) and the September Funds transaction (T 50) were made. So far as Davis Samuel is concerned, however, it was only concerned in the latter, the September Funds transaction (T 50).
318. The damages payable under s 82 of the TP Act is, it would seem, those damages that would approximate, but not be limited to, damages recoverable in tort. See Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 14; Kizbeau Pty Ltd v WG & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281 at 290; Murphy v Overton Investments Pty Ltd [2004] HCA 3; (2004) 204 ALR 26 at 37; [44]- [46].
319. This would require Davis Samuel to pay as damages the amount that the Commonwealth had lost as a result of the impugned transaction. That would, however, be the same amount as payable as equitable compensation to which I have already referred. There is, accordingly, no need, in my judgment, to make any additional or other orders under s 82 of the TP Act. None was sought by the Commonwealth.
320. So far as s 87 of the TP Act is concerned the measure of damages is to be more widely assessed. In Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494 at 510-1, the High Court held that while the principles for assessing damages under this section may usefully rely on analogies from the approach in tort or equity, it is not so limited. Again, however, there is here no loss that would not be recoverable under s 82 of the TP Act or, indeed, as equitable compensation.
321. There is, therefore, no occasion to make any additional order under s 87 of the TP Act than the judgment already proposed. None was sought by the Commonwealth.
322. In Davis Samuel (No 7) at 497; [1763], I found that the April Funds payment and the September Funds payment were void and that the Commonwealth can recover the payments made from the persons to whom they were paid.
323. The remedy for the making of an ultra vires payment is the repayment of the money. See In Re K L Tractors Ltd [1961] HCA 8; (1961) 106 CLR 318 at 337-8.
324. Again, there is no occasion to make any additional order in respect of this claim, the entitlement to recover the money being assumed within the judgment for equitable compensation.
Proprietary Claim - Hallmark Gold Shares (HLM)
325. I found in Davis Samuel (No 7) at 290; [221], 431-2; [1238]-[1246]:
(a) on 24 September 1998, the Davis Samuel Partnership paid $2.425 million of September Funds to Kirke Securities Pty Ltd to purchase 7.4 million shares in TNG and 1.8 million options in TNG (T51.1);
(b) the purchaser of the shares was Davis Samuel, as trustee of HUT; and
(c) Kamanga and Quancorp were or were to be unit holders in HUT as initial subscribers.
326. The evidence shows that an order of this Court made on 20 January 2000 permitted the shares in TNG acquired for HUT to be sold. The order required the proceeds of the sale to be paid into Court. They were later sold and, Court records show, the sum of $20,000 was paid into Court on 25 January 2000, being the proceeds of the sale of the options. The sum of $2,194,440 was paid into Court on 14 February 2000 being the proceeds of the sale of the shares net of expenses. There should be an order under r 1013 of the Court Procedures Rules 2006 (ACT) for the payment of these monies to the Commonwealth together with any interest earned on them.
The Second Defendant, David Muir (Mr David Muir)
328. This included payments of equitable compensation based on the improper transaction in relation to the sale to TNG of shares and options in Kanowna Lights.
329. Due to the entitlements of the Commonwealth to the transfer of some of the shares the subject of this claim, a special calculation has to be undertaken and I did this when considering the claim by TNG against Mr Cain below (at [3466]-[356]). This is applicable to the claim against Davis Samuel.
(a) the sum of $52,500, being the difference between the actual value of the shares retained by TNG and what it paid for them;
(b) the sum of $632,500, being the loss sustained by TNG as a result of the order I shall make that the balance of 3,162,500 shares in Kanowna Lights be transferred from TNG to the Commonwealth;
(c) the sum of $656,000, being the price paid by TNG for the Kanowna Lights options which had no value; and
(d) the sum of $150,000, paid to the Newcastle Falcons.
331. Accordingly, these sums, which total $1,491,000, together with interest up to payment is the amount Mr Muir is liable to pay TNG as equitable compensation. The calculation of the amount of the compensation is set out in Schedule 27B to these reasons.
The Fourth Defendant, Peter Michael Cain (Mr Cain)
332. Mr Cain's liability in respect of the April Funds arises, according to my findings in Davis Samuel (No 7) in four ways:
(a) first, through his personal knowing receipt, directly and indirectly, of April Funds;
(b) second, through his knowing assistance in dealings by Quancorp, in its own right, with April Funds;
(c) third, through his knowing assistance in dealings by Quancorp, as a partner in the Davis Samuel Partnership, with April Funds; and
(d) fourth, through his knowing assistance in dealings by Davis Samuel Pty Ltd with April Funds.
Mr Cain's personal receipt of April Funds - Equitable Compensation
333. I found that, between 21 April 1998 and 14 July 1998, Quancorp paid to or for the benefit of Mr Cain a total of $181,698 of April Funds: Davis Samuel (No 7) at 290; [214]. He is thus liable for knowing receipt of April Funds obtained from the Commonwealth in breach of duty (T 42). The Commonwealth has not sought a specific charge or declaration of trust with orders for re-conveyance of these monies.
Mr Cain's knowing assistance in Quancorp's dealings with April Funds - Equitable Compensation
334. Since 3 October 1996, Mr Cain has been the sole director and secretary of Quancorp. As Quancorp's sole director and secretary, he assisted Quancorp, with knowledge, in Quancorp's dealings with April Funds, as follows:
(a) on 21 April 1998, Quancorp received from Kamanga $210,000 traceable to the April Funds (T15.1); Davis Samuel (No 7) at 281; [165];
(b) Quancorp made payments of funds traceable to the April Funds to the Davis Samuel Partnership on 30 April 1998 ($60,000, T18.7) and on 10 June 1998 ($65,000, T18.1), which monies came from its Commonwealth bank account: Davis Samuel (No 7) at 282; [174];
335. Correspondence with the CBA authorising these payments was signed by Mr Cain.
Mr Cain's knowing assistance in the Davis Samuel Partnership's dealings with April Funds - Equitable Compensation
336. Quancorp and Kamanga were partners in the Davis Samuel Partnership. As Quancorp's sole director and secretary, Mr Cain assisted Quancorp, with knowledge, in Quancorp's dealings - as a partner in the Davis Samuel Partnership - with the disbursement of April Funds, by permitting, causing and directly participating as follows:
(a) On 20 April 1998, the Davis Samuel Partnership received from CTC Resources $334,427.50 from the April Funds (T7.1-T 7.3) and, on 28 May 1998, the Davis Samuel Partnership received from CTC Resources $12,000 traceable to the April Funds (T7.4) for what was said to be a monthly retainer in respect of the litigation CTC Resources had with the Australian Stock Exchange (ASX): Davis Samuel (No 7) at 278; [137]-[138].
Mr Cain assisted this process by signing the letter from the Davis Samuel Partnership to CTC Resources dated 22 March 1998 setting out the terms pursuant to which CTC Resources would subsequently pay to the Davis Samuel Partnership the amounts of April Funds referred to above.
Further amounts, traceable to the April Funds, were received by the Davis Samuel Partnership from CTC Resources in respect of the ASX litigation on 2 July 1998 ($6,000, T 7.5), 4 August 1998 ($6,000, T.6), 25 August 1998 ($6,000, T7.7) and 9 November 1998 ($12,000, T7.8): Davis Samuel (No 7) at 278; [139]-[140].
(b) On 21 April 1998, the Davis Samuel Partnership received from Kamanga payments of $25,000 (T17.1) and $15,000 (T17.2), each from funds traceable to the April Funds: Davis Samuel (No 7) at 281; [169].
(c) On 28 May 1998, $150,000 traceable to April Funds was received by the Davis Samuel Partnership from Border Basketball (T10.1): Davis Samuel (No 7) at 280; [152].
(d) On 9 June 1998, the Davis Samuel Partnership received $270,000 traceable to April Funds from Winton Oil (T12.3): Davis Samuel (No 7) at 281; [161].
Mr Cain was instrumental in assisting the Davis Samuel Partnership to receive funds from the April Funds from Winton Oil. He signed the letter from the Davis Samuel Partnership to Winton Oil dated 5 June 1998 setting out the terms pursuant to which Winton Oil would subsequently pay to the Davis Samuel Partnership the amounts of April Funds referred to above.
(e) Between 1 July 1998 and 30 October 1998, the Davis Samuel Partnership paid to Quancorp a total of $166,500 traceable to April Funds (T18.2-T18.6): Davis Samuel (No 7) at 282; [175].
(f) On 30 July 1998, the Davis Samuel Partnership received $120,000 traceable to April Funds from CTC Resources (T11:4): Davis Samuel (No 7) at 280; [158].
The payment of $120,000 by CTC Resources was made in respect of the sale of exploration licences, pursuant to two agreements, both of which were executed by Mr Cain on behalf of Quancorp (as a partner in the Davis Samuel Partnership).
(g) On 13 May 1998, the Davis Samuel Partnership received from Pellon $500,000 from the funds traceable to the April Funds (T33.1): Davis Samuel (No 7) at 287; [202].
Mr Cain, on behalf of Quancorp, negotiated the terms on which the $500,000 was received by the Davis Samuel Partnership and signed the Quancorp letter to Kamanga dated 15 May 1998 in respect of the funds. On behalf of Quancorp as a partner in the Davis Samuel Partnership, he subsequently authorised the payment of those funds to Kirke Securities Pty Ltd.
(h) Between 29 June 1998 and 3 November 1998, the Davis Samuel Partnership received from Pellon a total of $6,000 from funds traceable to the April Funds, purportedly for "retainer fees" under a consultancy agreement signed on 24 April 1998 (T38.1-T38.5): Davis Samuel (No 7) at 289; [209]. Mr Cain, on behalf of Quancorp as a partner in the Davis Samuel Partnership, executed the agreement under which these amounts were paid.
(i) On 26 October 1998, the Davis Samuel Partnership disposed of KLS Options that it had acquired using funds traceable to the April Funds and received $336,000 (T27.2), the monies subsequently being transferred away and the account dissipated: Davis Samuel (No 7) at 284; [193].
Mr Cain's knowing assistance in Davis Samuel's dealings with April Funds - Equitable Compensation
337. Mr Cain, together with Mr Allan Endresz, was one of the original and only directors of Davis Samuel.
338. Mr Cain, as a director of Davis Samuel, was, I found in Davis Samuel (No 7) at 424; [1178], involved in the knowing receipt by Davis Samuel (or the Davis Samuel Partnership account) on 21 August 1998 of $775,097.96 from CTC Resources, traceable to April Funds: Davis Samuel (No 7) at 276; [129].
339. The funds were paid by direction into the Davis Samuel Partnership Commonwealth Bank Account. By letter to the CBA dated 21 August 1998, Mr Cain authorised the payment of those funds to the Kinvale Partners Pty Ltd Trust Account.
Mr Cain's knowing assistance - September Funds - Equitable Compensation
340. In Davis Samuel (No 7) at 290; [217] and 442; [1330], I found that Mr Cain was involved in the transfer from the Commonwealth and the receipt by the Davis Samuel Partnership of the September Funds in breach of the fiduciary duties to the Commonwealth owed by Mr Muir and Callform, by Mr Cain being a director of Quancorp which knowingly received the transfer of the September Funds by the payment into the Davis Samuel Partnership account.
341. I further found in Davis Samuel (No 7) at 442; [133], that Mr Cain consented to the effecting of the September Funds Transaction (T 51) and knew the general conduct, namely, the making of the payments in breach of the fiduciary duty that Mr Muir and Callform owed to the Commonwealth, to have the funds transferred to the recipients' bank accounts.
342. On 24 September 1998, the day the Davis Samuel Partnership received the September Funds, Mr Cain, for Davis Samuel and for Quancorp, executed the Trust Deed establishing the Hallmark Unit Trust (HUT). He also executed a Unit Holders Agreement between Kamanga and Quancorp, Callform and Davis Samuel. Davis Samuel, as trustee of HUT and using the September Funds, purchased 7.4 million shares in TNG for $2,450,000. See Davis Samuel (No 7) at 443-4; [1343]-[1345].
343. The detriment suffered by the Commonwealth is:
(a) as a consequence of the April Funds transaction (T 1), the loss of the April Funds, being the $6 million transferred out of the Commonwealth on 17 April 1998, for which Mr Cain is liable as a knowing recipient (at [333] above) as to $181,698 and for knowing assistance (at [334]-[338] above) as to $3,075,025.46, making a total of $3,256,723.46;
(b) as a consequence of the September Funds transaction (T 50), the loss of the September Funds, being the $2.725 million transferred out of the Commonwealth on 24 September 1998.
It did, however, recovered $225,000.00 of the September Funds on 10 February 1999.
344. Accordingly, Mr Cain is liable to pay equitable compensation to the Commonwealth in the amount of:
(a) $3,256,723.46, being the unrecovered April Funds which he received or knowingly assisted others to deal with (as is set out above) in breach of duty, subsequent to the $6 million transferred out of the Commonwealth on 17 April 1998;
(b) interest on the April Funds for which he is liable, as remain unrecovered from time to time;
(c) $2,500,000, being the unrecovered September Funds for which he is liable; and
(d) interest on the September Funds for which he is liable, as remain unrecovered from time to time.
The amounts, including interest, for which Mr Cain is liable to pay equitable compensation to the Commonwealth is set out in Schedule 4 to these reasons.
345. I shall make an order for equitable compensation favour of the Commonwealth against Mr Cain comprising these amounts.
346. In Davis Samuel (No 7) at 546-7; [2165], I found that Mr Cain was an accessory to the breaches that I found Mr Muir, Mr Forge and Mr Clarke had committed of their duties to TNG. There are, relevantly three areas of breach: the purchase of shares in Kanowna Lights at an excessive and uncommercial value, the purchase of options in Kanowna Lights when they had no value as a sponsorship by the Newcastle Falcons basketball team which had no benefit for TNG.
347. As to the shares, there are two aspects of the loss suffered by TNG. So far as the order I will make to transfer the shares (less those which are subject to the election made by the Commonwealth to trace the proceeds instead) from TNG to the Commonwealth referred to earlier (at [263]), it seems to me that Mr Cain is liable as an accessory to the breaches I have found, Mr Cain is liable to pay equitable compensation to TNG.
348. This is to be assessed as follows. For the shares that TNG is required to transfer to the Commonwealth, Mr Cain (and the other relevant Primary Defendants) TNG has obtained no benefit; its detriment, therefore, is the value of the shares it purchased and the loss it thereby suffered from being deprived of their value.
349. TNG has taken the "pragmatic view" that this value should be assessed on the basis of the "rule" in Potts v Miller [1940] HCA 43; (1940) 64 CLR 282 although that has been further explained in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Market Pty Ltd at 685-6; [177]-[180]. It seems to me that this is an acceptable approach. As stated in the headnote to Potts v Miller, the rule is that
The measure of damage in a case in which a person is induced by fraud to take up shares in a company is the difference between the amount he paid for the shares and the real value of the shares at the time of allotment, and not at any subsequent period, although subsequent events may throw light on the value at the time of allotment.
350. The evidence of Mr Hill shows that the market price of the Kanowna Lights shares on 26 October 1998 was 9.5 cents a share. Both Mr Wigzell and Mr Hill, however, agreed that the market value of the shares, being a large parcel of shares, acquired by TNG would be less than this price and agreed that the value would be 8 cents a share. Thus, the loss suffered by TNG for the shares transferred to the Commonwealth will be 12 cents a share, that is the true value of 8 cents less the price paid of 20 cents.
351. The shares to be transferred to the Commonwealth will be 3,162,000 shares, namely the 3,600,000 shares less the shares represented by the election to claim $50,000 from Bisoya (representing 250,000 shares) and the election to claim from Ms Scott, half of which will be paid to TNG, thus being $37,500 (representing 187,000 shares).
352. Thus, the shares retained by TNG are 437,500 which, at 12 cents a share is $52,500. Of course, interest from 26 October 1998 would also be payable.
353. The second aspect of this claim is the claim in respect of the 3,162,500 shares to be transferred to the Commonwealth. In respect of these shares, TNG is entitled to the full value paid for them as they have been now of no value to TNG. This amounts to 3,162,500 shares at 20 cents a share, namely $632,500. Again, interest is payable on that sum from 26 October 1998.
354. The second claim is in respect of the Kanowna Lights options. TNG paid $656,000 for them. They had no value. The loss to TNG, therefore, is $656,000 plus interest from 26 October 1998.
355. Finally, the payment of $150,000 to the Newcastle Falcons basketball team was, for the reasons set out in Davis Samuel (No 7) at 456-7; [1445]-[1458], of no benefit to TNG. It is, therefore, an amount recoverable by TNG, with interest from 26 October 1998.
356. Finally, TNG claims an indemnity for the amounts that TNG has to pay the Commonwealth for that claim is entirely caused by the breaches of fiduciary duty by Mr Forge, Mr Muir and Mr Clarke owed to TNG, in which breaches Mr Cain was an accessory. I agree. That sum should also be paid by Mr Cain and judgment entered for that sum.
The Fifth Defendant, Allan Paul Endresz (Mr Allan Endresz)
357. I found in Davis Samuel (No 7) at 345; [595], 351; [641], 425; [1192], 442; [1330], 485; [1666] that Allan Endresz
(a) knew that the April Funds transfer (T 1) was an improper transaction and that Mr Muir and Callform were, in effecting the transaction, breaching their fiduciary duties to the Commonwealth and, so far as he assisted in the transaction was a knowing accessory under the rule in Barnes v Addy (1874) LR 9 Ch App 244 and, so far as he received any of the April Funds (including funds traceable to the April Funds), was a knowing recipient for the purposes of the rule in Barnes v Addy; and
(b) wilfully shut his eyes to the obvious circumstance, and at the very least, was aware of circumstances that would indicate to an honest and reasonable person in his position that, by making the September transaction, Mr Muir and Callform were breaching the fiduciary duties.
Mr Allan Endresz knowing assistance as a de facto director of CTC Resources and director of Davis Samuel - Equitable Compensation
358. I found in Davis Samuel (No 7) at 312-4; [365]-[377], 315; [384], 337-9; [531]-[541], 341; [559], 347; [612] that Mr Allan Endresz was involved in the transfer from the Commonwealth and the receipt by CTC Resources of the April Funds in breach of the fiduciary duties owed by Mr Muir and Callform to the Commonwealth, by initial discussions with Mr Muir about the investment of $6 million of Commonwealth funds in CTC Resources, by the preparation of the letter of offer of to the Commonwealth of 2 April 1998 and insertion of its terms and delivery to Mr Muir of "due diligence" documents.
359. I also found that in Davis Samuel (No 7) at 314-20; [377]-[393], [396]-398], [401], [408]-[410], [413], 345; [596], 498; [1768](3) that Mr Allan Endresz was involved in the transfer from the Commonwealth and the receipt by Davis Samuel of the September Funds in breach of the fiduciary duties owed by Mr Muir and Callform to the Commonwealth, by initial discussions with Mr Muir to acquire TNG shares, arrangements for a success fee of $200,000 to be paid to Mr Muir, negotiations with Mr Muir for the "rollover investment" in Davis Samuel and by signing the letter dated 21 September 1998, confirming the investment of $2.725 million. The September Funds Transaction (T 50) was effected with the consent of Allan Endresz as an agent of Kamanga and a director of Davis Samuel.
360. I also found in Davis Samuel (No 7) at 276; [123], 286; [197]-[198], 290-1; [215], [221]-[226], 393; [934], 373; [800], 374; [811], 375; [814], [817], that Mr Allan Endresz, with knowledge was involved in further dealings in the April Funds (T5, T7 and T8), was involved in further dealings in September Funds (T51, T52 and T53) and knowingly received either directly or indirectly, April Funds
361. However, it is not necessary for me to make an order for equitable compensation in relation to these acts of further involvement in breaches by Mr Muir and Callform of the fiduciary duties they owed to the Commonwealth in respect of these subsequent dealings in the April Funds and the September Funds and knowing receipt of April Funds because of the order to be made in respect of the April Funds and the September Funds themselves. See above (at [272]).
362. The detriment suffered by the Commonwealth is:
(a) as a consequence of the April Funds transaction (T 1), the April Funds, being $6 million, was transferred out of the Commonwealth on 17 April 1998;
(b) as a consequence of the September Funds transaction (T 50), the September Funds, being $2.725 million were transferred out of the Commonwealth on 24 September 1998.
The Commonwealth did, however, recover various amounts of the April Funds on various dates for which Mr Allan Endresz would otherwise be liable and did recover $225,000.00 of the September Funds on 10 February 1999. These amounts are to be taken into account when calculating the amount of equitable compensation owed by him to the Commonwealth.
363. Accordingly, Mr Allan Endresz is liable to pay equitable compensation to the Commonwealth in the amount of:
(a) $4,980,686.85, being the unrecovered April Funds for which Mr Allan Endresz is liable;
(b) interest on the April Funds for which Allan Endresz is liable, as remain unrecovered from time to time;
(c) $2,500,000, being the unrecovered September Funds for which Mr Allan Endresz is liable as remain unrecovered from time to time; and
(d) interest on the September Funds for which he is liable, as remain unrecovered from time to time.
The amounts for which Mr Allan Endresz is liable to the Commonwealth for equitable compensation is set out in Schedule 5 to these reasons.
364. I shall make an order for equitable compensation in favour of the Commonwealth against Mr Allan Endresz comprising these amounts.
365. I found in Davis Samuel (No 7) at 285; [195], 391; [928](c), that Mr Allan Endresz used the April Funds to acquire the stamp collection. A constructive trust in favour of the Commonwealth was therefore imposed on the stamp collection.
366. The stamp collection was delivered to the custody of the Court on 17 August 2008. It should be delivered to the Commonwealth.
367. Haven Hill is a residential property at Splitters Creek, Albury, New South Wales, presently owned by Mr Allan Endresz and Mrs Joy Endresz.
368. It is currently subject to a freezing order restraining Mr Allan Endresz and Mrs Joy Endresz from disposal or further encumbrance such that there must be at least $424,351.34 after due allowance for legal costs and expenses..
369. The use of April Funds to pay for improvements on the Haven Hill property before any transaction with TNG is detailed in Davis Samuel (No 7) at 285-6; [196] totalling $374,327.73. The Commonwealth is entitled to an equitable charge over Haven Hill in respect of these monies based on my findings in Davis Samuel (No 7) at 392; [932].
370. I also found in Davis Samuel (No 7) at 530; [2016] that the Commonwealth, along with TNG, is entitled to an equitable charge over Haven Hill arising from the gifts of traceable April Funds made by Kamanga and applied to Haven Hill after 26 October 1998.
371. I also found in Davis Samuel (No 7) at 529; [2001] that part of the proceeds of the sale of the Kanowna Lights options that was paid to Kamanga, namely $320,000 (T26.2), was then used for improvements to Haven Hill to the extent of $121,525.50 (T28.28, T28.29, T28.30, T28.31, T28.32). However, my findings in Davis Samuel (No 7) at 530; [2016] were that each of the Commonwealth and TNG had a charge over Haven Hill "in the same sum, namely the $320,000". It was pointed out in submissions that this is a slip and the charge over Haven Hill should be in respect of the $121,525.50 plus interest. It is clear that this is so, for what I had done was refer to the whole of the moneys paid to Kamanga by TNG, namely $320,000, only part of which was paid for improvements to Haven Hill. That is clear from Davis Samuel (No 7) at 529; [2001].
372. As to interest, the Commonwealth originally claimed compound interest, or alternatively simple interest at the Court rate. The Commonwealth does not press the claim to compound interest, and maintains its claim to simple interest at the pre-judgment Court rate. I shall make orders to that effect.
373. In the event that Mr Allan Endresz fails to pay the judgment debt, the Commonwealth submitted that it would accordingly seek orders for sale of the Haven Hill Property. The orders should be crafted accordingly.
374. I have dealt with the question of the priorities as between TNG and the Commonwealth in respect of the claims for moneys traceable to Haven Hill above (at [290]-[302]). The orders shall reflect my findings.
376. The same orders for the same sums should be made.
The Sixth Defendant CTC Resources NL (CTC Resources)
377. I found in Davis Samuel (No 7) at 276; [124]-[125], 316; [391], 478; [1613], that on 17 April 1998, Mr Muir caused the sum of $6 million to be transferred to CTC Resources. The transfer was effected by an electronic transfer from the Business Services Trust Account of the Commonwealth directly to an account at the CBA in Albury held in the name of CTC Resources. Given the knowledge of the directors that this transfer was effected in breach of the fiduciary obligations owed by Mr Muir and Callform to the Commonwealth, CTC Resources also knew this.
378. I further found in Davis Samuel (No 7) at 405; [1022], that on 29 June 1998, CTC Resources partially redeemed the deposit of moneys from the April Funds placed in an investment account with the CBA in Albury, redeeming $800,780.45 which retuned its trading account into credit.
379. I also found in Davis Samuel (No 7) at 277; [133], 279; [150], 282; [177], 451; [1409], that:
(a) CTC Resources received from Kamanga the sum of $339,000.22 plus $28,144.22 in interest payments, all traceable to the April Funds, as follows:
- (i) $100,000 on 21 April 1998;
- (ii) $104,000 on 30 October 1998;
- (iii) $1,055.18 on 30 October 1998, being an interest payment;
- (iv) $60,000 on 26 November 1998;
- (v) $24,500 on 26 November 1998, being an interest payment;
- (vi) $2,589.40 on 25 November 1998, being an interest payment;
- (vii) $5,000 on 17 December 1998;
- (viii) $20,000 on 22 December 1998;
- (ix) $50,000 on 22 December 1998.
(b) On 22 September 1998, the Davis Samuel Partnership paid $40,000 from funds traceable to the April Funds to CTC Resources.
(c) On 23 October 1998, TNG resolved to execute a standard transfer form for 3,600,000 million fully paid ordinary shares from CTC Resources for 20 cents per share, totalling $720,000. This amount was paid to CTC Resources on 26 October 1998.
(d) On 30 October 1998, Border Basketball paid $40,000 to CTC Resources, such payment characterised as a "repayment of loan".
380. On 24 September 1998, Allan Endresz and Peter Cain authorised its bank to pay CTC Resources $60,000, traceable to September Funds (T 52). That payment was authorised by the CBA Albury manager and paid to CTC Resources on that day.
381. The detriment, loss and damage suffered by the Commonwealth is:
(a) as a consequence of the April Funds transaction (T 1), the $6 million transferred out of the Commonwealth on 17 April 1998;
(b) as a consequence of the September Funds transaction (T 50), the $2.725 million transferred out of the Commonwealth on 24 September 1998.
It did, however, recover from time to time various sums traceable to the April Funds for which CTC Resources would otherwise be liable.
382. Accordingly, CTC Resources is liable to pay compensation to the Commonwealth in the amount of:
(a) $4,980,686.85, being the unrecovered April Funds for which CTC Resources is liable;
(b) interest on the April Funds for which CTC Resources is liable, as remain unrecovered from time to time;
(c) $60,000, being the unrecovered September Funds for which CTC Resources is liable; and
(d) interest on the September Funds for which CTC Resources is liable, as remain unrecovered from time to time.
The amounts, including interest, for which CTC Resources is liable to pay the Commonwealth is set out in Schedule 6 to these reasons.
383. The quantum of the order for equitable compensation sought against CTC Resources comprises the principal amount of $12,410,527.39 and interest from the date on which the moneys were received.
384. I found in Davis Samuel (No 7) at 500; [1777], that CTC Resources was liable to the Commonwealth under the TP Act. This, in my view, is limited to the April Funds transaction (T 1). The Commonwealth is entitled to relief under s 87 and damages under s 82 of that Act.
386. Since I have already found CTC Resources liable for the unrecovered balance of the April Funds with interest, there is no occasion for a separate or additional order to be made in respect of this claim.
387. I found in Davis Samuel (No 7) at 497; [1763], that the April Funds payment was void as having been made ultra vires and that the Commonwealth can recover the payment made from CTC Resources as the person to whom it was paid.
388. I found in Davis Samuel (No 7) at 276; [125] that CTC Resources received the April Funds payment, it is, therefore, liable to repay to the Commonwealth the whole of the April Funds.
389. I have set out above (at [323]) the method of quantification of such a judgment.
390. Again, however, since it is the same amount as is payable in equitable compensation, no additional order is required to be made.
(a) Repayment of Loan from CTC Resources to D R Hedge
391. The evidence shows that, on 23 November 1999, $15,000 was paid into Court by Mr D R Hedge. I found in Davis Samuel (No 7) at 390; [917]-[920], that these monies were traceable to the April Funds, being loan monies advanced by CTC Resources to Mr Hedge and repayable by him to CTC Resources.
392. They are, therefore, funds that the Commonwealth can claim against CTC Resources because of its knowledge (as one of the Primary Defendants) at the time of the April Funds transfer.
393. These moneys should be paid out of court under r 1013 of the Court Procedures Rules as part payment of the judgment sum payable by CTC Resources to the Commonwealth.
394. Evidence accepted by me in support of an application leading to me making an order on 28 July 2008 shows that CTC Resources received $69,664 from the NSW Department of Mineral Resources being refund of the security deposits paid for certain mining tenements which I described in Davis Samuel (No 7) at 572-5; [2364]-[2383].
395. Minutes of meetings of CTC Resources produced in connection with that application showed that these funds were disbursed in various transactions, including a payment of $15,000 to its then solicitors, Ken Cush & Associates. After paying certain fees from that amount, the sum of $4,842.28 remained the subject of certain restraining orders to which I do not need to refer.
396. Under the order of 28 July 2008, that sum was then paid into Court.
397. As a result, these moneys should be paid out of court under r 1013 of the Court Procedures Rules as part payment of the judgment sum payable by CTC Resources to the Commonwealth.
(c) The 5 percent Pinnacles interest - 100 percent interest in that 5 percent
398. I found in Davis Samuel (No 7) at 283; [179], 404; [1014]-[1017], that on 1 July 1998, CTC Resources paid $300,000 in April Funds to Kanowna Lights for a 5 percent interest in its Pinnacles Nickel Project (T21.3). The evidence shows that this was referred to in the letter dated 17 June 1998 from Davis Samuel to Kanowna Lights signed by Mr Cain which interest was transferred from Kanowna Lights (which subsequently changed its name on 12 May 2004 to Peninsula Minerals Ltd and on 22 November 2010 to Peninsula Energy Ltd) to CTC Resources on or about 1 July 1998 (the 5 percent Pinnacles interest).
399. As those shares represent an asset into which the April Funds are traced, they are impressed with a constructive trust in favour of the Commonwealth.
400. As a result, the interest should be transferred to the Commonwealth together with any benefits, such as profits, received by CTC Resources from the interest.
401. In Davis Samuel (No 7) at 546; [2163]-[2165], 549; [2181]-[2186], I found that CTC Resources was a knowing participant in the breaches of fiduciary duties owed by Mr Forge, as well as Mr Muir and Mr Clarke, to TNG when then three as directors or purported directors of TNG when making and then giving effect to the resolutions of 23 October 1998.
(e) the sum of $52,500, being the difference between the actual value of the shares retained by TNG and what it paid for them;
(a) the sum of $632,500, being the loss sustained by TNG as a result of the order I shall make that the balance of 3,162,500 shares in Kanowna Lights be transferred from TNG to the Commonwealth;
(b) the sum of $656,000, being the price paid by TNG for the Kanowna Lights options which had no value; and
(c) the sum of $150,000, paid to the Newcastle Falcons.
404. Accordingly, these sums, namely $1,491,000, with interest is the amount CTC Resources is liable to pay TNG as equitable compensation. The calculation of the amount payable is set out in Schedule 27B to these reasons.
The Seventh Defendant, Jozsef Endresz (Mr Jozsef Endresz)
405. In Davis Samuel (No 7) at 314-7; [372]-[393], 345; [596], I found that Mr Jozsef Endresz was knowingly involved in the transfer from the Commonwealth and the receipt by CTC Resources of the April Funds in breach of the fiduciary duties Mr Muir and Callform owed to the Commonwealth, including by his initial discussions with Mr Muir about the investment of $6 million of Commonwealth funds in CTC Resources and the preparation, signing and sending of a series of faxes to Mr Muir or the Commonwealth purportedly justifying the April Funds transaction (T 1).
406. I also found in Davis Samuel (No 7) at 270; [51], 425-6; [1194], 437; [1281], 439; [1299], that, Mr Jozsef Endresz, as a director of Kamanga, indeed the sole director at the relevant time, was knowingly involved in the transfer from the Commonwealth and the receipt by Davis Samuel of the September Funds (T 50) in breach of the fiduciary duties owed by Mr Muir and Callform to the Commonwealth, and that Kamanga further knowingly received the transfer of the September Funds when those funds were paid into the Davis Samuel Partnership account.
407. I also found in Davis Samuel (No 7) at 276; [123], 286; [196]-[197], 290; [215], 573; [800], 154; [811], 375; [814], [817], 393; [934], 437; [1281], that Mr Jozsef Endresz, with knowledge was involved in further dealings with the April Funds (T5, T7 and T8), was involved in further dealings in the September Funds (T51, T52 and T53) and knowingly received, either directly or indirectly, thr April Funds.
408. However, for the reasons set out above (at [361]), no further order for equitable compensation is necessary in relation to the further involvement of Mr Jozsef Endresz in these breaches of the trust in relation to the April Funds and the September Funds and knowing receipt of the April Funds.
409. The detriment suffered by the Commonwealth is:
(a) as a consequence of the April Funds transaction (T 1), the $6 million transferred out of the Commonwealth on 17 April 1998;
(b) as a consequence of the September Funds transaction (T 50), the $2.725 million transferred out of the Commonwealth on 24 September 1998.
The Commonwealth did, however, recover various amounts of the April Funds on various dates for which Mr Jozsef Endresz would otherwise be liable and did recover $225,000.00 of the September Funds on 10 February 1999. These amounts are to be taken into account when calculating the amount of equitable compensation owed by him to the Commonwealth
410. Accordingly, Mr Jozsef Endresz is liable to pay equitable compensation to the Commonwealth in the amount of:
(a) $4,980,686.85, being the unrecovered April Funds for which Jozsef Endresz is liable;
(b) interest on the April Funds for which Jozsef Endresz is liable, as remain unrecovered from time to time;
(c) $2,500,000, being the unrecovered September Funds for which Jozsef Endresz is liable; and
(d) interest on the September Funds for which Jozsef Endresz is liable, as remain unrecovered from time to time.
The amount, including interest, for which Mr Jozsef Endresz is liable to pay to the Commonwealth as equitable compensation is set out in Schedule 7 to these reasons.
411. The quantum of the order for equitable compensation sought against Mr Jozsef Endresz comprises a principal amount of $7,480,686.85 and interest.
412. The only asset that I found was acquired using April Funds in the name of Jozsef Endresz is the Toyota Sedan purchased for $40,000 on 24 April 1998. See Davis Samuel (No 7) at 286; [198]. The Commonwealth claims an interest in that vehicle and the appropriate order to give effect to that claim should be made.
413. In Davis Samuel (No 7) at 545-7; [2152]-[2165], I found that Mr Jozsef Endresz was an accessory to all the breaches by Mr Muir, Mr Forge and Mr Clarke of their fiduciary duties that they owed to TNG.
The Eighth Defendant Dawn May Endresz (Ms Dawn Endresz)
415. I found in Davis Samuel (No 7) at 270; [45], that Mrs Dawn Endresz, as a director of CTC, was involved in the transfer from the Commonwealth and the receipt by CTC of the April Funds in breach of fiduciary duties owed by Mr Muir and Callform to the Commonwealth in the following ways.
416. As to assistance, I found in Davis Samuel (No 7) at 354-5; [670]-[673], that Mrs Dawn Endresz:
(a) was thoroughly involved in the affairs of CTC Resources as a director and fully acquainted with its business dealings;
(b) was an active and involved member of the board of CTC Resources and participated in a meaningful and knowledgeable way in the affairs of CTC Resources;
(c) in her capacity as director of CTC Resources, frequently spoke with Mr Muir about the April Funds transaction (T 1);
(d) was present and voted at all the principal board meetings of CTC Resources that are relevant to the April Funds transaction (T 1) or that dealt with the April Funds, in particular, the board meetings on 20 April 1998; and
(e) specifically in relation to the dealings in connection with the April Funds transaction (T 1):
(f) took calls from Mr Muir about the redemption of the funds Callform had invested;
(g) signed the letters of 12 March 1998 to Callform offering shares and sent them to the same facsimile number as the later letters allegedly sent to the Commonwealth;
(h) signed all the cheques issued by CTC Resources as directed or authorised by the board meetings on 20 April 1998; and
(i) transmitted to the Commonwealth the letters of 2 and 17 April 1998 and probably that of 3 March 1998.
417. Mrs Dawn Endresz was involved in the dispersal of Commonwealth funds following the September Funds transaction, the proceeds which were paid into the Davis Samuel Partnership account, to the extent that those proceeds were received by CTC Resources. In particular, Mrs Dawn Endresz remained an active director of CTC Resources following the September Funds transaction (T 50) and would, therefore, have known of, and been involved in, the payment of $60,000 to CTC Resources (T52). See Davis Samuel (No 7) at 424; [1185], 440; [1316].
418. I also found in Davis Samuel (No 7) at 276; [123], 286; [197]-[198], 290; [215], 373; [800], [805], 374; [811], 375; [814], [817], 393; [934], [936], 424; [1185], that Mrs Dawn Endresz, with knowledge was involved in further dealings with the April Funds (T5, T7 and T8) and knowingly received, either directly or indirectly the April Funds.
419. However, for the reasons set out above (at [361]), no further order for equitable compensation is necessary as a result of her further involvement in breaches of the trusts over the April Funds and knowing receipt of the April Funds and the September Funds.
420. The detriment suffered by the Commonwealth is:
(a) as a consequence of the April Funds transaction (T 1), the $6 million transferred out of the Commonwealth on 17 April 1998; and
(b) as a consequence of the September Funds transaction (T 50), $60,000 paid from the Davis Samuel Partnership CBA Account to CTC Resources on 24 September 1998.
The Commonwealth did, however, recover various amounts of the April Funds on various dates for which Mrs Dawn Endresz would otherwise be liable and did recover $225,000.00 of the September Funds on 10 February 1999. These amounts are to be taken into account when calculating the amount of equitable compensation owed by him to the Commonwealth
421. Accordingly, Mrs Dawn Endresz is liable to pay compensation to the Commonwealth in the amount of:
(a) $4,980,686.85, being the unrecovered April Funds for which Mrs Dawn Endresz is liable;
(b) interest on the April Funds for which Mrs Dawn Endresz is liable, as remain unrecovered from time to time;
(c) $60,000, being the portion of the unrecovered September Funds for which Mrs Dawn Endresz is liable; and
(d) interest on the September Funds for which Mrs Dawn Endresz is liable, as remain unrecovered from time to time.
The amount, including interest, for which Mrs Dawn Endresz is liable to pay to the Commonwealth as equitable compensation is set out in Schedule 8 to these reasons.
422. The quantum of the order for equitable compensation sought against Mrs Dawn Endresz, comprises a principal amount of $5,040,686.85 and interest.
423. I found in Davis Samuel (No 7) at 281; [166]-[167], 393; [936], that Mrs Dawn Endresz received $430,000 traceable to the April Funds which she used in a transaction to acquire a residential property at 11 John Court, North Albury, which sale settled on 1 June 1998.
424. As a result, an appropriate order should be made to recognise the Commonwealth's interest and enable appropriate recovery.
425. In Davis Samuel (No 7) at 545-7; [2153]-[2165], I found that Mrs Dawn Endresz knowingly assisted Mr Muir, Mr Forge and Mr Clarke to breach their fiduciary duties owed to TNG by causing CTC Resources to sell shares in Kanowna Lights at a gross over value to TNG.
427. This sum is not additional to the moneys due from other of the Defendants, Messrs Cain, Allan Endresz, Forge, Muir, Clarke and Jozsef Endresz but a joint and several claim. Appropriate orders need to be made to ensure that there is no double recovery.
The Ninth Defendant, William Arthur Forge (Mr Forge)
428. In Davis Samuel (No 7) at 356; [679], 358; [694], 362; [724], 370; [784], I found that Mr Forge had knowledge of the breach by Mr Muir and Callform of their fiduciary duties owed to the Commonwealth in making the April Funds transaction (T 1) to the degree that made him a knowing accessory and, so far as he received any of the April Funds, a knowing recipient, for the purposes of the rules in Barnes v Addy.
429. Mr Forge, as I found in Davis Samuel (No 7) at 269; [35], 355-6; [676]-[678], 371; [791]-[793],
(a) was a director of CTC Resources;
(b) was, according to Allan Endresz, fully informed of all dealings with Mr Muir and had the role of Managing Director of CTC Resources, which evidence he did not contradict;
(c) signed a share transfer form of 500,000 shares in CTC Resources to Mr Muir;
(d) critically, attended and voted at the meetings of 20 April 1998 confirming the April Funds transfer and issue of shares to the Commonwealth.
430. I also found in Davis Samuel (No 7) at 374; [811], 445; [1355], 448; [1382] that Mr Forge, with Mrs Dawn Endresz, passed the resolution to pay the past management fees of $2,205,000 (from the April Funds), and approved for payment, with Mr Muir, an invoice for the Newcastle Falcons for $150,000 for sponsorship (from the September Funds) and executed the transfer forms on behalf of TNG for the acquisition of the Kanowna Lights shares.
431. I further found in Davis Samuel (No 7) at 442; [1329], that Mr Forge knew of the circumstances which would indicate to an honest and reasonable person in his position that, by effecting the September Funds transaction (T 50), Mr Muir and Callform had breached their fiduciary duties to the Commonwealth.
432. Those funds were used to acquire a controlling interest in TNG as part of a scheme to take control of the company and caused it to enter into a series of transactions in the interests of the Davis Samuel Partnership and CTC Resources.
433. I found in Davis Samuel (No 7) at 443; [1343]-[1344], that on 24 September 1998 (the day the Davis Samuel Partnership received the September Funds and Davis Samuel, as trustee of HUT, purchased 7.4 million shares in TNG), a meeting of the board of TNG was held in West Perth at which Mr Forge was present, which I held implied some preparation before the funds had arrived in the Davis Samuel Partnership bank account and, therefore, knowledge by Mr Forge of their likely receipt.
434. Mr Forge then accepted nomination by the Davis Samuel Partnership to the board of TNG and used that position to cause TNG to enter into a series of transactions with the Davis Samuel Partnership (including a consultancy agreement and the sale of Kanowna Lights Options), CTC Resources (sale of Kanowna Lights Shares). See Davis Samuel (No 7) at 290-1; [223]-[224]. He failed to vote against the acquisition by TNG (or sale by CTC Resources) of the Kanowna Lights Shares and Options which had been acquired using April Funds, where no apparent conflict of interest prevented him voting. See Davis Samuel (No 7) at 441; [1324]. He did however vote in favour of CTC Resources paying Davis Samuel for effecting the Kanowna Lights transactions by a transfer to it of Kanowna Lights options. See Davis Samuel (No 7) at 441; [1325]. Mr Forge also knew of the transfer of $60,000 to CTC Resources.
435. Mr Forge's conduct thus assisted in the transfer away by the Davis Samuel Partnership of the September Funds (of which the Davis Samuel Partnership was constructive trustee) for the purposes of acquiring control of TNG and exercising that control through its nominee directors.
436. Additionally, I found in Davis Samuel (No 7) at 283; [182]-[183], 522; [1940], 543; [2136] that Mr Forge:
(a) purchased the residential property at 564 Stanley Street, Albury, NSW, being lot 13 in deposited plan 192754 and more particularly described in New South Wales Certificate of Title Folio 13/192754 (the Stanley Street property), using the April Funds (T24), in equal third shares in the names of Mr Forge, Ms Scott and Bisoya Pty Ltd; and
(b) knowingly received an amount of $75,000 (T23) traceable to the April Funds which were subsequently used in part to satisfy a Family Court property settlement made by Mr Forge with Ms Scott.
437. The detriment suffered by the Commonwealth is:
(a) as a consequence of the April Funds transaction (T 1), the $6 million transferred out of the Commonwealth on 17 April 1998;
(b) the payment out of the Commonwealth funds in the September Funds transaction (T 50).
438. As to (b), there are two alternative amounts: the $2.75 million which was the September Funds or $60,000, being the portion of the September Funds paid in T 52 out of the Davis Samuel Partnership CBA account to CTC Resources on 24 September 1998.
439. As noted above (at [433]), I found in Davis Samuel (No 7) that there was some preparation for the meeting of the board of TNG on 24 September 1998 which would include Mr Forge knowing that the Davis Samuel Partnership was to receive funds which were used, in part to fund T 52, of which Mr Forge was aware.
440. Whilst it seems highly likely that Mr Forge knew that the September Funds transaction (T 50) was made in breach of the fiduciary duties that Mr Muir and Callform owed to the Commonwealth, I did not expressly make a finding that he did. Reviewing the evidence, I do not consider that I should make such a finding.
441. The nature and circumstances of the payment of $60,000 by the Davis Samuel Partnership to CTC Resources, however, does render Mr Forge liable as a knowing accessory in that transaction.
442. Thus, so far as (b) is concerned, the detriment to the Commonwealth for which Mr Forge is liable is $60,000.
443. The Commonwealth did, however, recover various amounts of the April Funds on various dates for which Mr Forge would otherwise be liable. These amounts are to be taken into account when calculating the amount of equitable compensation owed by him to the Commonwealth
444. Accordingly, Mr Forge is liable to pay compensation to the Commonwealth in the amount of:
(a) $4,980,656.85 being the unrecovered April Funds for which he is liable;
(b) interest on the April Funds for which he is liable, as remain unrecovered from time to time;
(c) $60,000, being the unrecovered September Funds for which he is liable;
(d) interest on the September Funds for which he is liable, as remain unrecovered from time to time.
The amount, including interest, for which Mr Forge is liable to pay as equitable compensation to the Commonwealth is set out in Schedule 9 to these reasons.
445. The quantum of the order for equitable compensation sought against William Forge is, therefore, a principal amount of $5,040,686.85 and interest.
446. I found in Davis Samuel (No 7) at 283-4; [183]-[186], 484; [1656]-[1661], that:
(a) the April Funds were used to purchase the Stanley Street property**,** each of Mr Forge, Ms Scott and Bisoya receiving an unencumbered one-third share in the property;
(b) the share in this property of Bisoya, Mr Forge and Ms Scott (which she later transferred to Mr Forge) were all impressed with a trust in favour of the Commonwealth, in the case of Ms Scott because she took the property share as a volunteer.
447. The fact that the transfer of her one-third interest in Stanley Street was in purported consideration of the $75,000 (which was from the sale proceeds shares) does not affect the Commonwealth's interest for two reasons. In the first place, the Commonwealth's claim is sourced in traceable April Funds without having to trace into the proceeds of the sale to TNG of Kanowna Lights shares to Ms Scott, or (alternatively) to trace the one-third interest acquired using such proceeds. Any trace by TNG into the one-third interest gives it an equitable interest later in time to the Commonwealth's interest and so ranking behind the Commonwealth's interest. Second, the exchange of $75,000 for the one-third interest was, I found in Davis Samuel (No 7) at 484; [1661], a sham, as Ms Scott was never the beneficial owner. There is, thus, no election by the Commonwealth, by choosing to pursue the $75,000, between that $75,000 and the one-third interest in Stanley Street which passed from Ms Scott to Mr Forge.
448. The Commonwealth thus claims, through Mr Forge, a constructive trust over his two-thirds interest in the property.
449. Accordingly, appropriate orders should be made in respect of the Commonwealth's claim to this property.
450. In Davis Samuel (No 7) at 451-5; [1409]-[1444], 547; [2171]-[2172], I found that Mr Forge breached the fiduciary duty he owed to TNG when he, with Mr Muir and Mr Clarke, procured TNG to pay the sum of $720,000 to CTC Resources for shares in Kanowna Lights.
451. In Davis Samuel (No 7) at 448-51; [1380]-[1408]; 547; [2171]-[2172], I found that Mr Forge breached the fiduciary duties he owed to TNG when he, with Mr Muir and Mr Clarke, procured TNG to pay the sum of $656,000 to Kamanga and Davis Samuel for options in Kanowna Lights.
452. I further found in Davis Samuel (No 7) at 455-7; [1443]-[1458]; 547; [2171]-[2172], that Mr Forge breached the fiduciary duties he owed to TNG when he, with Mr Muir and Mr Clarke, procured TNG to pay the sum of $150,000 to the Newcastle Falcons.
(a) the sum of $52,500, being the difference between the actual value of the shares retained by TNG and what it paid for them;
(b) the sum of $632,500, being the loss sustained by TNG as a result of the order I shall make that the balance of 3,162,500 shares in Kanowna Lights be transferred from TNG to the Commonwealth;
(c) the sum of $656,000, being the price paid by TNG for the Kanowna Lights options which had no value; and
(d) the sum of $150,000, paid to the Newcastle Falcons.
455. Accordingly, these sums, namely $1,491,000 with interest is the amount Mr Forge is liable to pay TNG as equitable compensation. The amount, including interest, payable to TNG as equitable compensation by Mr Forge is set out in Schedule 27B to these reasons.
The Tenth Defendant Kamanga Holdings Pty Ltd (Kamanga)
456. I found in Davis Samuel (No 7) at 358; [696], that Kamanga had relevant knowledge to the relevant degree in respect of the breach by Mr Muir and Callform of their fiduciary duties owed to the Commonwealth in the effecting of the April Funds transaction (T 1).
457. I also found in Davis Samuel (No 7) at 311-7; [355]-[393], 345; [596], that Mr Jozsef Endresz and Mr Allan Endresz were involved in the transfer from the Commonwealth and the receipt by CTC Resources of the April Funds in breach of the fiduciary duties owed by Mr Muir and Callform to the Commonwealth. The knowledge and involvement of each of Mr Jozsef Endresz and Mr Allan Endresz is dealt with earlier in these reasons (at [405]-[407] and [357]-[361]). Their involvement included initial discussions with Mr Muir about the investment of $6 million of Commonwealth funds in CTC Resources and the preparation, signing and sending of a series of faxes to Mr Muir or the Commonwealth purportedly justifying the April Funds transaction (T 1).
458. Mr Jozsef Endresz and Mr Allan Endresz were involved in the April Funds transaction (T 1) on behalf of CTC Resources under the Management Agreement between Kamanga and CTC Resources. I found in Davis Samuel (No 7) at 374-5; [807]-[813] that CTC Resources used $2,445,000 of the April Funds to retrospectively pay Kamanga "Management fees [b]eing $245,000 p.a. over 9 years (1989-1998)". The agreement was effectively extended for a period of five years, at the same annual fee. The transaction was uncommercial, inappropriate, not in the best interests of CTC Resources and designed to use the funds provided in the April Funds to obtain a private benefit.
459. Thus, Kamanga, by providing to CTC the services of Mr Jozsef Endresz and Mr Allan Endresz (who were the principal architects of the April Funds transaction (T 1)), assisted Callform and Mr Muir to breach their fiduciary duties to the Commonwealth by effecting the April Funds transaction.
460. I also found in Davis Samuel (No 7) at 277-8; [133]-[140], 280; [152], [158], 281; [161], [169], 282; [175], 284; [193], 287; [202], 289; [209], that Kamanga:
(a) was involved in further dealings in April Funds, whether as recipient or assisting in the distribution of April Funds, and in its own right, including:
- (i) $944,536.20 plus $431.50 received from CTC Resources (T 4);
- (ii) $339,000.22 plus $28, 144.22 paid to CTC Resources (T 4.25);
- (iii) $2,205,000 plus $240,000 received from CTC Resources (T 5);
- (iv) $305,333.04 received from CTC Resources (T 5);
- (v) $40,323.36 to Callform (T 6.2);
(b) was involved as a partner of the Davis Samuel Partnership, in further dealings in April Funds, whether as recipient or assisting in the distribution of April Funds, as follows:
- (i) $334,427.50 from the April Funds (T7.1-T 7.3);
- (ii) on 28 May 1998, $12,000, received, the evidence shows from CTC Resources in respect of the litigation between CTC Resources and the Australian Stock Exchange Ltd, which was being managed by the Davis Samuel Partnership, and further payments on 2 July 1998 ($6,000, T7.5), 4 August 1998 ($6,000, T7.6), 25 August 1998 ($6,000, T7.7) and 9 November 1998 ($12,000, T7.8).
- (iii) on 21 April 1998, payments from Kamanga to the Davis Samuel Partnership of $25,000 (T17.1) and $15,000 (T17.2l); on 28 May 1998, $150,000 received by the Davis Samuel Partnership from Border Basketball (T10.1);
between 1 July 1998 and 30 October 1998, the Davis Samuel Partnership (or Davis Samuel) paid to Quancorp a total of $166,500 traceable to April Funds (T18.2-T18.6);
on 30 July 1998, the Davis Samuel Partnership received $120,000 from CTC Resources (T11.4);
on 26 October 1998, the Davis Samuel Partnership disposed of options in Kanowna Lights that it had acquired using funds traceable to the April Funds and received $336,000 (T27.2);
on 13 May 1998, the Davis Samuel Partnership received, from Pellon, $500,000 from the funds traceable to the April Funds (T33.1);
between 29 June 1998 and 3 November 1998, the Davis Samuel Partnership received from Pellon a total of $6,000 from funds traceable to the April Funds purportedly for "retainer fees" under a consultancy agreement signed on 24 April 1998 (T38.1-T38.5).
461. However, given Kamanga is liable for the whole of the April Funds (having, through Mr Jozsef Endresz and Mr Allan Endresz, knowingly assisted Callform, Mr Muir and CTC Resources to effect that transaction), for the reasons set out above (at [361]) no further order for equitable compensation is necessary in relation to these acts of further involvement in breaches of the trusts over the April Funds transaction (T 1) and knowing receipt of April Funds.
462. I found in Davis Samuel (No 7) at 425-6; [1194], 437; [1281], 438; [1294], that Kamanga, as a partner in the Davis Samuel Partnership, knowingly received the September Funds, by the payment of those funds into the Davis Samuel Partnership CBA Account.
463. I further found in Davis Samuel (No 7) at 443-4; [1343]-[1345], that on 24 September 1998, the day the Davis Samuel Partnership received the September Funds, Kamanga, as a partner in the Davis Samuel Partnership, executed the Trust Deed establishing HUT. Kamanga also became a party to a Unit Holders Agreement between Kamanga and Quancorp, Callform and Davis Samuel. Davis Samuel, as trustee of HUT and using the September Funds, purchased 7.4 million shares in TNG for $2,450,000.
464. I found in Davis Samuel (No 7) at 500; [1778], that the September Funds were paid into the Davis Samuel Partnership account. Kamanga was one of the partners in that partnership. See Davis Samuel (No 7) at 266; [8].
465. Accordingly, Kamanga is liable to the Commonwealth in the amounts of:
(a) $4,980,686.85, being the unrecovered April Funds for which Kamanga is liable;
(b) interest on the April Funds for which Kamanga is liable, as remain unrecovered from time to time;
(c) $2,500,000, being the unrecovered September Funds for which Kamanga is liable; and
(d) interest on the September Funds for which Kamanga is liable, as remain unrecovered from time to time.
The Commonwealth did, however, recover various amounts of the April Funds on various dates for which Mr Allan Endresz would otherwise be liable and did recover $225,000.00 of the September Funds on 10 February 1999. These amounts are to be taken into account when calculating the amount of equitable compensation owed by him to the Commonwealth.
466. The quantum of the order for equitable compensation sought against Kamanga comprises a principal amount of $7,480,686.85 and interest. The amount, including interest, is set out in Schedule 10 to these reasons.
467. I found in Davis Samuel (No 7) at 500; [1777], that Kamanga was liable to the Commonwealth under the TP Act. This would refer at least to the September Funds transfer. The Commonwealth is entitled to relief under s 87 and damages under s 82 of that Act.
469. Since I have already found that Kamanga is liable for the unrecovered April Funds and the September Funds with interest, there is no occasion for a separate or additional order to be made in respect of this claim.
470. I found in Davis Samuel (No 7) at 497; [1763], that the April Funds payment and the September Funds payment are void and that the Commonwealth can recover the payments made from the persons to whom they were paid.
471. I have set out above (at [323]), the method of quantification of such a judgment.
472. Again, however, since it is the same amount as is payable in equitable compensation, no additional order is required to be made.
473. In Davis Samuel (No 7) at 546; [2163]-[2165], 549; [2181]-[2186], I found that Kamanga was a knowing participant in the breaches of fiduciary duties owed by Mr Forge, Mr Muir and Mr Clarke to TNG when they, as directors or as purported directors, of TNG when making and then giving effect to the resolutions of 23 October 1998.
(a) the sum of $52,500, being the difference between the actual value of the shares retained by TNG and what it paid for them;
(b) the sum of $632,500, being the loss sustained by TNG as a result of the order I shall make that the balance of 3,162,500 shares in Kanowna Lights be transferred from TNG to the Commonwealth;
(c) the sum of $656,000, being the price paid by TNG for the Kanowna Lights options which had no value; and
(d) the sum of $150,000, paid to the Newcastle Falcons.
476. Accordingly, these sums, namely $1,491,000, with interest is the amount Kamanga is liable to pay TNG as equitable compensation. The amount, including interest, payable by Kamanga as equitable compensation to TNG is set out in Schedule 27B to these reasons.
The Fifteenth Defendant Bisoya Pty Ltd (Bisoya)
477. I found in Davis Samuel (No 7) at 358; [696], Bisoya had relevant knowledge to the relevant degree in respect of the April Funds transaction. I also found in Davis Samuel (No 7) at 279; [143]-[145], 281; [164]; 283; [182], 391; [926], 484; [1658]; 521-2, [1939]-[1940], Bisoya received payments of April Funds:
(a) $260,000 from CTC Resources on 22 April 1998 for "past management fees" (T8.1);
(b) $43,333.36 in management fees by 6 payments (T8.2) $10,833.34 on 28 May 1998, (T8.3) $5,416.67 on 2 July 1998, (T8.4) $5,416.67 on 4 August 1998, (T8.5) $5,416.67 on 26 August 1998, (T8.6) $10,833.34 on 29 October 1998 and (T8.7) $5,416.67 on 17 December 1998);
(c) $50,000 from Kamanga on 29 October 1998 'on behalf of Rodney Endresz' (T14.3); and
(d) $75,000 paid to William Forge 'on behalf of Bisoya' on 30 October 1998 (T23.1).
478. Accordingly, Bisoya is liable to pay compensation to the Commonwealth in the amount of:
(e) $428,333.36, being April Funds for which Bisoya is liable;
(f) interest on the September Funds for which Bisoya is liable, as remain unrecovered from time to time.
479. The quantum of the order for equitable compensation payable by Bisoya comprises the principal amount of $428,333.36 and interest. The amount, including interest, payable by Bisoya as equitable compensation to the Commonwealth is set out in Schedule 15 to these reasons.
480. For the reasons set out above (at [446]-[447]]), the one-third interest of Bisoya in the property at 564 Stanley Street, Albury, NSW, being traceable April Funds, is held on constructive trust for the Commonwealth.
481. Similar order to the orders to be made against Mr Forge in respect of that property should be against Bisoya.
482. Winton Oil, one of the Primary Defendants and a subsidiary of Kamanga, had Mrs Dawn Endresz, Mr Jozsef Endresz and Mr Forge as its directors. On 20 April 1998, it entered into a consultancy agreement with Kamanga for $245,000 per annum under which the services of Mr Allan Endresz would be provided to Winton Oil.
483. I found in Davis Samuel (No 7) at 358; [690], that Winton Oil had knowledge of the to the relevant degree that, in effecting the April Funds transaction (T 1), Mr Muir and Callform were in breach of the fiduciary duties they owed to the Commonwealth.
484. I further found in Davis Samuel (No 7) at 276; [131], 281; [161], 388-9; [908]-[915], that
(a) on 20 April 1998, Winton Oil received from CTC Resources, $328,271.14 in April Funds, comprising repayment of a loan plus interest (T3);
(b) subsequently, Winton Oil paid away $327,233.34 in traceable April Funds:
- (i) on 22 April 1998, $8,900 to Kamanga (T12.1);
- (ii) on 4 June 1998, $40,833.34 to Kamanga (T12.2);
- (iii) on 9 June 1998, $270,000 to the Davis Samuel Partnership (T12.3);
- (iv) on 17 December 1998, $7,500 to Kamanga (T12.4).
485. No monies have been recovered from Winton Oil.
486. Accordingly, Winton Oil NL is liable to pay compensation to the Commonwealth in the amount of:
(a) $328,271.14 being April Funds for which Winton Oil is liable for knowing receipt and knowing assistance in the breach by Mr Muir and Callform of their fiduciary duties owed to the Commonwealth, though assisting in the further movement of April Funds to the benefit of the Primary Defendants; and
(b) interest on the April Funds for which Winton Oil is liable, as remain unrecovered from time to time.
The amount, including interest, payable by Winton Oil as equitable compensation to the Commonwealth is set out in Schedule 16 to these reasons.
The Seventeenth Defendant Quancorp Pty Ltd (Quancorp)
487. I found in Davis Samuel (No 7) at 358; [696], that Quancorp had relevant knowledge to the relevant degree that in making the April Funds transaction (T 1), Mr Muir and Callform were breaching the fiduciary duties they owed to the Commonwealth.
489. I also found in Davis Samuel (No 7) at 500; [1778], that the September Funds were paid into the Davis Samuel Partnership account of which Quancorp was a partner.
490. The detriment suffered by the Commonwealth was
(a) as a consequence of the April Funds transaction (T 1), the $6 million transferred out of the Commonwealth on 17 April 1998 for which Quancorp as a knowing recipient of portion of those funds; and
(b) as a consequence of the September Funds transaction (T 50), the $2.725 million transferred out of the Commonwealth on 24 September 1998.
The Commonwealth did, however, recover various amounts of the April Funds on various dates for which Quancorp would otherwise be liable and did recover $225,000.00 of the September Funds on 10 February 1999. These amounts are to be taken into account when calculating the amount of equitable compensation owed by him to the Commonwealth
491. Accordingly, Quancorp is liable to the Commonwealth in the amounts of:
(a) $3,075,025.46, being the unrecovered April Funds which Quancorp received subsequent to the $6million transferred out of the Commonwealth on 17 April 1998;
(b) interest on the April Funds for which Quancorp is liable, as remain unrecovered from time to time;
(c) $2,500,000, being the unrecovered September Funds for which Quancorp is liable; and
(d) interest on the September Funds for which Quancorp is liable, as remain unrecovered from time to time.
492. The quantum of the order for equitable compensation sought against Quancorp comprises a principal amount of $5,575,025.46 and interest. The amount, including interest, for which Quancorp is liable to pay to the Commonwealth in equitable compensation is set out in Schedule 17 to these reasons.
493. I found in Davis Samuel (No 7) at 500; [1777], that Quancorp was liable to the Commonwealth under the TP Act and the Commonwealth claims relief under s 87 and damages under s 82 of that Act.
495. Since, however, the relief is the same as that available under the equitable remedies, that is as equitable compensation and by proprietary remedies, it is unnecessary to make any additional orders.
496. I found in Davis Samuel (No 7) at 497; [1763], that the April Funds transaction (T 1) and the September Funds transaction (T 50), were ultra vires and void and that the Commonwealth can recover the payments made from the persons to whom they were paid.
497. I have set out above (at [323]) the method by which the loss caused by an ultra vires payment is quantified. I do not need to repeat that here.
498. Again, however, since it is the same amount as is payable by Quancorp as equitable compensation, no additional order is required to be made.
499. I found in Davis Samuel (No 7) at 290; [214], that, on 28 April 1998, $100,030 (T42.5) was paid to Citibank into a Home Loan account being a mortgage payment and bank fee.
500. The evidence showed that the mortgage was the mortgage over the Pine Avenue property.
501. The Commonwealth is entitled to a charge over the Pine Avenue property for these monies together with interest, and associated relief for the recovery of those funds. This claim ranks in priority than the claim in respect of the funds received by Quancorp from the sale of the Kanowna Lights options referred to below (at [502]).
502. I found in Davis Samuel (No 7) at 282; [175], 525; [1972], that, on 30 October 1998, $115,000 was transferred from the Davis Samuel Partnership CBA account to Quancorp's CBA account. The context of the transaction was, the evidence showed, that:
(a) before the Davis Samuel Partnership CBA account was credited with the proceeds of sale of the KLS Options that it sold to TNG, the account was overdrawn in the amount of $8,578.05;
(b) before the deposit of those funds, the balance of the Quancorp CBA account was $4,902.95 debit.
503. Thus, the payment of $115,000 from the Davis Samuel Partnership CBA account to Quancorp is traceable to April Funds derived from the purchase from Kirke Securities Pty Ltd and sale to TNG of Options in Kanowna Lights.
504. The evidence also showed that on 30 October 1998, the sum of $95,000 was transferred (T 42) from Quancorp's CBA account to Quancorp's Citibank account (being the mortgage over Pine Avenue).
505. As the Commonwealth has not elected to trace the Options in Kanowna Lights to TNG, it may and does pursue monies originating from the sale of those options into the Pine Avenue property.
506. As TNG also traces that monies it paid away for the Kanowna Lights options which were of no value into the Pine Avenue property, as I note below (at [507]), the Commonwealth and TNG have an equal charge for those monies which include the $95,000, and interest. This is, however, subject to the priority that the Commonwealth has in respect of Pre-KLS Contributions and to the same issue relating to interest on that sum after 26 October 1998 as applies in respect of Haven Hill. I have dealt with this above (at [290]-[302]) and shall apply the same approach.
507. In the event that Quancorp fails to pay the judgment debts, the parties will, no doubt, seek orders for sale of the Pine Avenue property.
508. In Davis Samuel (No 7) at 546; [2163]-[2165], 549; [2181]-[2186], I found that Kamanga was a knowing participant in the breaches of fiduciary duties owed by Mr Forge, Mr Muir and Mr Clarke to TNG when they, as directors or as purported directors, of TNG when making and then giving effect to the resolutions of 23 October 1998.
(a) The sum of $52,500, being the difference between the actual value of the shares retained by TNG and what it paid for them;
(b) The sum of $632,500, being the loss sustained by TNG as a result of the order I shall make that the balance of 3,162,500 shares in Kanowna Lights be transferred from TNG to the Commonwealth;
(c) The sum of $656,000, being the price paid by TNG for the Kanowna Lights options which had no value; and
(d) The sum of $150,000, paid to the Newcastle Falcons.
511. Accordingly, these sums, namely $1,491,000 with interest is the amount Quancorp is liable to pay TNG as equitable compensation. The amount, including interest, for which Quancorp is liable to pay TNG as equitable compensation is set out in Schedule 27B to these reasons.
512. Further, TNG is entitled to trace the proceeds of this sale into the Pine Avenue property. It is, therefore, entitled to a charge over that property to rank, so far as its claim for $656,000 is concerned. That charge will rank equally with the charge to which the Commonwealth is entitled for the same property.
The Twentieth Defendant, Joy Beverly Endresz (Mrs Joy Endresz)
513. The only remedy sought against Joy Endresz is a proprietary remedy based on the trace of funds from the April Funds into Haven Hill in respect of which Mrs Joy Endresz was a volunteer receiving a gift as a beneficiary of the payments made by Kamanga as trustee of a trust of which she was a beneficiary.
514. The relevant findings were made by me in Davis Samuel (No 7) at 270; [53], 391; [927], 392; [932] and 525; [1971].
515. The same orders as I will make concerning this property as I propose to make in respect to Mr Allan Endresz will be the orders I propose to make in respect to Mrs Dawn Endresz.
The Twenty-First Defendant, Tresmonay Pty Ltd (Tresmonay)
516. I found in Davis Samuel (No 7) at 280; [158], [160], 572; [2364], 573; [2370], [2374], that Tresmonay was involved in the uncommercial and circular movement of April Funds, including $120,000 paid on 30 July 1998 by CTC Resources to the Davis Samuel Partnership to cover the bond for certain mining exploration licenses transferred by Tresmonay to CTC Resources (T11.4). The exploration licenses were later transferred back to Tresmonay for nil consideration (T11. 5).
517. By agreeing to transfer its mining exploration licences to CTC Resources, Tresmonay knowingly assisted CTC Resources to pay (and the Davis Samuel Partnership to receive) $120,000 which was monies traceable to April Funds.
518. Accordingly, Tresmonay is liable to the Commonwealth in the amounts of:
(a) $120,000, being the unrecovered April Funds for which Tresmonay is liable;
(b) interest on the April Funds for which Tresmonay is liable, as remain unrecovered from time to time.
519. The quantum of the order for equitable compensation sought against Tresmonay comprises a principal amount of $120,000 and interest.
The Twenty-Fifth Defendant, Lorraine Olive Forge (Ms Scott)
520. I found in Davis Samuel (No 7) at 283; [182], that Mr Forge paid to Ms Scott $75,000 traceable to the April Funds in part to satisfy a Family Court property settlement. Those funds have been paid into Court.
521. These funds were paid to Mr Forge "on behalf of Bisoya" by CTC Resources from the proceeds of the sale of its shares to TNG. It is clear that Mr Forge knew that these funds were paid in breach of the fiduciary duty that Mr Forge owed to TNG and that CTC Resources, through its directors, were aware of this. Ms Scott was relevantly a volunteer as I explained above (at [443]).
522. As a result, both TNG and the Commonwealth trace the claims they have against Mr Forge and CTC Resources in respect of these payments into the funds paid into Court.
523. In my view, both TNG and the Commonwealth have an equal entitlement to these funds, half of which amount, including interest accrued on the funds in court, should be paid out under r 1013 of the Court Procedures Rules to TNG and the Commonwealth in part satisfaction of their claims.
524. The claim by TNG against Mr Clarke is relevantly identical to that against Mr Forge and Mr Muir. I have set out the details of these claims above (at [327]-[329], [450]-[453]). In essence, they arise from the breach by Mr Clarke of his fiduciary duties he, along with Mr Muir and Mr Forge owed to TNG, the breach being the making of the resolutions of 23 October 1998 and then giving effect to them.
(a) the sum of $52,500 being the difference between the actual value of the shares retained by TNG and what it paid for them;
(b) the sum of $632,500 being the loss sustained by TNG as a result of the order I shall make that the balance of 3,162,500 shares in Kanowna Lights be transferred from TNG to the Commonwealth;
(c) the sum of $656,000 being the price paid by TNG for the Kanowna Lights options which had no value; and
(d) the sum of $150,000 paid to the Newcastle Falcons.
526. Accordingly, these sums, namely $1,491,000, with interest is the amount Mr Clarke is liable to pay TNG as equitable compensation. The amount, including interest, which Mr Clarke is liable to pay TNG as equitable compensation is set out in Schedule 27B to these reasons.
527. There are a number of other matters that need to be addressed. These are:
(a) Double recovery. As noted above, I shall do my best to draft orders that ensure that there is no double recovery by the Commonwealth or TNG. That will be a challenge and may be so complicated that all that can be done is to make a general order to that effect.
(b) Cross-vesting. Some of the orders may result in me purportedly exercising jurisdiction that is possessed by the Supreme Court of New South Wales or the Supreme Court of Victoria insofar as they relate to property in the jurisdiction of those courts.
In my view, I have jurisdiction under s 4(3) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (NSW) and under s 4(3) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Vic). See Hillman v Box (2010) 5 ACTLR 122 at 132-3; [67]-[69].
(c) Liberty to Apply. It seems inevitable that the working out of the orders will cause some challenges. It is appropriate that, in that context, there should be reserved to all parties liberty to apply on seven days' notice (unless short notice is exceptionally required).
(d) Appeal. When giving judgment on 1 August 2013, I exercised my power under r 5405(1)(b) to extend the time within which an appeal should be lodged until after the final orders were made.
It seems to me that the orders I will today make will be the final orders, despite the reservation of liberty to apply which, in any event, will not determine the rights of the parties but only the method by which the rights are to be enforced. I should, therefore, bring this time to an end and I will make appropriate orders.
Due to the size of these proceedings and the issues involved some extension of time is appropriate. I note, however, that at best Mr Allan Endresz has evinced a clear intention to appeal and that he has had over a year to consider the substantive judgment I gave. Thus, the extension of time should not be excessive.
(e) Delay. It is regrettable that the pressure of business in the Court has delayed the judgments that have had to be given. Nevertheless, in preparing this judgment and that of Davis Samuel (No 7), I have read carefully the entire transcript and those exhibits to which my attention was directed. I have also read carefully my contemporaneous notes. I also had extensive written submissions, which I read carefully. These were supplemented by oral submissions, the transcript of which I read. These have resulted in a good recall of the proceedings, including the witnesses who made a significant impression on me. I consider that in completing both decisions, I have had a good recall of the case as presented to me.
I certify that the preceding five hundred and twenty-seven [527] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Justice Refshauge.
Portion of the April Funds received on 21 August 1998 (T 22.1):
The calculations for the claimed interest are as follows:
Daily Rate September Funds after 21 November 2014
September Funds received on 24 September 1998 (T 50)
The calculations for the claimed interest are as follows:
Daily Rate September Funds after 21 November 2014
The calculations for the claimed interest are as follows:
Daily Rate September Funds after 21 November 2014
Pre-KLS (or Pre-KLS payments) means the period prior to the purchase by TNG of shares in Kanowna Lights, namely before 26 October 1998.
Post-KLS (or Post KLS payments) means, accordingly, after 26 October 1998
KLSO means the purchase by TNG of options in Kanowna Lights on 26 October 1998
Subtotal (Interest on Pre-KLS payments) to 26-Oct-98
Subtotal (Interest on Pre-KLS payments, post-KLS)
Total (Pre-KLS payments and all interest on them)
Additional interest per day on Pre-KLS Payments, post-KLS)
Total (Post-KLS payments and all interest on them)
Additional interest per day on Post-KLS Payments, post-KLS)
The calculations for the claimed interest are as follows:
Daily Rate September Funds after 21 November 2014
The calculations for the claimed interest are as follows:
Daily Rate September Funds after 21 November 2014
The calculations for the claimed interest are as follows:
Daily Rate September Funds after 21 November 2014
The calculations for the claimed interest are as follows:
Daily Rate September Funds after 21 November 2014
The calculations for the claimed interest are as follows:
Daily Rate September Funds after 21 November 2014
The calculations for the claimed interest are as follows:
The calculations for the claimed interest amount of $460,251.88 are as follows:
The calculations for the claimed interest are as follows:
Daily Rate September Funds after 21 November 2014
Subtotal (Interest on Pre-KLS payments) to 30/10/98
Subtotal (Interest on Pre-KLS payments, Post-KLS)
Total (Pre-KLS payments and all interest on them)
Additional interest per day on Pre-KLS Payments, post-KLS)
Total (Post-KLS payments and all interest on them)
Additional interest per day on Post-KLS Payments, Post-KLS)
The calculations for the claimed interest amount of $68,718.84 are as follows:
3,162,500 Kanowna Lights shares @ 9.5 cents each = $300,437.50
[4] $1,019,313.15 from April Funds have been recovered prior to Judgment from various persons. This recovery did not reduce the balance owing from Peter Cain. It was received from various persons and, after taking into account the payment, the amount for which each of those person was jointly and severally liable in respect of April Funds remained more than $3,256,723.46.
Commonwealth of Australia
Davis Samuel Pty Limited and Ors
(1997) 41 NSWLR 45
(1995) 62 FCR 504
(1990) 167 CLR 279
(2001) 205 CLR 635
(1952) 88 CLR 322
(2010) 4 ACTLR 114
(1986) 160 CLR 1
(2006) 205 FLR 450
(2010) 5 ACTLR 122
(1991) 34 NSWLR 308
(2008) 73 NSWLR 653
(1961) 106 CLR 318
(1995) 184 CLR 281
(1965) 113 CLR 265
(1976) 50 ALJR 666
(1998) 196 CLR 494
(1945) 72 CLR 509
(1993) 32 NSWLR 467
(2004) 204 ALR 26
(1998) 45 NSWLR 262
(1999) 195 CLR 619
(1940) 64 CLR 282
(1942) 65 CLR 473
(1994) 179 CLR 332
(1960) 103 CLR 529
(2003) 212 CLR 484